In the alphabet soup of financial services acronyms, another is entering the lexicon: Save Now, Pay Later (SNPL). While it might appear to be a misspelling of Buy Now, Pay Later (BNPL) or the famous US comedy sketch show, it’s an emerging trend that could offer fintechs a new model to support customers to do more with their money.

BNPL has emerged as a popular payment method that helps customers spread the price of purchases through smaller monthly repayments rather than paying the total in one go. Popularised by leading firms such as Klarna, Clearpay and Zilch this form of short-term credit can be a useful way to spread the cost of purchases, often without incurring interest on the outstanding balance.

SNPL, also referred to as Save Now, Buy Later (SNBL) takes this notion and flips it. But what is SNPL? How does it work, and why should banks, fintechs and NBFI firms pay attention to its development?

As the name suggests, SNPL has emerged as a new model for merchants to support more considered and sustainable purchasing behaviour by helping customers save for goods and services.

It’s different in ethos to BNPL that requires them to take on a form of short-term debt to complete a purchase, instead combining saving and delayed gratification, offering customers a tangible reward for their goal-setting and financial discipline.

However, as a concept, SNPL isn’t really that new.

Consider the trading stamps started in the US in 1861 with Sperry and Hutchinson delivering rewards in the form of a stamp that you could use for purchases, or the Green Shield Stamp in the UK. These both allowed retailers to link long-term purchasing behaviour with rewards and the ability for the consumer to contribute to the purchase before making it.

While plenty of people may save towards a larger purchase, SNPL is an emerging element of embedded finance, where merchants can provide a platform to actively support, reward and incentivise customers to put money aside for a specific purpose directly as part of their brand experience. When coupled with today’s digital capabilities, the data, flexibility and most importantly the safety is enhanced in comparison to these original models.

SNPL takes the ‘pots’ approach popularised by digital banks into a merchant’s customer journey by attempting to understand why a customer wants to save, while also lowering the barrier to setting funds aside. For example, it could use micro-saving, such as round-ups, that firms such as Chip have used to great effect, rather than needing a set amount to open an account.

From there it could create a savings deadline or provide flexible options, running calculations on the monthly deposits required to meet different timelines. It could even provide guidance on ways to save more, and layer on loyalty incentives such as offering credit for every milestone achieved.

Klarna recently introduced its own flavour of SNPL in the form of a new product called Klarna balance. This lets users transfer money from their bank to spend from, offering rewards and cashback on purchases. In many respects, it’s like a stored value card but with a larger network of participating merchants.

There are also psychological and emotional reasons behind the SNPL model. It can have the effect of making saving more straightforward and rewarding, because everyone feels better when they achieve a goal. After all, when we save, those funds are a means to something else, a dream holiday, a new car, perhaps even a first home, and not an end in itself.

Plenty has been written about the behavioural economics and psychology of saving, particularly the role of categorising money into separate pots for defined purposes, also referred to as ‘mental accounting’. That term, coined by Richard Thaler, the 1997 Nobel Laureate for Economics in his book Mental accounting matters, suggests that when people assign money for a recognised goal or purpose, they are shown to be less likely to use it to pay for something else, even when the money is easily accessible.

SNPL is designed for this purpose. By getting people to think proactively about why they should be saving and supporting them to automatically put money away towards a specific goal builds positive behaviours and outcomes.

As a nascent sector and approach, there is an opportunity to build SNPL-style services to offer directly and as an embedded option, supporting merchants with technical infrastructure and leaving them to then focus on the customer experience. New fintechs are already emerging to meet this need, for example, NY-based Accrue Savings which offers an embedded SNPL wallet.

Fintechs, banks and non-bank financial institutions (NBFIs) could be the underlying providers embedding their accounts and payment services into a third-party service. This offers several potential benefits, including:

• Bridging the gap between saving money and doing it in a sustainable way: firms could also incentivise savers with preferential rates or use open banking to support budgeting functions, savings schedules and automated deposits.

• Complementing and expanding saving options: we previously discussed the advantages of a broad offering. SNPL complements this as increased choice makes it more likely the customer can save in a way that fits their specific needs at that point in time. While SNPL may be that today, as a customer’s financial life evolves, your brand can grow with them, from a more structured savings approach through to longer-term investment.

• Developing and maintaining stronger customer relationships: the SNPL model encourages and incentivises long-term engagement with your brand, while the returns can boost customer loyalty and build better relationships.

There are, of course, challenges to SNPL adoption. For merchants, adding yet another option at checkout or within the online customer experience will be challenging. There are also questions over the economics and consumer adoption, including:

• Extended purchase timelines for merchant: finalising a purchase could range from weeks to a few months, possibly even years. Customers can redeem their savings and cancel their orders for desired products during this period (even with a penalty cause), leaving merchants with a cancelled sale. At scale, even for lower average order value items, this could create significant logistical issues.

• Logistical considerations: potentially adding costs that outweigh any potential benefits. For example, if the price of goods changes during the period a customer is saving, is the price locked? If the item goes on sale, are they offered the new, lower price? Can they ensure the item is secured and doesn’t go out of production while the customer is saving?

• Tracking savings and upcoming purchases: SNPL could exacerbate issues around the proliferation of stores of value. If someone has 20 digital wallets with various levels of savings, how can they efficiently track or effectively track their progression? Top of wallet has now become “top of phone” in the race to capture consumer screen time.

• Cultural shift away from instant gratification: Whether due to necessity or desire, consumers want to have and use products quickly, and cost concerns may be secondary. Customers might simply withdraw funds and cease saving in SNPL as they get discouraged due to such a long waiting period. Changing consumer mindset from this short-term thinking to a more long-term and sustainable approach to purchasing poses a major challenge to merchants adopting SNPL.

• The operational cost: Building an SNPL offering will be costly and likely lengthy as merchants and financial services providers search for a model that benefits both parties. As SNPL is still relatively new different aspects of its business model may fall under different regulations, making compliance more complicated.

While not a perfect comparison, many of these issues were raised a decade ago with BNPL, but once major brands offered it at the checkout, the model accelerated. There are also aspects to SNPL around supporting consumers to build positive savings habits and behaviours that are part of a much broader conversation around financial literacy and the cost of living.

Attitudes and behaviours towards saving will continue to evolve as new models and providers demonstrate the potential of convenient, competitive, accessible and goals-based services. That reinforces the need for customer education and support that encourages them to save in a manner that’s appropriate to their individual circumstances.

Whether it starts with £1 or £1,000, SNPL offers a potential model for more affordable, sustainable, and convenient way for customers to save towards their goals.

SNPL could be the next logical evolution, where banks, fintechs and NBFIs, as established and trusted providers are in a strong position to lead this. But, if they don’t, other firms are likely to step in and orchestrate SNPL services, building brand recognition as a provider of flexible and customer-centric savings, even when a bank or NBFI may ultimately provide the underlying account.

So, while SNPL is an emerging embedded finance model, its development is one that firms should pay close attention to. Much like its close relation BNPL, it may start small but could be the next big thing in retail financial services.