Save now, buy later: the new shopping model cutting debt

Alamy/Prostock

• With SNBL, consumers save for purchases
• Seen as answer to rising debt
• Discounts of up to 50%

A new “save up before you buy” online shopping model is emerging in the UAE, offering an alternative to the debt-driven “buy now, pay later” approach that has surged in popularity across the Gulf.

“Save now, buy later” (SNBL) platforms are betting on a shift towards financial responsibility, especially as concerns over household debt and inflation are rising, putting pressure on consumers to rethink their spending habits.

Startups such as Sav, a fintech company, and the soon-to-launch Compound, enable consumers to save incrementally for major purchases.

Discounts when they finally do make a purchase range from 5 to 50 percent, and there are other rewards and incentives for reaching their savings goals.

The SNBL model arrives at a critical time for the UAE’s economy, as household debt is on the rise.

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More than three in five UAE residents are over-leveraged on credit, meaning they have taken on more debt than they can repay, according to Mithil Ajmera, co-founder and COO of Sav.

In the UAE the number of people overleveraged on credit has risen by nearly 40 percent over the past decade according to 2023 figures from analysts at CEIC Data, which specialises in economic research.

Ajmera attributes the rise to an easy access to credit, feeding into a culture of instant gratification and the pressure to maintain “Instagrammable” lifestyles. 

In addition, Ajmera says, BNPL loans do not appear on credit reports, meaning consumers can take out multiple short-term loans without fully realising the debt they are accumulating.

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“You can take a BNPL loan from provider A, then another from provider B, with no credit checks in between,” he says. “There’s so much temptation.”

In a market dominated by BNPL players such as Tabby and Tamara, Sav has already established 20,000 “savings goals” accounts in less than a year of operation.

Shashank Narayanan, founder of Compound, sees SNBL as a necessary shift from what he calls “boring and dull” savings instruments currently on offer through banks. 

“There’s been so much innovation on the credit side of business, where I feel marketeers have made you feel like you can only experience life on credit, whether that’s zero instalment plans, credit cards, or BNPL,” he says. 

“But what’s been the innovation on the savings side? High-yield savings accounts and goal-based savings accounts that you have to manually create instructions to transfer funds into.”

One of the main drivers behind SNBL’s rise is the growing merchant interest in the model. 

In a region where ecommerce conversion rates remain low – typically below 4 percent – SNBL gives retailers a way to engage with the 95 percent of visitors who browse but do not buy. 

Merchants partner with the platforms to offer rewards and discounts to consumers who commit to saving for future purchases.

SNBL platforms generate revenue by earning a commission from merchants on each completed sale, much as BNPL sites do.

Ajmera says: “Merchants are liking this scheme because they’re building loyalty by giving customers time to save while offering rewards like cash back or discounts along the way.”

The uptake is growing, he says, especially in categories such as home furnishings, electronics and travel.

Users are also creating savings goals for school fees through the app for which they earn "Sav coins" to redeem for rewards including free coffees, movie nights and other discounts.

Compound was incubated by HP Spring Studios, a Bahrain-based venture studio launched in partnership with Salica Investments and Al Waha Fund of Funds. It plans to focus on big-ticket purchases such as travel, property down-payments and healthcare, rather than the smaller impulse buys that are typically made through BNPL.

Narayan, who previously worked for the investment fintech Sarwa, says customers who are on the waiting list have shown interest in the savings-led shopping experience for purchases such as Tesla cars, Emirates flight tickets, and luxury products from companies such as LVMH, as well as services in the uninsured health care sector, for cosmetic, dental and IVF procedures.

“The [savings] options available to consumers today for those types of purchases are actually quite complex [and] manual,” he says. 

As the battle between SNBL and BNPL begins, Ajmera warns that a growing debt burden could have serious economic repercussions if left unchecked.

If we do not encourage savings, "the region’s economy is going to struggle,” he says.

Ajmera acknowledges that credit can seem appealing at first, but points out that people are now using BNPL to buy even small items such as socks or a kilo of tomatoes – a sign of how deeply ingrained credit has become in daily life.

“Initially, credit feels great: you buy what you want, when you want it,” he says. “But falter on a couple of those payments and you get into a debt cycle, which is extremely difficult to get out of.”