What do debt traps, Indian jewellers, and a wife’s 100-day ultimatum have in common?
Almost synchronously, each led to an entrepreneurial venture in different parts of the world based on the same model: save now, buy later (SNBL).
In India, Paddy Raghavan co-founded fintech Multipl in May 2020 after one of his former colleagues returned from a credit-funded vacation and paid interest as high as 36%. “It is criminal,” he told The Ken.
For Vardhan Koshal, the idea behind setting up fintech firm Tortoise in September 2020 stemmed from offline prepaid-savings plans—usual among Indian jewellery companies. Customers can pay for their products in advance through multiple installments. The platform offers discounts for prepayment.
On the other side of the globe, Michael Hershfield, founder and chief executive of US-based Accrue Savings, had negotiated a 100-day window with his wife to devise a monetisable business plan in early 2021 before starting to look for a job again. “By the end of it, four retailers agreed to come onboard,” he said in a podcast named 2X eCommerce in June this year.
A decade before these epiphanies, Sheldon Garon, a renowned professor of history at Princeton University, wrote: “Save Now, Buy Later: World War II and Beyond”, a chapter in his book Beyond Our Means: Why America Spends. While the World Saves. High inflation due to overdependence on borrowing had traumatised Germany after World War I. Therefore, widespread savings schemes were introduced in the early years of World War II to protect the economy.
After nearly a century, the setting has changed, but the characters remain.
Indian banks are in the middle of a deposit war due to liquidity concerns. The Reserve Bank of India (RBI) on 7 December raised repo rates repo rates Repo rates It is the interest rate at which the central bank lends money to commercial banks. for the fifth time in a row to control retail inflation that breached 7% in August. Simultaneously, credit growth far outpaced deposits. Growth in bank credit for the quarter ended September 2022 was ~2X of aggregate deposits in the same period, according to the central bank’s 28 November report.
Fixed deposits (FD) co-fuel a bank’s lending capabilities. As a result, banks have raised rates by more than 100 basis points (bps) since September. For deposits under Rs 2 crore (~$240,000), IDFC First Bank and RBL Bank offer the highest interest rate—up to 7.25% for various tenures.
This hike comes at a time when deposits declined by 0.4%, according to the RBI’s 2 December report for the fortnight ended 18 November 2022.
“On average, three out of 10 customers have responded to revised FD rates.