Today’s millennial favorite Monzo has launched its own buy now, pay later product called Flex as it looks to capitalize on the growing popularity of this type of credit.
The digital bank, which currently has more than five million customers and is synonymous with its ‘hot coral’ debit card, will offer its customers a credit limit of up to £3,000 and allow them to spread the cost of purchases over three, six or 12 months.
It is one of the first banks to launch in the sector – and one mired in controversy.
The payment type, which allows customers to split the cost of products at checkout, was made popular largely by Swedish company Klarna.
Monzo has now launched its own buy, pay later product called Flex, announced today
Other services such as Clearpay and LayBuy are also available, with some retailers under fire for making them the default payment option when paying online.
There are also concerns about tempting shoppers to take on unsustainable levels of debt by eliminating the problem further.
Earlier in the year, the Financial Conduct Authority confirmed that the industry would be regulated – but that has yet to happen.
How does Flex work?
Flex launched today and customers can sign up through the Monzo website. Those who pass the eligibility tests first will also get access to Flex today as well.
Those who sign up will receive a pre-approved credit at exit, based on affordability and an approved credit limit of £3,000 is given away.
Flex will not charge interest to users who choose to pay over three months, while those who spread costs out over 6 or 12 months will be charged 19% annual interest.
It can be used on any transaction over £30 and can be applied retroactively for up to two weeks after the purchase is made.
It says customers who miss a payment will not be charged a late fee. They can also prepay items early.
It can be used for online but also in-store purchases with the Monzo card and the app.
It is also possible to choose Flex one of the existing Monzo transactions from the last two weeks.
Kunal Malani, Head of Borrowing at Monzo, said: ‘We know that money stops working for people when debt builds up and it becomes a trap – so we listened to customers and designed a better way for them to pay later, which puts them in check.
“Flex combines Monzo’s banking technology and expertise with its core values, ensuring customers always have visibility and control over their financial lives and only borrow money they can repay.”
Spending: Flex can be used for online but also in-store purchases with the Monzo card and the app
Is this a positive step?
Some experts think it’s a good move for the industry — and for Monzo.
“It makes perfect sense,” said David M. Brier, CEO of 11:FS Challenge Consulting. “We’ve been waiting for Monzo to get into a little bit of banking that makes it worth doing – and that’s lending in all its forms.
“This news about BNPL, along with their launch of loans earlier this week, is propelling Monzo beyond just discretionary spending to helping people with the many more complex aspects of their finances.”
Others believe the news will benefit younger buyers – many of whom are gravitating towards this type of payment.
“We know that millennials don’t want credit cards and don’t like banks, and they prefer to use buy now and pay later because this can help them quickly improve their credit score,” said Samantha Palmer, Managing Director of Payl8r.
Young people find it difficult to obtain financing because they have not had the opportunity to build up their credit rating, although most of them have the funds to repay loans in a responsible and timely manner.
Some say the market is buy now, pay later. I think it’s the future of millennial finance, and Monzo really doesn’t want to miss out on doing a piece of the action.
Some experts argue that the BNPL encourages debt, often with younger audiences, who prefer this method of payment.
Could this encourage debt?
However, there are also concerns about the impact on those who may find themselves in debt.
The Treasury announced in February that the BNPL would be regulated to better protect spenders.
At the time, Christopher Woolard, former chief executive of the Financial Conduct Authority, said that “there is an urgent need to protect consumers”.
But seven months later, no plans, timelines, or proposals have been announced.
Citizens Advice previously revealed that one in ten BNPL customers have been chased out by debt collectors after failing to make their payments.
Its research also indicates that shoppers have paid £39m in late fees over the past year.
“My main question would be how Monzo plans to do this,” Brier said. “BNPL can be great for customers, but it could also get people into debt without realizing what they’re doing.
Monzo has always been a customer-driven bank and needs to ensure that it is presented in a way that helps customers, including vulnerable customers, to manage and improve their financial well-being.
While these moves are great for clients, they won’t hurt Monzo’s finances either. I expect to see happier shareholders and investors when the next set of results come in.
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