Millennial favorite Monzo has launched its own buy now, pay later product called Flex today, as it appears to be capitalizing on the growing popularity of this form 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 credit limits of up to £3,000 and allow them to spread the purchase cost over three, six or 12 months.
It is one of the first banks to take off in the industry – one embroiled in controversy.
The payment type, which allows customers to split the cost of products at checkout, has been largely popularized by the Swedish company Klarna.
Monzo has launched its own buy now pay later product called Flex, it was announced today
Others like Clearpay and LayBuy are also available, with some retailers coming under fire for making it the default payment option at online checkout.
There is also concern about enticing shoppers into unsustainable debt by further solving the problem.
Earlier this year, the Financial Conduct Authority confirmed that the sector would be regulated, but this has not happened yet.
How does Flex work?
Flex launched today and customers can sign up through the Monzo website. Those who pass the eligibility checks first will also gain access to Flex today.
Those who sign up will be given a pre-approved credit at checkout, based on affordability and up to an approved credit limit of £3,000.
Flex charges no interest for users who choose to repay over three months, while users who spread costs over 6 or 12 months charge 19 percent interest per year.
It can be used on any transaction over £30 and can be applied retroactively up to two weeks after a purchase has been made.
It states that customers who miss a refund will not be charged late fees. They can also pay off items early.
It can be used with online purchases as well as in-store with the Monzo card and app.
It is also possible to choose to Flex an existing Monzo transaction from the past two weeks.
Kunal Malani, Monzo’s head of loans, said: ‘We know that money doesn’t work for people anymore when debts pile up and become a trap. check.
“Flex combines Monzo’s technology and banking expertise with its core values so that customers always have visibility and control over their financial lives and only borrow money they can afford to pay back.”
Spend: Flex can be used with online purchases but also in store with the Monzo card and app
Is this a positive move?
Some experts believe it’s a good move for the industry — and for Monzo.
David M. Brear, chief executive of challenger consultancy 11:FS, said: “This makes perfect sense. We’ve been waiting for Monzo to get into the banking business that makes it all worthwhile – and that is borrowing in all its forms.
“This news about BNPL, along with the loan launch earlier this week, pushes Monzo beyond discretionary spending to really help people with many areas of their increasingly complex finances.”
Others believe the news will benefit younger buyers — many of whom are leaning toward this type of payment.
Samantha Palmer, director of Payl8r, said: ‘We know that millennials don’t want credit cards and don’t like banks, they prefer to buy now and pay later as it can help them improve their credit score quickly.
“Young adults find it difficult to get financing because they haven’t had a chance to build their credit, despite the fact that most of them have the money to pay back loans responsibly and on time.
“Some say the buy now, pay later market is becoming saturated. I think it’s the future of millennial finance and Monzo rightly doesn’t want to miss out on that.’
Some experts argue that BNPL encourages debt, often with a younger audience who prefer this payment method
Could this lead to debt?
However, there are also concerns about the impact it will have on those who may be in debt.
The Treasury announced in February that BNPL would be regulated to better protect spenders.
At the time, Christopher Woolard, former interim director of the Financial Conduct Authority, said there was an “urgent need to protect consumers.”
But seven months later, no plans, timelines or proposals have been announced.
Citizens Advice has previously revealed that as many as one in ten BNPL clients have been chased by collection agencies after missing payments.
The research also suggests shoppers have been charged as much as £39 million in late fees in the past year.
Brear said, “My main question would be how Monzo plans to do it. BNPL can be great for customers, but it can also lead people into debt without realizing what they are doing.
“Monzo has always been a customer-driven bank and needs to ensure it does so in a way that helps customers, including vulnerable customers, manage and improve their financial well-being.
While these steps are great for customers, they won’t hurt Monzo’s own finances either. I expect to see much happier shareholders and investors as the next batch of results comes out.”
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