Monzo, an online digital bank from the United Kingdom, is encroaching the booming UK’s “buy now, pay later” (BNPL) market with its Monzo Flex product, and will be delivering its consumers with limits of up to GBP 3,000.
Monzo is one of the first UK banks to release itself into the fast-evolving but debatable BNPL sector.
The Monzo Flex product offers BNPL services
Monzo possesses over 5 million customers. The digital bank stated that it has taken the best features of BNPL, loans, overdrafts, and credit cards to invent its Monzo Flex product. The Monzo Flex product was introduced on 16th September 2021 (Thursday).
The BNPL credit allows consumers to reel payments for commodities like beauty items, furniture, and clothes with nil interest and nil fees. On failing to pay back on time, some banks impose extra fees for late payments.
This mode of payment has become a common endeavor for most digital banks. Online shoppers are special targets of this service. Companies have started to offer more services for the payment of shopped items.
The utilization of BNPL surged in 2020, achieving GBP 2.7 billion in transactions, according to official data, and is calculated that between the 5 million and 10 million UK end-users have made some sort of borrowings last year.
Monzo Flex can be utilized for in-person and online purchases for transactions above GBP 30. Similar to Klarna’s BNPL policy, the Monzo Flex will allow consumers to repay their dues in three installments with no extra charges or interest rates. Monzo has been marketing this facet of the Monzo Flex by the slogan “Pay in three for free”.
Consumers can also choose to pay back their dues in 6 and 12 installments. However, these privileges come with an added interest at a 19% annual percentage rate (APR).
The bank stated that it would be delivering its customers with pre-approved credit at purchase checkouts with a limit of up to GBP 3,000. This limit will be provided after an assessment that checks the overall affordability factor of consumers who want to avail these credit benefits. The bank will allow people to use the Monzo Flex to pay for availed credits, for up to 14 days after buying the product.
Consumers can clear their dues with no added fees. Unlike some other BNPL lenders, the bank will not charge the late payers. PayPal launched its UK BNPL service in late 2020. Recently, the digital banking platform announced that it will be demolishing its late fees from BNPL products around the world for all transactions that are made from October 2021.
In February 2021, the government of the UK stated that BNPL services would be monitored and regulated by the Financial Conduct Authority to protect the interests of the consumers.
To comply with the rules of the Financial Conduct Authority, banks that are BNPL providers will need to facilitate affordability checks to credit the loans only to people who have a higher capacity to pay back the debt incurred. These regulatory measures are in the best interests of consumers, especially the most vulnerable populations that make up the economy.
Monzo Bank Limited is a digital banking firm based out of the UK. The bank was one of the oldest digital banks to be established in the United Kingdom.
The bank initially operated via a mobile phone application and a prepaid debit card. In April 2017, after the restrictions on its UK banking license were lifted, the bank started offering complete current account services. As of March 2020, the bank encompassed more than 4 million customers.