Buy Now, Pay Later Product With a £3,000 Limit Unveiled By Monzo

17 September, 2021 by Denzil Otieno 4 mins read Category:  Credit Cards Debt Money Personal Finance

Monzo, a new digital bank, is making a play for the burgeoning “buy now, pay later” industry in the UK by giving credit limits of up to £3,000.

It’s among the first UK banks to enter the rapidly growing but contentious BNPL market, which fintech firms like Klarna and PayPal control.

The company combined the “best pieces” of BNPL, credit cards, loans, and overdrafts to create the Monzo Flex product, which it began offering on Thursday, 16th September 2021. 

BNL’s Role in This

Clients can use BNPL credit to pay for clothing, beauty products, and furnishings over time, without interest or charges, as long as they make their payments on time. If they miss a payment, certain companies will charge late fees.

It’s becoming more typical for online consumers to see requests for this payment option at the checkout. Businesses are beginning to offer more services that let customers pay for things in person using this technique.

The use of BNPL increased in 2020, with transactions totalling £2.7bn. It’s estimated that anywhere from five million to over ten million UK consumers took advantage of this sort of borrowing last year.

Like Klarna, Monzo Flex lets customers make online and in-store purchases over £30 and pay for them over three instalments with no additional fees. Klarna and PayPal both advertise their “Pay in three” service under the same tagline.

Users also can pay in six or twelve equal monthly instalments, although this option has a 19% annual percentage rate of interest.

Monzo also stated it would give pre-approved credit to consumers at the checkout following extensive financial assessment up to an allowed limit of £3,000. Users will be able to pay for items up to 14 days after purchasing them using Flex.

Consumers can place additional or early payments without incurring costs, and, like with other BNPL service providers, there are no late payment penalties. PayPal will eliminate late fees from its BNPL products across the globe for all transactions beginning on or after October 1, 2021. 

The Concern of Ministers and Regulators 

Regulators and ministers have already raised concerns that with BNPL, customers can take up several agreements with multiple providers, making it very easy to rack up approximately £1,000 in debt—that cannot be seen by credit reference agencies and mainstream lenders. 

As a government-licensed financial institution, Monzo will be reporting to credit reporting agencies about its customers’ use of Flex so that other lenders will know about it.

When an investigation discovered the possibility for harm, the government declared in February that BNPL would be monitored by the Financial Conduct Authority to protect its customers.

As a result, lenders will be bound by FCA regulations. They must conduct viability checks before making loans to treat clients fairly, especially those who are disadvantaged or have difficulty making repayments.

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