Monzo has announced plans to launch a “buy now, pay later” product dubbed Flex that will let customer spread the cost of purchases over 3, 6 or 12 months.
The official announcement confirms an earlier story from the Standard revealing that Monzo was working on the product.
Monzo said customers can borrow up to £3,000 using Flex. Customers who repay over 3 months will be charged no interest, while those spreading costs over 6 or 12 months will be charged 19% annual interest.
Flex can be use on any transaction over £30 and can be retroactively applied up to 2 weeks after a purchase is made. Customers who miss a repayment will not be charged late fees, unlike some rivals.
“We know that money stops working for people when debt piles up and becomes a trap - so we’ve listened to customers and designed a better way for them to pay later, which puts them in control,” Monzo’s head of borrowing Kunal Malani said in a statement.
“Flex combines Monzo’s technology and banking expertise with its core values, ensuring customers always have visibility and control over their financial lives and only borrow money that they can afford to repay.”
Customers will be subject to affordability assessments and credit checks, Monzo said.
Buy now, pay later – shortened to BNPL – is in an alternative to credit cards that lets people spread the cost of purchases over several instalments. It was pioneered by Sweden’s Klarna and has grown rapidly over the last two years as more and more people shop online. The Financial Conduct Authority (FCA) estimates that 5m Brits used BNPL last year.
BNPL has become one of the hottest corners of global finance in recent months, with large financial firms throwing billions of pounds at the space as part of a race for market share. Square – the US payments company run by Twitter founder Jack Dorsey – last month paid $29bn for Australia’s Afterpay and PayPal this week announced a $2.7bn deal for Japan’s Paidy.
However, the market is controversial. Charity Citizens Advice has said BNPL could be “a slippery slope into debt” and Labour MP Stella Creasy has warned it could be “the next Wonga waiting to happen.” The FCA has called for “urgent” regulation of the space.
BNPL companies argue they are offering a cheaper alternative to payday loans and credit cards. BNPL providers generally do not charge interest or fees so long as people meet all their repayments on time.