In previous newsletters, I’ve talked about how BNPL (buy now, pay later) seems to be all the rage whether it’s the acquisition of AfterPay by Stripe or Checkout.com’s investment in Tamara.
The race is continuing and only heating up, with Monzo announcing its own BNPL product.
BNPL skyrocketed in 2020, reaching £2.7 billion in transactions in the UK.
So what makes Monzo Flex different? Whilst most major players like Klarna require agreements with Merchants (where they make their money), Monzo won’t as it’s offering this service directly to consumers - meaning within reason anywhere you can use your Monzo you can use Monzo Flex.
Although the end user may not see much difference in using Monzo Flex or Klarna, the reality is the business models differ greatly leading many to question why neo banks like Monzo are foraying into this space.
Solutions like Klarna and Afterpay aren’t a traditional credit product and don’t charge interest when you pay on time. Their revenues come from merchant service fees, customer late fees neither of which are interest baring. As they may money from merchants on every transaction - they’re interested in the velocity of money going through and is the reason they don’t do a traditional credit check as this will only slow down their process.
On the other hand, Monzo will require users to create a bank account and pass affordability - and even then will only make money on interest (loans greater than 3 months). Whilst they will see some increase in revenue, it’s not going change the world.
If it’s not about revenue, we can only think it’s a great acquisition tool and opportunity to get ahead of other neo banks and differentiate themselves. A great read from Sifted explains
more here