EXCLUSIVE: ‘Buy Now Pay Later.’ Are the schemes by Monzo and Curve just the next Wonga waiting to happen?
Monzo and Curve last month announced their own ‘Buy Now Pay Later’ schemes. Whilst both schemes bring new added features, it seems as though Curve has gone one step further. Monzo has released their BNPL scheme within their app under the name Monzo Flex claiming that it is ‘a better way to pay later’ whilst Curve have, funnily enough, named their version, Curve Flex.
Monzo Flex allows customers to split any purchase costing over £30 into 3, 6 or 12 one month payments. The 3 month plan incurs 0% APR but the 6 and 12 month plan each incur 19% (Variable) APR interest rate. The main difference between what Monzo and Curve are offering is that whilst on the conversion to a 3 month instalment plan, Monzo incurs 0% APR, Curve charges 13% APR with this being a flat figure true for their 3, 6, 9 and 12 month plans. Curve Flex, which runs in a similar fashion and has reportedly been in testing since 2020, has already recorded an estimated 7000 transactions split with testers making use of their so-called ‘back n time’ function.
The concept of ‘Buy Now Pay Later’ is one which has boomed during the pandemic with Klarna, the leading BNPL service experiencing monumental levels of growth. The number of active users per month on the Klarna app in December 2018 was reportedly around 14,000, yet in July 2020 they reportedly had an increase of 446,000 users, making the total number of active monthly users at around a staggering 460,000. With a company like Klarna clocking in a 3,143% increase in users in 18 months it’s easy to understand why Monzo and Curve became so interested.
How Much Can Be Borrowed?
Before a Monzo or Curve user is granted access, they will both be subjected to two accountability checks, with the first being a soft check and the second being a hard check which will be registered, allowing other lenders to see how much you have borrowed. Due to this, if one is granted access to using the feature, it will also allow for individuals to boost their credit score.
BNPL schemes have received some noteworthy criticism with Labour MP Stella Creasy referring to them as the ‘next Wonga waiting to happen’. This is because the banks will often focus on the risk they will be taking on as opposed to the customers ability to repay. This is a common concern as not all BNPL services will carry out affordability checks, however as it stands both Monzo and Curve will be carrying out respective checks in an attempt to keep customers as safe as possible.
Often, this is also coupled with a similar worry regarding a customers ability to easily accrue a significant amount of debt even on small purchases as they may begin to use several of these schemes at any one time without each provider knowing.
Whilst both schemes were announced within 2 days of each other and under the same name, it is fair to say there isn’t a lot of to split the two in terms of what can be accomplished. Whilst Monzo matches policies of Klarna with no charge being applied if split into a 3 month programme, it charges a higher rate than both Curve and alternative providers for any transaction split into a plan longer than 3 months.
With this said, Monzo has gone a step ahead of Curve in terms of safety, putting into place a Financial Difficulty team to communicate with those likely to miss a payment, payment reminder service, as well as a custom repayment date decided for and by each customer. Yet Curve, to counter this problem and entice more customers, allows for transactions up to 12 months prior to be split.
Where there is demand there will be supply and the market forces definitely cater to BNPL services. Monzo and Curve’s ventures into the space mark an interesting time for BNPL as their involvement grants future schemes an added reputability, but only time will tell if BNPL really is the next Wonga waiting to happen.