Monzo digital bank first entered the controversial ‘Buy Now, Pay Later’ market, sparking new concerns about overspending by consumers.
The bank has become a rival to established players like Klarna by offering short-term credit for purchases. However, these loans have come under heavy criticism for encouraging users to spend money they don’t have.
From today, Monzo customers will be able to split the cost of any online and in-store purchase over Â£ 30 using his app. Retailers don’t have to be program partners, said Kunal Malani of Monzo.
Splitting a purchase into three monthly installments will not incur any interest charges. However, six or 12 month loans will attract an interest rate of 19pc.
Buy now, pay later programs have been criticized for easing debt because of their ease of use, and also for breaking savings habits. Monzo said his loans would be based on affordability checks and the credit would be limited to Â£ 3,000. Mr Malani said the company would not use bailiffs to collect problematic debts.
Monzo has more than five million users, and many young people have been drawn to the provider with its easy-to-use app and âhot coralâ colored bank cards.
Its arrival in the buy now, pay later space follows a report by the city’s watchdog, the Financial Conduct Authority, which recommended that the sector be regulated for the first time.
Alice Tapper, a financial activist who wants the industry regulated, said: âWe are seeing this wave of activity and new entrants coming into the market making hay while the sun is shining.
However, she said there had been a “worrying lack of movement” from the watchdog since announcing plans to regulate the sector in February.