Monzo is entering the controversial ‘buy now, pay later’ market with the launch of Flex, a product that lets customers spread the cost of their purchases.
With Flex, customers can borrow up to GBP3,000 interest-free if they repay the loan over three months. If they spread the cost over six or 12 months, they will have to pay interest of 19% a year.
The digital bank said Flex can be used on any purchase over GBP30. 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,” said Monzo’s head of borrowing Kunal Malani.
‘Buy now, pay later’ (BNPL) was pioneered by Sweden’s Klarna and has grown rapidly in recent years with the surge in online shopping.
Around 5mln Britons used BNPL last year, according to the Financial Conduct Authority (FCA).
BNPL has become a controversial payment method with experts warning that it could lead to consumers racking up debt.
A recent report from the Citizens Advice Bureaux (CAB) revealed that 10% of UK shoppers who use these schemes are being pursued by debt collectors.
The government announced in February that it would look into interest-free BNPL schemes.