The buy now pay later industry has seen big news recently, with not one, not two but 3 UK challenger banks announcing their plans to launch into the market, competing with the likes of Klarna and Clearpay.
Starting with fintech unicorn Revolut, which announced that they are developing a series of products that will allow its users to spread the cost of in-store and online purchases over a set period of time. These products are currently in early development and are expected to be trialled in Europe next year
Nikolay Storonsky, Revolut CEO, told the Evening Standard that the product will be “Simply a button which you switch on and then your card becomes a buy now pay later product. Instead of paying upfront everything, you pay a third and then in two weeks time we charge you a third and then another third.”
Revolut’s plan to enter the competitive market comes after it became Britains most valuable private tech company in history, with investors valuing the business at $33billion as part of an $800million funding round in July.
The next neobank to come onto the scene was Monzo, who unveiled their own set of buy now pay later products, and has even rolled them out to an early access group of consumers.
The company claimed it had taken the “best bits” of BNPL, credit cards, loans and overdrafts to create its Monzo Flex product, which can be used for online and in-person purchases over £30. Like many other options, Monzo Flex allows customers to repay what they owe over three instalments, and crucially will not be charging late fees.
Customers can also opt to pay in six and 12 instalments over a longer period of time, but with these options, there is an interest rate of 19% APR. The bank will also be offering customers pre-approved credit at the check out up to £3000 after a “comprehensive affordability assessment” that will involve soft and hard credit checks.
The fact that Monzo’s offering will appear on credit reports is of particular note, as this is often a common criticism of the BNPL industry, as they have the potential to boost consumers scores and show lenders a more accurate assessment of your ability to borrow money, provided you use the BNPL services responsibly.
Finally, Curve appeared as a last-minute player in the game, announcing their own BNPL product, also called Flex (or Curve Flex), marketed as a “unique rival” to buy now pay later.
After receiving FCA approval on September 1st, Curve has quietly launched Curve Flex to simplify and unify credit. It offers customers the power to pay later for almost any purchase made at any merchant, from any card, up to a year ago.
Curve Flex builds on Curve’s patented and trademarked Go Back in Time technology to let customers convert almost any purchase made on any card linked to the Curve platform in the past 12-months into an instalment plan; all the customer has to do is swipe to pay later. Curve Flex is better than any existing BNPL solution on the market, as it is not restricted to specific merchants, accounts, cards, or products. It brings control back to the customer and is another step in Curve’s mission to become the super app for money.
Whether a customer wants to split a retail purchase, online order, household bill, or simply has an unexpected need for cash, they only need to swipe a transaction and select the number of instalments. The transaction is then refunded in full almost immediately, giving customers convenience and control over their money. Curve Flex is here to provide seamless and affordable cash flow support.
Head of Curve Credit Paul Harrald said: “Curve is giving customers the unprecedented ability to convert transactions made up to a year ago into free or low-interest instalment loans. Being able to Go Back in Time and Pay Later is going to forever change how UK customers think about managing their personal finances and cashflow.”
The big differentiator
With all of these banks offering very different products, one thing is clear, that they are all attempting to break the mould of traditional BNPL services and compete with the rest of the market with innovative and unique solutions.
However, the news comes alongside rising concerns about the risks of BNPL schemes, and whether such products are luring shoppers into taking on unsustainable levels of debt without knowing what they’re signing up to.
Minck Hermans, Co-founder and CEO at borofree said: “What I feel is one of the key issues with buy now pay later is that people don’t really have the idea that they’re spending money. The customer journey has almost detached itself completely from the fact that you’re actually spending your money and could even be spending money that you don’t have that you have to pay back later.
“I feel some people are also negatively surprised by the cost that it can involve. In recent research by borofree, we found that 20% of all BNPL customers felt that they weren’t necessarily informed properly of what the consequences were.”
Despite this, each bank has said that their products will be subject to some form of creditworthiness and affordability check, with many in the industry hopeful that this will have a positive effect on how the rest of the BNPL market operates.
Thinking specifically of Monzo, James Andrews, senior personal finance editor at money.co.uk explains what knock-on effects this move could have for the wider financial landscape:
“The introduction of the new ‘Flex’ product from Monzo – which allows customers to spread the cost of purchases over 3, 6 or 12 months – has the opportunity to change consumer attitudes towards BNPL providers and highlight the potential financial consequences of spending now and worrying about it later.
“Putting affordability assessments and credit checks in place could lead to potential repercussions if payments are late or missed; but showing that this is possible to do also means that other BNPL providers will struggle to argue that this kind of transparency isn’t possible.
“The extent to which the current industry giants will feel the impact of ‘Flex’ could be limited. Consumers often turn to BNPL providers due to the convenience at points of sale and Monzo would therefore need to tempt customers and retailers away from existing BNPL providers.
“When it comes to the question of whether other regulated banks will follow suit with BNPL offerings, that still remains to be seen. The business model of BNPL is something that will certainly interest major banks. Competitors will not want to miss out on revenue they could be earning or lose profitable customers to banks offering new ways of paying.
“Ultimately, this move is a large-scale test of what happens when a regulated financial service provider launches BNPL with credit and affordability checks in place. How well it does, or doesn’t do, and the problems Monzo faces in the next few months could provide a regulation template for others.”
Also commenting on Monzo’s potential entry into the buy now, pay later market, Payl8r’s Managing Director, Samantha Fogerty said: “If Monzo does launch a buy now, pay later product it wouldn’t be much of a surprise as it’s the future of credit for millennials, but it will be difficult for the bank to take a significant slice of business from the likes of Klarna or PayPal.
“As the first and oldest buy now, pay later firm in the UK, we’ve successfully been competing in this busy market for over five years now. We know that millennials don’t want credit cards and don’t like banks, they prefer to use buy now, pay later as this can help them quickly improve their credit score. Young adults find it hard to get finance because they’ve not had a chance to build their credit rating, despite most of them having the funds to pay back loans in a responsible and timely manner – Payl8r gives them that opportunity. We are the opposite of banks, we want to help millennials and we do so ethically and responsibly. In effect, we’re spearheading the death of the credit card and are proud to provide loans that can pay for the likes of educational courses that can lead to new job opportunities.
“Some say the buy now, pay later market is becoming saturated. I think it’s the future of millennial finance and Monzo quite rightly don’t want to miss out on a piece of the action.”
Ralph Dangelmaier, CEO at BlueSnap advised it wasn’t surprising to see challengers entering the space, and said : “As the pandemic continues to put pressure on consumer spending power, it’s no surprise to see Monzo and others launching into the BNPL space. While consumer protection remains an important issue to address, there’s clear demand from shoppers for more flexible payment options.
“What’s less often talked about is what this means for merchants. A lot of retailers don’t fully understand that the more customers begin ‘paying later’, the harder it gets to authorise transactions. Payments six months down the line have a much higher chance of failing than the first upfront instalment. Fraud rules change, cards expire, and banks may fail to authorise foreign transactions if selling cross borders. With popular digital banks now joining the BNPL revolution, it’s vital merchants fully consider the risks and rewards involved when accepting instalment payments.”
Christer Holloman, fintech entrepreneur and founder of retail finance firm Divido, also considers the merchants involved and believes that these challengers are likely to fall short when it comes to the BNPL market.
He said: “The way consumer habits have shifted means it is inevitable that more and more firms will look into the Buy Now Pay Later space, not to mention the huge valuation of firms such as Klarna, who have to date enjoyed market dominance.
“However, what we are seeing with the likes of Monzo and Revolut is a vanilla approach to BNPL that is unlikely to make big waves in the market. The reason for this is simple: they’re largely ignoring retailers. What has made Klarna so successful is its ability to recruit retailers and effectively turn them into marketing outposts. It’s the foundation of their acquisition strategy.
“These new market entrants will fall short because none of them are taking this strategy, so they are missing the point of BNPL and why the sector is so big. Anyone can flip a switch and enable BNPL, but the Holy Grail is building retailer relationships.
“It is always great to see interest in the BNPL space, but firms might start with the right strategy if they are truly going to become big players in this industry.”