Offering Hidden Bnpl Credit Shouldn’t Be for Everyone so Why Is ‘community First’ Bank Monzo Diving In?

Why Monzo's BNPL Move Challenges Its Community Focus

By Rob Pasco, CEO & co-founder of social lending platform Plend

Swedish start-up Klarna created ‘Buy Now Pay Later’ (BNPL) – giving consumers the ability to pay for their purchases in installments; a point of sale loan without the interest but also bypassing credit checks in the process.

There are now £2.7 billion of payments being processed through BPNL in the UK. You can’t go on public transport now without seeing an ad from Klarna promoting their hidden form of unregulated credit that millions in the UK are turning to in order to make life a bit more affordable.

Given the huge growth of BPNL it is not surprising that other fintech companies are jumping in with their own offers. Yet with 5 million brits using BPNL services, consumer credit watchdogs are worried that they encourage people – particularly younger consumers – to buy things they may not be able to afford.

In many ways, it is a logical choice for a company like Mastercard to get in on the act. After all, BNPL is chipping away at the dominance of credit cards. Revolut and Curve, makes sense as these platforms are striving to become the ultimate ‘Fintech Super App’. But Monzo Flex really shocks me; an interest free offer with a 3 month payment plan for consumption-linked purchases.

You see, the core of Monzo’s customer proposition is it’s ‘community’ first approach. Financial education and protection was a mainstay of their model.

In fact, I was one of their earliest adopters of this challenger bank for these reasons. I went to their open offices religiously, participated in their crowdfunding rounds; I was the ultimate brand evangelist. I even brought my Fiance on board so we could share their budgeting tools.

Monzo’s entry into this market has literally reversed all that brand loyalty I had for them in one clean sweep. I will be switching to a banking competitor that doesn’t offer hidden BPNL credit. Why? BNPL is technically free provided you pay on time, but people don’t pay on time. The consequences for this are a spiral of debt horror that leads to many young people facing debt collections, CCJs and defaults that have a lasting impact on their future ability to borrow, work and live. BNPL just perpetuates unhelpful behaviours of consumption.

Recently the Citizens Advice Bureau (CAB) highlighting that one in 10 people who use Buy Now Pay Later (BNPL) services are being chased by debt collectors is another reminder of the serious need for regulation.

Sadly such ‘credit’ schemes can very easily lead people into a downward spiral of debt, leaving a permanent stain on their credit record which excludes them from participating in many of the life events most of us take for granted such as buying a house, opening a bank account or even getting a job. According to the Financial Inclusion Commission, over 13 million people in the UK are held back by a lack of affordable credit.

As someone who has experienced how easy it is to get into debt, even while working in a well-paid job in the City, I know that consumption-linked credit isn’t always the answer to longer-term financial health. Further, unlike regulated credit products, BNPL comes with no upside for your credit score – payments on time are never reported, only when your debt goes into collection does your credit history take a serious hit.

The BNPL sector is expected to be worth over £37bn by the end of 2025, at which point it will overtake credit cards as the main form of consumer credit in the UK. Klarna is now the second largest valued fintech company in the world.

As a Fintech founder about to launch a consumer credit platform, my view may seem ironic, particularly given that a future partnership with Monzo would be the ultimate dream. However, I have finally woken up to the fact that Monzo has traded their morals for a shiny new set of ‘hidden’ credit products that I think will mark the end of their community focus going forward. When debt collectors are chasing Monzo customers to repay this ‘free credit’, the previously friendly vibe is going to change very quickly.

Consumer trust in financial services firms has always been low. They’ve loved fintechs with a passion because they are open and transparent and provide excellent service at a fair price. If they go the same way as Monzo, they will soon learn how short lived ‘cool’ can be. Consumers, like me, won’t put up for being woke washed.