Banks are offering BNPL features- what does this mean for consumers?

Buy-Now-Pay-Later (BNPL) has been a very interesting topic for discussion in the financial sector, with many split opinions. With the likes of Klarna, Clearpay, Laybuy and Zilch being popular forms of payment for many consumers, now the banking sector wants a slice of the pie. Banks are offering BNPL features, but what does this mean for customers?

Monzo Flex

In September 2021, Monzo launched a new BNPL product called Monzo Flex. This feature allows customers to split the cost of purchases. Options include 3 instalments interest-free, or over 6 or 12 instalments at 19% ARP representative (variable). This can be used online and in-store for purchases made in the last 2 weeks. Consumers are given a pre-approved credit limit based on an affordability check, which is reported to credit reference agencies once a month. Credit limited can be offered up to £3,000.

High-street banks

Recently, NatWest launched BNPL with 0% interest and no fees when a consumer pays on time. They can spread the cost of purchases over 4 monthly instalments. Further, the consumer will receive a virtual card to shop in-store or online. This service can only be used for purchases over £50 and the current max. credit limit offered is £1,000.

Santander is also rolling out a BNPL product as a separate brand- Zinia. In January 2022, Santander announced the launch of Zinia, which was operating in Germany for the past year. The plans are to roll this brand out throughout the rest of Europe in due course. With more and more banks offering BNPL features, will this become a new permanent feature in the world of banking?

How does this compete with current BNPL providers?

Current BNPL providers have seen enormous growth in recent times, as consumer lending is on the rise and millions of consumers are spreading the cost of payments. Rakesh Harji, COO at Zilch recently commented: “The reality is the banks are actually validating the need for BNPL. It’s not just NatWest, Santander will do it and lots of banks are going to come to the table and do this.” So, potentially there is room for more BNPL products to enter the sector? Especially with all of them now required to share data in order to protect the consumer.

Deborah Ware, former COO of the Financial Wellness Group also commented that the actual need for BNPL was evident and that consumer feedback has been generally positive. However, she said, “there is a real risk that people start using it more as a necessity than a convenience”.

Consequences for consumers

With banking BNPL showing up on a consumer’s credit report, it can be beneficial for other lenders. They can more accurately assess the consumer’s ability to borrow money and hopefully avoid the consumer falling into unmanageable debt. If the consumer keeps up with repayments, it will also boost their credit score.

As banking BNPL is connected to the consumer’s bank, the money automatically leaves their account on the dates they agreed to. However, if someone is unable to make a payment, they can edit payment plans with Monzo Flex. This means choosing to pay back another day without a charge.

If a consumer does not have enough money to cover the payments, they could be taken into an overdraft. If they do not have one, then the payment will fail. Although late payment fees are not typically enforced, this can have an impact on the consumer’s credit score. Thus, it can limit their ability to get other forms of credit in the future.

Banks such as Monzo have a team of financial difficulty specialists who may be able to offer repayment plans and they promise to not refer someone to debt collectors. However, as the BNPL guidelines are in the process of changing in terms of reporting to credit agencies, banks may not be aware of payment agreements with other BNPL firms. This means that they may decide that someone can afford to pay back more than they can and might provide a credit limit that is too high. Thankfully, due to the recent changes, this is likely to change with any new banking BNPL agreements taken out.

How to ensure that consumers can afford to take out BNPL

IE Hub is an online tool that allows you to efficiently conduct affordability assessments for both new credit applications and repayment plans. Our service is unique and highly beneficial to any lender who wants to ensure that they offer credit to people who can afford to pay it back. Protect your vulnerable customers by heading to IE Hub now.