A Mastercard debit card from the UK digital bank Monzo.
LONDON – Monzo and Revolut, two of the UK's best-known financial technology companies, plan to enter the booming “buy now, pay later” industry.
Buy Now, Pay Later, or BNPL plans are an increasingly popular payment method that allows users to spread the cost of their purchases across a range of interest-free installments. The trend was driven by the likes of Swedish fintech Klarna and Australian company Afterpay.
It is now attracting the interest of some of the world's largest companies, with PayPal launching its own BNPL service, Amazon and Apple partnering with US provider Affirm, and Afterpay being sold to Square, the payments company owned by Twitter CEO Jack Dorsey .
Now two of the UK's hottest fintech companies are trying to take part.
Monzo, which offers checking accounts through an app, will soon announce plans to launch its own version of BNPL, a person familiar with the matter told CNBC.
The person, who preferred to remain anonymous as the information is not yet public, said the digital bank will introduce affordability checks for customers.
The news was first reported by London's Evening Standard newspaper.
Meanwhile, Revolut CEO Nik Storonsky told Standard earlier this week that the company was working on its own pay-later product. Revolut, a digital banking and commerce app, was recently valued at $ 33 billion following a $ 800 million round of funding led by SoftBank and Tiger Global.
But Monzo, unlike Revolut, is a regulated bank in the UK. While Revolut has been granted a European banking license in Lithuania, it is currently looking for additional licenses in the UK, US and Australia.
Still, with 5 million customers and a valuation of 1.25 billion pounds ($ 1.7 billion), Monzo is smaller than Revolut. According to its own information, Revolut now has more than 15 million users. Starling, another popular UK digital bank, has over 2 million customers and was most recently valued at £ 1.1 billion.
Observe supervisory authorities
While the BNPL industry is growing rapidly, its rapid rise has not gone unnoticed by regulators.
The UK government plans to regulate the sector. Proposals announced by the Treasury Department earlier this year included requiring companies to conduct an affordability review prior to lending to customers and the ability to escalate complaints to the UK Finance Ombudsman.
The UK BNPL market is valued at £ 2.7 billion, with 5 million Britons using such products since the coronavirus pandemic began, according to a review released by the Financial Conduct Authority in February. More than every tenth customer of a major bank who used BNPL services was already behind, according to the review.
"The FCA has already taken a significant step towards the introduction of BNPL with the review presented earlier this year – and it will certainly increase controls, if only because of the growing popularity of BNPL in the market," said David Brear, CEO of London-based fintech – Advisory firm 11: FS told CNBC.
"Unlike some of the other BNPL providers in the UK, Monzo is already a regulated company under the FCA and would do nothing to compromise its reputation with the regulator."