The AltFi view on profitability: Can BNPL save neobanks?

AltFi Weekly Leader

Well, that was a little awkward.

Last week’s Curve Flex and Monzo Flex announcements highlighted two things clearly.

Firstly, the marketing departments of fintechs are a little too on the same wavelength, and secondly, that buy now, pay later is quickly becoming a key revenue bet for the whole industry.

Monzo and Curve join Revolut, Square, Funding Circle, and Iwoca to launch, announce, or acquire BNPL services in the last few weeks.

For Monzo, the appeal is obvious; traditional lending isn’t going too well.

The bank’s current lending actually fell to £104m last year, down from £143m the previous year, as it reigned in overdrafts and personal lending during Covid. 

Meanwhile, Monzo’s expected credit loss from its lending rose last year to 16.7 per cent of all its lending (up from 13.9 per cent the previous year).

Buy now, pay later offers what should be a simpler alternative to making money from lending—with hard credit checks on borrowers, structured repayments and lower-value borrowing.

There are two significant risks, however.

The first is that Monzo and its peers are wading into probably the most competitive market in fintech at the moment—facing not just venture-funded juggernauts like Klarna and Laybuy, but also publicly listed financial giants like Square (the new parent company of AfterPay) and Affirm.

The second is that buy now, pay later is under intense scrutiny from policymakers and regulators.

Although actual movement on regulation is happening at a snail’s pace, it’s clear that the marketing and ease of borrowing in buy now, pay later will have to be toned down to protect consumers.

Monzo and Curve have clearly put a ton of work into ensuring their offerings are following the latest in best practice, but even so, the heady growth period of BNPL may already be over.

If that is the case, neobanks may need a Plan B for profitability.

The AltFi Leader is a new weekly view for 2021 from our editorial team. We’d love to hear your ideas, thoughts, feedback and constructive criticism: editorial@altfi.com