Come to Monzo HQ to talk about Overdrafts 😄

[alexs (Alex Sherwood)]

@JSS

No mention of interest rate / EAR etc for comparison purposes in the UX I saw (perhaps this is possible given there is no interest being charged, only fees, but I thought it was a regulatory requirement regardless).

I did too & didn’t see it in the preview I saw. Perhaps this is still being worked on or displayed on another screen.

@JSS

Going to be a divisive product in my mind, on the basis that (1) if you need to borrrow £25 you might as well borrow £1,000 because it will cost you the same each day (which is encouraging people into greater debt) and (2) 50p per day for relatively small amounts is more expensive than payday lending

As Naji noted in the minutes for Monzo’s brunch, they haven’t decided which approach to take yet.

If I recall correctly, a fixed cost per day works out cheaper than a tiered fee, that increases as you borrow more.
Either way, it’s my preferred option because I know exactly what I’ll pay at the end of the month if I borrow & don’t have to worry about my spending (especially delayed payments) bumping me into the next, more expensive tier.
But obviously this is subjective & there will be lots of different opionions on this.

I’d wait until Monzo reveal more details before worrying about this too much.

@JSS

Personally I think it’s disappointing for Monzo to take a lowest common denominator approach on this, perpeptuating the injustice of UK current accounts: those that struggle in the red will be subsidising free accounts for those In the black to a disproportionate degree.

I’m not sure how you came to this conclusion? It looks likely that Monzo will offer loans for large one-off purchases as well, which presumably most users will want & that will earn them revenue too.

Monzo won’t charge punitive fees which do disproportionately impact the less well off & that alone will reduce the revenue they make from the current accounts by about 50%.

Obviously the interest rates will have to be competitive, otherwise users won’t use the product & 7/10 people use an overdraft of £700 each month anyway so it’s not just minority of users subsidising the rest. And they’re only expecting to break even from the overdrafts so they’re obviously not being greedy here.

Lastly, no one will have to take out an overdraft if they don’t want to…

How would you address the perception that loans are unfairly subsiding other’s accounts - given the fact that Monzo needs to provide this product in order to earn revenue?