Interest free loans


(Mitar) #1

I think it would be great if Mondo would be offering interest free loans. I think this is an important alternative to current loan-based systems. It could maybe offer both, traditional and interest free loans.

An example of such bank from Sweden.


#2

Mondo’s current aim is to build the best current account. They are not too focused on creating a lot of financial services to try and bring customer. They do this by being the best current account. Mondo might do this at a later stage, but I can’t see them provide loans at the moment.


(Josh Bray) #3

The problem with offering things such as this would be that they wouldn’t be able to offer no fees on their current account similar to what they do now.


#4

I do not think that Mondo is created for providing loans… maybe as it is a bank now, it will, but what we really need is those feature which we can have in our mobile app (virtual savings account , budgeting etc)


(Alex Sherwood) #5

Tom (the CEO of Mondo) has talked a lot about offering short term overdrafts (almost a pay day loan but at a normal overdraft rate) as Mondo’s first product, as he explains in this video.

He’s also explained that user’s could be enabled to share their account data with comparison sites or loan providers temporarily so that the provider can assess which products to offer them & that this is how Mondo users could get easy access to the best loans, mortgages, credit cards etc. - see this video - rather than Mondo offering them itself.

But he’s been very clear that Mondo will focus primarily on current accounts, rather than offering a broad range of products at first.

Interest free loans would be great but at some point, Mondo has to start offering a product that they’ll make some decent money from, rather than relying on funding from investors & interchange!


(Mitar) #6

I completely agree that this is a long term feature. But I think discussing it is still a valid. To have it at lest on the long term plans.


( surohpotsirhC) #7

An interest free overdraft I can understand a bank offering. An interest free loan however doesn’t make business sense.


(Mitar) #8

Have you read the article I linked above? And it is not a question of business, but a question of ethics. Interest based loans can be seen as ethically problematic.


( surohpotsirhC) #9

Your first link goes to an article about Open Source and Security, your second link takes me to the wiki page for a Swedish credit union style bank. Unless I’m mistaken Mondo isn’t being set up in this fashion.

I’m clearly unethical as I don’t see a problem with making money from a loan. If you’re talking about pay day loan companies then I agree with the ethics side but I’m 100% certain Mondo aren’t going to be that sort of financial institution.


(Mitar) #10

Oops. The first link was a mistake. I updated it with the correct one.


( surohpotsirhC) #11

Thanks, I’ll give that a read.

EDIT: OK, so my understanding is that you’re offsetting your interest payments by not getting interest on any money you have in the bank. To be able to get that loan though you have to have had your money in the bank, getting 0% interest for a certain length of time to earn points. More points means a higher loan.

I’m no financial whizz, but it seems to me that you’re putting your money into an account with 0% interest on the basis you’ll be able to borrow money on 0% interest. But if I was earning interest on the money I had saved there then I wouldn’t need a loan/a smaller loan.

Also: “There is no interest charged on a loan, of course, but members must place 6% of the value of the loan on deposit for the duration of the loan, and additionally pay a loan fee to cover administration costs. Members also pay 200 SEK (about €22) when they first join JAK and 200 SEK per year as a membership fee.”

I borrow £2000.

6% of loan in account for duration of loan. So that’s £120.
2% fee? for loan. £40.
£20 joining fee.
£20 membership fee. Also payable in first year?

That’s 10% of the loan just on fees and deposit. You can’t even leave a base amount in the account to earn your savers points for an interest fee loan and then slap that loan into a high interest account. As far as I can tell it wipes out your interest gains.

As I said, I’m not a financial whizz so maybe. I retract my earlier statement though, this does make business sense.


(Ben King) #12

Yes but Mondo is a business and if they don’t make any money Mondo will cease to exist :slight_smile:


(Mitar) #13

JAK Members Bank is also a business. And they have been around since 1997.


(Rob Schlitt) #14

The proposition from JAK Members Bank is quite an interesting one, and it has some real benefits when it comes to borrowing facilities that are not permitted under certain faiths where the loan charges interest (as most do).

But as it’s title suggests, JAK Members Bank is basically a co-operative, maybe akin to a credit union or early building society here in the UK. And as such, it’s members are effectively the owners too. I see Mondo’s plans are much more ‘commercial’ with backers/investors funding the operation fully aware of the potential risks of failure. Eventually they’ll become a fully-fledged bank with a current account and overdrafts to help them make some cash and eventually provide a return to the investors that took the risk early on. It’s a very different proposition to JAK Members Bank.

Of course while the underpinnings of Mondo is conventional (to make money for the company and it’s backers), they’re building something new from the ground up. Their approach is unconventional. Their level of transparency is unconventional. Their desire to build an intelligent smartphone-based bank is unconventional. Oh… and the hot coral-coloured card is very unconventional indeed.


(Mitar) #15

I do not think you need two organizations to handle both cases. How I see it is like many online services do these days: you can use service for “free” and they show you ads or you can pay a membership fee and do not get ads.

In the similar way I think Mondo could operate. You do not pay membership fees and they get profit on you from interest. Or you pay membership fees and then they do not do interest. Similar to loans. You can get one based on interest, or they offer one which is based on membership points.

I think this diversity would make Mondo even more sustainable and a better bank in general. Having both loyal customers because they are collecting membership points for interest-free loans, and those who might want higher loans, based on interest, but also are riskier.

The question of governance, are members included or not, is a separate question from my original question of: would Mondo offer a service of interest-free loans to those members interested in such service. This does not preclude also other services like interest-full loans.


(Leon) #16

I think your idea has legs. Of course it might have to be changed a little but I like it.