Just to pose another question – which again was highlighted in original threads – loyalty points…
I fall into another group of people who use credit cards (paying off each month) to build airmiles – you mention in your note above that, “Are you looking for short-term interest-free borrowing? Ie, a cashflow advantage? Or rewards/points/cashback on purchases? Or longer-term credit for buy bigger-ticket items? Or Consumer Credit Act17 protection?
Many of these problems are solvable without a credit card.”
Appreciate it may be a bit up in the air at the moment, what with you hiring the head of partnerships who’ll presumably spear head this kind of thing – but do you think it’s feasible that people like me will still be able to build air miles by using a Monzo card, as opposed to say my AMEX.
That’s the intuitive explanation but in fact, by providing these guarantees the credit card (CC) providers are simply incentivising you to spend more money using their product. As Tom mentioned in his last comment, there’s a cost implication to doing this -
so if you’re wondering how the CC providers can afford to offer this service, it’s because they earn their money from interchange (charging the merchant a fee to accept your payment) & obviously, from the interest that they charge the users who don’t pay off their card balance every month. The more you spend, the more money they make.
They factor the cost of these guarantees into their pricing structure, to make sure that they can cover the cost & still make a profit. Just as, when you buy products from Amazon & Dyson, part of the reason you pay so much is to cover the cost of the (generally) excellent customer service that you experience if anything goes wrong.
Unfortunately Monzo makes much less interchange from your transactions (because interchange for consumer cards was capped by the EU) & by the sound of it, they won’t make anywhere near as much interest from their overdrafts as credit cards do.
While getting started, Monzo will deliver most of it’s value to users through inherently low cost services - an innovative app & working as a trusted agent, to enable you to find solutions from other providers, by utilising your data & identity (which scales very well).
But because they won’t make high margins from the services that they offer users directly (they will from the marketplace but that comes later), they won’t be able to absorb the costs of services like the CC provider’s guarantees.
Edit
Following Phat Pheddy’s comment below.
As someone who doesn’t rely on those guarantees very much, I’d rather pay less in charges to use Monzo but obviously that’s not going to suit everyone.
The thing is… If you dont use credit (mine are automatically paid) I the consumer dont pay those charges… The retailer / seller does… Its not like they give me a discount when I use my monzo plastic v when I use my other plastic (some thin margin sellers who add a CC fee aside)…
So its kind of a case of losing perks you get for free rather than a ‘paying less’ to use Monzo.
That’s not true. Banks currently don’t make money on current accounts. In most cases they loose money on them. It’s the additional products and fees that make the money.
I generally avoid credit cards these days, However, one place where they are generally the only accepted currency is international Car Hire.
When Ive hired cars in Germany, generally the “deposit” and the hire have to come off a proper credit card, debit cards will NOT cut it. Similar policies exist in the UK with some car hire companies as well.
I don’t think I’d ever want to ditch my credit cards, as they can serve a purpose, and handy for short term (manageable debt), but the cash back I get from them would be a loss. But as mentioned the cash back isn’t free as such. I have never paid interest on my credit card so I’m probably quite unprofitable to them!
I had similar in UK where they would not accept a debit card for van hire only credit card, so they gave me the alternative of giving them a £500 cash security they would keep in their safe, but they weren’t happy about it.
Don’t know about UK issued Mastercards, can’t you raise a charge-back with Monzo/Mastercard once they issue cards?
Raised chargebacks sucessfully in Germany on debit cards, for example on my Number26 Mastercard at that time with Number26’s issuer Wirecard.
I prefer debit cards, but just because it’s easier to budget and have more modern features attached to it.
If I had a bank that had a modern app and real time stats, I would probably prefer a credit card.
Having your credit limit is nice for temporary blocks.
Yes you can, Monzo will still be the card issuer once they start offering debit cards so you’ll be able to raise the chargeback with Visa / MasterCard (whichever scheme they use) via Monzo.
There’s a pretty good explanation of the UK process here -
I am sure you can but as said earlier… When disputing a debit card they have your money, its up to you to get it back… With a credit card, they dont have your money, the balance of power has shifted and the protection ease of disputing it far greater.
I havent had a non fraud chargeback in years… The couple of dud ebay things all got solved through ebay / paypal resolution… So as fraud is covered, and its low risk, its probably not that great an issue. Gets much moreso where theres a lot of ATM skimming and low barriers of protection as in asia. My plastic got hit for big numbers from the damn bar in the posh yacht club in langkawai, only place I used plastic and soon after hit for 1000s, its rife in asia.
@anon91821566 just some thoughts before the forum concludes that s75 is superior to anything.you could offer due to it being “free”/ funded by cc companies’ hidden fees.
What about giving Monzo current account users the option of payment protection for a chosen transaction via API with the cheapest offer from insurers? When a tranaction comes through on the app over a certain limit there could be an option for a period of time offering ‘Get this purchase contract insured for £(insert best offer from marketplace)’… users clicks through to agree terms and then the tranaction slickly turns Gold like with the card freeze mechanism turning to ice. That would be dope.
I’d definitely take you up on that clean pricing model rather than getting s75 protection from a cc who fund it through all their hidden fees.
I don’t know the average % of tranaction weight that gets returned by the cc companies due to s75 but surely it is negligible. Personally ive spent tens of thousands on ccs and never had anything back due to s75 protection
Or instead of a Credit Card where they can roll a bigger and bigger debt forward as they just pay the minimum each month why not issue a Credit Card as a Charge Card and it is paid off in full each month and balance can not be carried forward. Then the protection of a credit card but no ongoing debt just a few days or weeks credit before needing to pay.
So per your suggestion, I could either use my credit card and get s75 protection for free or I could get my Monzo card and pay for it. Well I love my Monzo but I wouldn’t really be interested in paying more so that the merchant makes more…
EDIT: What @anon44204028 suggests could be a middle-ground solution.
It’s not free though. They are passing the costs on to the retailer who passes it on to you (s75 only applies above £100 and most big ticket items the retailer charges you an extra fee to use a cc instead of debit card) and they jack up interest rates to cover costs as well. I’ll never understand the people who say well ipay it off at the end of the month so it’s free. At some time in your credit life you are going to get screwed like everyone else, and if not you then your mum or your kids or cousin will pay for the costs within the current messed up pricing models in the financial markets.
If it costs 50p to insure a £500 transaction then just charge me 60p instead of making it ‘free’ and going around the houses to charge the retailer £10, force the retailer to charge me £12, then charge interest and fees on the cc balance. This is why i hate ccs and dream of a clean bank like monzo is trying to be.
You raise an interesting point. If we could get merchants to pass on any additional cc expenses to customers, I would be in for your suggestion (and I admit that what you suggest is really well thought). Until then though, you can either get protection for free or pay extra for it, that’s the troubling bit.
About your cc hate, please keep in mind that at this point we are discussing the use of CCs from the side of people who can afford to pay for their stuff directly but elect to not do so in order to get s75 protection. If somebody cannot afford to pay for something using their debit card, s75 or not, extra fees or not, it will make no difference in them using a CC.
Also, is there any tangible difference between paying something with your CC or getting an overdraft to pay for it using a debit if you can’t afford to directly pay for it? Really wondering about that, never used an overdraft so I am not sure about how it works.
For me it’s nothing to do with the borrowing per se. It’s the perks. As mentioned in an earlier thread, purchases on credit cards get an impressive level of consumer protection, and I get 1% cashback on all purchases, for free, which is not to be sniffed at.
In general, there are many competitive financial services offered through credit cards. For example, in the past I’ve used a credit card for £2k of free spending.
I totally agree with you Tom that a debit account is much simpler, more transparent and less treacherous financial instrument, but unfortunately I believe credit cards will continue to offer more attractive deals to the financially savvy for the foreseeable future.
I don’t entirely understand the profit model that funds these credit card offerings, but I assume it’s probably paid for by exploiting the poor and financially clumsy. The credit cards offer attractive deals in the hope that people will mess up their accounting and end up paying the exorbitantly high interest rates associated with standard borrowing. This means that people like me getting 1% cashback, or people benefiting from free borrowing are actually doing so on the backs of the poor.
So perhaps you could convince some of those who currently benefit from cashback / miles credit cards that using a debit account is the more ethical option. Other than that, I’m not sure how else it’s possible to compete.