Overdrafts. How will they work?

(Matthew Farrington ) #1

Hey, this is my first post. I thought I’d ask as I couldn’t find it anywhere on your forums. How would you provide overdrafts? Would it be the same as normal banks credit checks decline/accept. Or would you provide then in a different way?

(Charlie) #2

There’s a great blog post from @tom that has a screenshot of what a Mondo :mondo: overdraft may look like (amongst other things)!

(Matthew Farrington ) #3

That’s not a bad blog post. But it doesn’t show how mondo would do the overdrafts. Like for example would a normal credit check be in place or because it could only be a week would you do this different then any other banks etc? Just thought I’d ask to see what your ideas were. Would you provide long term or just short term overdrafts etc. I understand if this hasn’t yet been thought about as its early days :slight_smile:

(tom) #4

Hi Matthew - welcome to the forum!

We’re working on our overdraft strategy at the moment (and hiring a Head of Lending if you know any credit experts!).

We’ll be keeping our lending policy relatively simple and conservative in the early days, based on a credit check. Some overarching principles:

  • We’ll tell you before you go into negative balance and give you a yes/no choice to take an overdraft or not.
  • We’ll tell you how much the borrowing will cost in pounds and pence, as well as the % EAR
  • If you don’t want to borrow, there will be no charges for bouncing payments

In due course, I’m sure @paul will follow up with a more in-depth post on borrowing.

Applying for Overdrafts
What We Know About the Overdrafts / FAQ :moneybag: (open Wiki)

“Would you like £x overdraft for a week costing £y at z APR” is a LOT more helpful than the standard “pre-advice of charges” but not as helpful as it could be.

If it drew more from the payday loan user experience (bear with me) than the incumbent overdraft experience I think it would be a real draw for customers. E,g, customer can set up salary reoccurrence in settings then the app can inform them “You get paid on the 20th May and you are low on cash. If you would like an overdraft until this date, Mondo can lend you up to £500” (choose dates and amounts to reveal APR and cost). I realise you don’t want to be associated with payday lenders but their user experience is absolutely fantastic which (apart from credit crunch) is a key reason why people have turned a blind eye to the interest rates they have charged. The greed and lack of due diligence has brought many of those companies down, but you cannot knock their user experience and should not steer away from incorporating it because they have been disgraced on other grounds.

I saw Tom on a TV panel getting grilled by a panellist who was trying to pick a hole in Mondo’s business plan, arguing that their model of charging 20% to borrow is ripping people off, asking if it is a credit card or what? Tom was trying to explain that the charges are completely transparent and there are no other fees whatsoever, but somehow it came off that Mondo is just going to be another bank ripping people off.

Whilst I thought it was biased and they were just trying to rough Tom up, I don’t think hailing the transparency and lack of fees as the unique selling points of the overdrafts is a winning strategy (I invested so I feel I’m entitled to comment on that). If you make the transparency understated (not being ripped off should be a given, not a delight) and use tech, value and user experience as the selling points, I think you can really steal the market.

If you could trumpet that your overdrafts are cheaper than all of the incumbents (even 1% lower gets the medallion), your app is so intelligent that it can estimate how much you need and for how long, and customers can arrange them effortlessly with one click of their smartphone, the overdraft will be a real selling point and not just a necessary evil to monitise a free service.

Those are just my thoughts on the matter, feel free to disregard them :slight_smile:

(paul) #6

Hi @rarther @Matthewleigh23 and @charlie :wave:

What a bunch of fascinating questions and comments, thank you for sharing them! I’m not sure that in the UK we talk very much about overdrafts and they are almost part of living with a quarter of Brits are overdrawn halfway through the month.

As @tom has already said, we’re working on our overdraft strategy right now and so this feedback is really helpful. As far as term goes @Matthewleigh23 we are currently expecting to offer overdrafts without an end date, that said, overdrafts are usually “repayable on demand” (this is due to capital reasons which I can explain if you really want me to! :mortar_board: ) although in reality this is a condition rarely used by a bank and :mondo: will be no exception.

@rarther I agree with you that in terms of user experience there is something to learn from some of the payday lenders, although the interest rates charged is not a place we will be going. I’m also not sure that a 1% cheaper strategy is either a winner or the right thing to do because % is only part of the answer. Indeed, I once heard that 80% of people don’t understand percentages and the other 35% just don’t care. (oops sorry, bad joke alert)

Also, you may have noticed that a number of banks have changed their overdrafts from %interest to daily fees like £1 per day. That sounds really good on the face of it and easy to understand…but as result %interest doesn’t get displayed. “So what” you might ask, it’s only £1 - well how about this:

You go overdrawn £100 with Mondo at 5p per day (20% EAR) or maybe 10 per day (40% EAR), or
You go overdrawn £100 with ANother :bank: at a “super easy” to understand £1 per day…that’s equivalent to about a 360% EAR

Thoughts back please!

Competitor update
Inspiration for Humanitarian Banking 9.0
FCA acts to improve competition in the current account market
Product expansion plans?
The Overdrafts Pricing
Idea: Monzo for schools
(Joshua Turner) #7

With overdrafts I prefer percentages, this is me believing I have more control over repayments and charges​:roll_eyes:, I’m not sure how it all works but can you calculate a live overdraft fee value per request or end of day - like how old banks​:bank: show you owe £1 per day? For example you go overdrawn £100​:watch:️ and you see in-app​:iphone: that you owe 5p today, you spend another £50​:pizza: you can see you owe 6p today​:thinking:. You do use bankers rounding don’t you? :sweat_smile:

So throughout the days until payday you can keep track of the charges you owe in-app, makes it so much easier😎. (went for that whole emoji think, looks good)

(paul) #8

Hi @JoshuaT showing you clearly every day what your overdraft interest is (in pounds and pence :moneybag: is exactly what we’re thinking! :sunglasses: