Monzo: The Evolution of a Marketplace Model

Updated: Apr 15

Monzo (previously Mondo), founded in 2015 by ex-Starling Bank employees, began as a FinTech with a simple goal to facilitate money management for its users and a desire to revolutionise people’s relationship with their finances.

Despite early comments in 2017 from Monzo’s founder, Tom Blomfield, stating that the goal was never to become a full-service bank, offering mortgages and credit cards, in 2017 the company received its un-restricted banking licence in the UK, transitioning from FinTech to fully-fledged bank. It now offers services catering to everything from budgeting and analytics, to currency exchange and overdraft, Buy Now Pay Later, and, yes, credit.

In fact, unlike other European challenger banks, some of which started as private companies and acquired their banking licences at a later date, Monzo’s founder Blomfield implies his mission from the start was, surprisingly, far from Monzo’s current reality. The things he enjoys in life consist of working with small groups of passionate people to “grow stuff from scratch and create something customers love.” And as Monzo began to take off, transforming from a “scrappy startup” into a revolutionary UK bank, his enjoyment was replaced with anxiety.

Perhaps ironically, and although Blomfield was replaced as CEO by TS Anil in 2020, it is precisely due to these humble and “scrappy” beginnings that Monzo has seen such huge success. Blomfield’s enthusiastic appreciation for passionate people culminated in hackathons and community events that nurtured and prioritised the user’s input, making people feel that finally a bank existed to listen and adapt to their needs. This was key to attracting the 5 million customers it now serves today, the 2,100 people it employs, and a total of $1.1 billion in funds.

Monzo hackathons were not only key to increasing brand awareness, but provided recruitment opportunities by attracting swathes of driven engineers and techies hungry for a challenge. Monzo took customer experience to the next level - from day one the company aspired to create its own full-stack infrastructure, in collaboration with its users rather than for its users. This strategy, in addition to saving the company money on marketing campaigns, made it possible to rally the most unique solutions to the most sought-after demands.

In 2021, only 13 Challenger banks in the world were profitable (C-Innovation). When comparing Monzo to its European competitors such as Revolut, Starling Bank and N26, there is one obvious reason as to why Monzo and Starling Bank, both fully equipped with the elusive UK banking licence, have fewer customers, smaller valuations, and earn less; international availability. A Monzo card is only available for order in the UK, as is for Starling Bank, whereas Revolut and N26 have consistently invested on their expansion in Europe. Revolut has even made it as far as Australia.

The banking and financial services market is becoming increasingly competitive, with a 200% increase in the number of Neo-banks since 2015 (C-Innovation). The Neo-bank model, typically platform-centric, boasts customer acquisition costs ranging between $1 and $38, compared to Traditional banks which pay an average of $200 per new customer. Now with 75 Neo-banks in Europe alone (C-Innovation), each one must find a way to differentiate itself, and its prices, from the next.

Source: C-Innovation Digital Banking Report

As we discover in our recent report, Monzo, with its efforts to remain an ethical, virtuous and customer experience-focused alternative to High Street banks, inadvertently placed profitability in the back seat. Monzo is not the first to fall into this trap, as seen with the demise of Neo-banks Xinja (Australia) and Moven (US), which both relied heavily on shareholder money and were extremely vulnerable to market shocks.

Source: C-Innovation Digital Banking Report

Unlike the latter, Monzo introduced changes to fees and new products during the pandemic, tempering its annual losses which had previously increased by 242% recorded in FY 2020, to an increase of just 0.9% over FY 2021, and attracted £273 million in additional funding from investors such as Tencent and Coatue.

Increasing fees and launching new products during the pandemic, such as Monzo Business and Premium Accounts, enabled the company to make a comeback and illustrated its strong adaptability in the face of a crisis. Monzo took hits not only from the ensuing lockdowns, but also from the government’s response to the pandemic. As it lowered interest rates, Monzo’s income generated from interest on assets held in central banks decreased by 60%, from £6.2m to £2.4m.

Monzo also benefits from being at the forefront of new market trends, and was the first UK bank to introduce its own Buy Now Pay Later Service ‘Monzo Flex’, as well as an innovative new Open Banking software in partnership with TrueLayer to improve gambling blocks.

Despite Monzo’s enormous potential, it has been slow to leverage this compared to competitor Revolut, and does so only when the company experiences a stagnation in growth.

In 2018, when Monzo and Revolut diverged in terms of customer acquisition, this was due in part to Revolut’s expansion to Europe and its recently granted Lithuanian banking licence. Later, Monzo’s discovery in its 2019 financial report that only 43% of people in the UK had even heard of the company provided additional confirmation that the bank needed to do more to stay relevant. This spurred the ‘Give £5 Get £5’ referral campaign in a move to attract customers, as well as the bank’s first debut in the US. Later in 2020 it funded a large TV advertisement and marketing campaign, and now in 2022, Monzo is only just launching officially to all US customers.

Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, nicely summed it up when he said “In the new world, it is not the big fish that eats the small fish, it is the fast fish that eats the slow fish.”

Monzo’s slow introduction of increased (but very reasonable) fees, the belated use of a marketing budget, and the setbacks following a US expansion that could have otherwise been directed more locally and more quickly in Europe, had consequences for the company’s financials. This is the disadvantage to prioritising organic growth and perfecting products according to the British customer, a narrow market compared to that of Revolut or N26.

Regardless, 2022 looks promising for Monzo, and CEO TS Anil expects to increase lending in a bid to become profitable and achieve the company’s Initial Public Offering by 2023. Since its original prepaid card in 2015, the bank has come a long way, and although the journey has not been without its hurdles, Monzo has proven capable of consolidating customer needs with an improved and more sustainable business model.

Learn more by getting access to the full Monzo Deep-Dive by C-Innovation. Alternatively, subscribe to get access to our wider Fintech library, including ‘Ins and Outs of Digital Banks’, a report that provides a comparative analysis of 80 Digital Banks from around the world, and investigates their performances in relation to pre-existing Incumbents, the pandemic, and ever-evolving customer demand.

If you are interested in how the banking industry is changing and what everyone should know about digital banking, take a look at our latest research The Ins and Outs of Digital Banks.

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