Challenger bank Monzo today published its annual report and it is a fascinating read. Here are the key takeaways according to Computer Business Review.
1) Monzo is a Victim of its Own Success.
The number of account holders at the digital-only bank has surged from just 50,000 in September 2016 to 750,000 today. The bank looks likely to top a million users within months. Good news? Yes and no: with every new account holder, the bank loses money. Losses for the year after taxation amounted to £30.5 million. That’s a hefty 355 percent rise on the £6.7 million it lost the year before. What’s driving this cash-burn?
2) Customer Support is Pricey
Customer support is the short answer: it accounts for 66.67 percent of the operational costs for every account opened at the bank. Monzo says it is looking to reduce that by helping staff work more effectively “with better tools and automation… And we’ll reduce the number of questions coming in with a smarter help screen that lets customers find their own answers faster.” It needs to move fast.
3) Costs are Already Falling Sharply
Monzo has already cut the cost to run one active account by an impressive 80 percent in 10 months – from £50 in July 2017 to £15 today. If that trajectory continues, growth will get a lot less painful from a financial perspective. Meanwhile the bank still has a capital surplus following recent fundraising rounds.
4) There’s Still Money to Burn
Monzo’s costs increased by £26.9 million to £34.9 million this year as a result of investment in the banking operations, with the company becoming a fully operational bank during the year. Total equity increased to £56.2 million as a result of two fundraising rounds undertaken in the year. There’s still money in the bank…
5) Profitability Remains Elusive
The Bank finances its activities through the issue of ordinary shares and through cash deposits. Monzo also issues overdrafts to customers – one of the ways it aims to make money. As CEO Tom Blomfeld puts it: “We’ll also work to generate revenue through lending. We started making overdrafts available in January, and around 37,000 people have now enabled them.” Yet with approved overdrafts thus far amounting to a puny £112,000, as a vehicle for revenue growth, there’s a long way to go. Blomfield said the aim is to reach one billion customers – and get to profitability “very soon”.
Kebbie Sebastian, the Barclaycard veteran who now leads London-based Penser Consulting, told Computer Business Review: “They have the luxury of a lot of liquidity in the market right now and are on the right track. I’d anticipate profitability from lending initiatives would come over the next 18 months. The challenge Monzo faces, like most challenger banks, is that it remains a secondary account for a lot of users. But they have seen great customer traction from a standing start; there are some positive signs here.”