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July 5, 2017updated 07 Jul 2017 5:15pm

Monzo banks on current accounts as losses climb to £7.9 million

Monzo has the situation under control for now, but will likely need to gain more funding in 2018.

By Tom Ball

The Monzo pre-paid card service is continuing to haemorrhage money as customers numbers increase consistently. A pre-tax annual loss of £7.9 million has now been accrued, but plans are in place for current accounts this year.

In light of this problem,  Monzo are directing its growing customer base toward a new current account option, cutting out the cost of the pre-paid service.

While the current account is not yet available to customers, there are around fifty being used by staff, and plans targeting the end of the summer are in place for widespread launch.

The pre-paid account option costs Monzo money per customer, per year, resulting in huge spending due to the growing number of customers.

Tom Blomfield, CEO of Monzo, said: “If we continue to grow at this rate, we will hit somewhere between 500,000 and 800,000 accounts by the end of the year. To continue to offer the level of support we aim for, we will need to significantly expand our team; we’re looking to bring on around 40 new customer operations staff in the next six months.”

“Having built direct connections into Mastercard and Faster Payments, our unit economics will improve dramatically once customers move to the current account. The prepaid scheme loses around £50 per active customer per year. Simply by moving to current accounts powered by our own technology, we plan to significantly reduce this amount,” said Blomfield.

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In April Monzo gained its full banking license after carrying a restricted license for the two years prior. This fast progress has been fuelled by impressive funding, including a crowdfunding haul that left Monzo with £22 million after the Series C investment round.

READ NOW: Monzo momentum mounts amid massive fundraiser

This strong start has fortified the young challenger bank well for the losses it is facing, but according to Finextra, Tom Blomfield has said the bank has enough capital for another year. He said it is likely that the bank will look to the market for funding in 2018.

Organisations such as Monzo are set to gain a boost from new open APIs from Open Banking; these will support banks, fintechs and others in building new applications.

Imran Gulamhuseinwala, Trustee of the Open Banking Implementation Entity, said:  “The specifications we are releasing today, which will be live from January next year, provide the platform for developers from banks, fintechs and other organisations to build new web and mobile applications that will deliver a safer, more personalised and easier banking experience for consumers wishing to search, select and switch financial products in a secure environment.”

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