Growth Rate (y/y)
Note: Revenue, loss and growth figures as reported by Monzo. Monzo's financial year runs from March to February.
Monzo made £154M in FY2022 with a loss of £120M. Its revenue rebounded in FY2022 after plummeting in FY 2021 as COVID-related lockdowns reduced debit card use, and it cut down on lending due to £20M of credit loss in FY2020, reducing interest income.
Half of its revenue comes from interchange fees when its customers use debit cards for transactions and almost one-fourth from interest earned on loans and overdrafts. Key drivers of revenue growth in FY2022 are a 100% increase in interchange revenue and a 4X increase in paid subscription revenue, which reached £19.6M in FY2022, compared to £5.3M in FY2021. Monzo has 5.8 million customers, including 430,000 paid consumer and business accounts.
Note: Revenue, growth rate and valuation estimated based on publicly available information. Size of the bubble indicates valuation.
Monzo has raised $1.2B from investors like Tencent, General Catalyst, Accel, and Coatue. It was last valued at $4.5B at a valuation/revenue multiple of 24x. Its direct competitors have a wide range of multiples, with Revolut at 85x, N26 at 39x, and Starling at 16.5x. Publicly traded fintechs have lost significant value as their average valuation/revenue multiple plunged to 4.4x. This makes Monzo richly valued compared to its public peers. Even privately held fintechs raising new rounds are doing so at substantial discounts. For instance, Klarna raised a new round at an 85% discount to its earlier valuation of $45B, and Stripe recently reduced its valuation by 30%.
Monzo was launched in 2015 to offer a mobile-based consumer-friendly banking experience, compared to traditional banks' branch-based and expensive banking experience. Instead of making money from lending or charging hefty fees, Monzo’s business is anchored on taking a cut out of the financial transactions it processes while giving away core banking products for free.
Its bright-colored debit cards and features like no overdraft fees, quick account opening, instant payment notifications, and Venmo-like P2P money sending, attract younger customers in the age group of 18-34, who form 3/4th of its customer base. Access to customers' financial data enables Monzo to offer new products, which it can push to all 5.8M customers as an app update with no incremental CAC. This has the dual advantage of expanding transaction volume and reducing operating costs.
In the long run, Monzo aspires to be the money app on your smartphone that you use for all types of financial transactions. Monzo introduced paid consumer and business banking plans in FY 2021 to monetize the existing users, as its user and transaction growth slowed down.
Monzo’s products can be classified into consumer banking, business banking, and personal lending. The features a customer gets depend on their subscription plan.
- Consumer banking: Customers get a checking account and debit card plus features like P2P payments, no overdraft fees, instant notifications, etc. Monzo offers two paid plans at £5 or £15 per month that provide premium cards and features like interest on checking accounts, insurance, virtual cards, and the ability to integrate other cards to Monzo’s app to track expenses.
- Business banking: Business customers get free UK bank transfers and digital receipts, besides basic Monzo features. By paying £5 per month, business customers get the ability to integrate their accounting software to Monzo, virtual cards, multi-user accounts, and invoice management.
- Personal lending: Monzo offers personal loans at 8.9% APR and overdrafts up to £2000. It recently started offering a BNPL product, Monzo Flex, as part of its lending portfolio.
Monzo is the largest neobank in the UK, with 5.8M customers, compared to 3M of Revolut and ~2M of Starling and Monese each. However, Monzo only has a UK banking license and cannot operate in the EU. With 97% of the UK adults already having a bank account, it means that for Monzo to grow, it has to acquire customers from traditional and neobanks.
Traditional big six banks, including HSBC, Lloyds, and Barclays, have 85% market share. They have taken steps like dropping or curbing overdraft fees and improving the mobile app experience to stem the loss of customers. Neobanks increased their market share to 8% in 2021, primarily consisting of digitally native younger consumers. While Revolut and N26 focus on geographical expansion, Starling focuses on B2B banking and selling BaaS to fintechs, Monzo positions itself as the everyday bank for everyone with an uncomplicated core banking experience.
One of Monzo's key challenges is that customers use it as their secondary account, which reflects in Monzo’s average customer deposit of £765, compared to £10,60 for Lloyds and £25,000 for Natwest.
Layering more consumer banking products
The UK financial services market is relatively dis-aggregated, with customers using Monzo for banking, eToro for crypto, Freetrade for equities, and Atom for mortgage. The opportunity for Monzo is to aggregate this demand on its platform through its own products or third-party partnerships where Monzo acts as the distributor. Monzo’s customer base is predominantly less than 34, so it can grow with them to offer different products at different lifecycle stages.
Expanding business banking
Monzo has more than 250,000 retail customers who also own small businesses. Thus, Monzo has an opportunity to grow its business banking portfolio by targeting SMBs in two ways. One is to offer more core banking products like SMB lending, business credit cards, and forex management. The other equally significant opportunity is to provide SaaS such as credit cards-based expense management and account payables management, directly or through third-party integrations.
Slowing customer growth
Compared to traditional banks, Monzo's business model is more reliant on acquiring new customers to achieve critical scale of transactions processed. Thus, slowing new user growth is one of the biggest challenges for Monzo. New accounts increased by 16% in FY2022, compared to 150% in FY2020 and 167% in FY2019. The paid business accounts grew to 50,000 in the first six months but took another 12 months to rise by another 50,000.
Another significant risk for Monzo is its low ARPU compared to traditional banks and other neobanks. One of the reasons for low ARPU is that 50% of its revenue comes from interchange, which is capped at a mere 0.2% for debit card transactions in the UK. Monzo launched paid products, but only 4% of its user base has upgraded thus far.
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