Monzo’s focus turns to profit

In 2018, you can barely open your door without being hit by a big, flashy ad for a bold new challenger bank. So the news that Monzo – a relatively established name by challenger standards – has quadrupled its losses in a single year could sound warning bells for an increasingly saturated industry.

But that’s not our take. Because, though that was the headline-grabbing figure from the digital bank’s annual report, it came served up with some slices of reassuringly good news. Namely, that its number of users had trebled to 750,000 over the same period, while the costs of managing individual accounts had dropped by 80%.

It’s clear that the demand is there. As we laid out in our white paper on the subject, users are certainly interested in the specific features and services they can only get from players like Monzo, Revolut, Atom and the like. But taking the next step and getting them to trust these newcomers with big-ticket items like direct debits, salaries and rent – the very things that will help Monzo turn a profit – is proving difficult.

The annual report only confirmed this. Monzo reported a little over £70m currently banked with them, which works out at just £150 per user, on average. And while take-up on their new first credit facility – an overdraft function – has been good, it’s not yet enough to outpace operating costs.

Investors are undeterred. In the last 12 months, the digital bank secured more than £70m in funding from a range of sources, who are all betting on the board’s ability to transform potential into profit.

Monzo’s rise from start-up to international player (complete with full UK banking licence) has been startling in its rapidity. In that context, its current teething problems don’t seem so bad – but they have some way to go on their journey to profit.

In our recent whitepaper, we found that the present state of challenger banks is good, but not yet good enough to convince their customers to part with more of their cash. How well they do so in the future will be critical to the success of Monzo and its contemporaries.

You can read our full-length whitepaper on challenger banks here.