Digital Banking: End of the Beginning for Monzo

Four years after it began life as ‘Mondo’, digital banking fintech disruptor Monzo has become a firm favourite among young urbanites as its bright coral-coloured card was the one for millennials to flourish from a wallet or a purse.

The challenger bank is mainly used by young city-dwellers with 81% of its customers 39 and under, and 58% of its 2m customers earning over £30,000 a year; however, it is now turning its attention to an older, more affluent audience, in what many are seeing as the end of the beginning for the bank.

After a botched attempt to launch a premium service, Monzo Plus, in April – a launch its chief exec admits it ‘fluffed’ – it is now preparing to launch its long-awaited metal card to join the other prestige card issuers such as Revolut and N26.

Monzo Plus allows the account to be customised, including a personalised link that lets people request money directly as well invites to Monzo events and ‘swag’; premium subscribers are also offered travel insurance add-ons and higher cash withdrawal limits.

‘preparing to launch its long-awaited metal card to join the other prestige card issuers’

Its premium digital banking service should help Monzo attract more affluent clients that will use more banking services, and in turn seek to balance its books; in common with many of the fintechs the company has seen its losses mounting – reaching £47.2m last year,  up 54% year-on-year

However, funding has certainly not been an issue for Monzo; over the past year, investment has poured in, doubling its value to £2bn, following a fresh round of investor funding.

It has attracted customers as well, reaching 2m and adding 35,000 new customers per week; chief exec Tom Blomfield believes that figure could hit 3 million soon.

Despite the mobile bank’s heavy reliance on technology, its approach to marketing has been rather more traditional; in May, it launched its first major TV advertising campaign, signing up 10,000 customers on the first day.

‘This is the first year we’ve done significant amounts of paid marketing,’ said Meri Williams, CTO. ‘We’ve always had this really interesting social effect where we’re recognisable.’

‘it launched its first major TV advertising campaign, signing up 10,000 customers on the first day’

To become profitable, the business will need to expand beyond the young millennials taking advantage of its £500 overdraft limit and help consumers overcome any nervousness about moving away from big, traditional banks.

Initially, what set Monzo apart from traditional banking was its superior technology – it is ‘digital-first’ allowing everything to be done easily on a smart phone; it quickly gained traction and an air of exclusivity by using an invite-only customer acquisition scheme.

It maintained this by only slowly rolling out current accounts when it achieved its full banking licence in April 2017, and was seen as the hip bank with a slick look and air of exclusivity.

Building on its hot coral colours and styling, Monzo’s premium digital banking service includes a range of offerings only available for exclusive customers, with a metal card as a talking point.

Monzo launched its plus subscription in May, available in bundles ranging from £4.95 to £12 a month, and touted as ‘your invite to the easy life’; it offers added benefits like worldwide travel and home insurance, discounts and exclusive products in the hope of attracting more mature, and wealthier clients.

Despite the great strength in its brand, other digital-first disruptors have found that the next phase of disruption can be just around the corner unless you constantly innovate and evolve, and Monzo approaches its challenge as a rolling series of evolutionary changes.

Its website tells its customers ‘we’re building Monzo Plus with you, and so we’ll be adding lots more over the next few months to make it even better.’; this test and learn approach is typical of a company that relies on community feedback as part of an iterative process.

Monzo is now testing out a £7.50 charge per month for its contemporary metal card, on top of the minimum £6 for the Plus subscription; certainly de rigueur, it has created design prototypes of the metal cards, that will allow Monzo customers to personalise and add some panache to their debit card collection – 25 years after Amex pioneered the concept of a debit card as a status symbol.

However, not everyone is convinced: ‘Metal cards are a 100% (dysfunctional) fad in a category starved of meaningful innovation,’ said Neil Robinson, co-founder of creative studio, Chapter, ‘not to say they don’t look great, but if Apple’s card is anything to go by, the form factor is as useful as the Touch Bar.”

‘not only fighting to stay ahead of rivals like Revolut and Atom, but also the ‘next big thing.’’

The ultimate goal for the challenger bank will be to take takeover from traditional banking – not only fighting to stay ahead of rivals like Revolut and Atom, but also the ‘next big thing.’ In the past year, Monzo has added services that were only offered by traditional banks; it recently announced loans starting at a competitive 3.7% although Monzo’s minimum rate when borrowing £500 is almost double that at 6%.

Unlike some traditional banks Monzo doesn’t pay interest on its standard accounts, but it has made business accounts a reality, whereby companies can set up a full UK bank account in minutes; its challenge will be to ensure its digital-first approach continues to bolster it, rather than hinder as it seeks to emulate many of the traditional banks’ offering.

Last month, a security glitch forced Monzo to reveal that almost half a million customer’s accounts could have been affected by a data breach and advised customers to reset their pins; as high street banks bolster their own technical capabilities, such events could convince the customers that Monzo Plus targets to stay with the tried and trusted.

Whether Monzo or any of its peers will achieve the scale and become a real challenger to traditional banking is yet to be seen’; if not, they could be part of an acquisition game, and if that is the case the constant addition of products and services could be seriously bolstering valuations that already seem stratospheric.

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