What’s Next For Monzo?

Since launching in 2015, Monzo’s development has been nothing short of phenomenal. Almost 1 million users own one of their instantly recognisable coral cards that seem to be ubiquitous in London’s coffee shops and bars.

But as with all great fintech companies, Monzo can’t stand still. They must evolve. Past success doesn’t guarantee future returns and it feels like their development has reached a turning point. Growth marketing has rarely been done any better, but, of course, turning hype into sustainable revenue is hard, especially as organic user acquisition tails off. It’s going to be fascinating to see how Monzo turns PR and popularity into sustainable growth. Monetising its base and building services that attract different users is the challenge.

The company’s recent funding round means they can no longer be considered a challenger. So, what is Monzo now? And what does it want to be?

Tooling up

Monzo is raising $150 million at a $1.5 billion valuation, rocketing it into the unicorn stratosphere where it joins the likes of Funding Circle, TransferWise and Revolut at UK fintech’s top table. It’s heartening to see Silicon Valley’s VC heavyweights involved in the round.

But Monzo doesn’t turn a profit, and it won’t anytime soon. Last year, it made a loss of £33m on revenues of £1.8m. That valuation is based squarely on growth, with 18,000 customers joining the bank each week and 4 million users projected within a couple of years.

Phenomenal growth means a phenomenal valuation. Investors seem comfortable with profit not being a near-term priority. As CEO Tom Blomfield says: “Our investors are totally aligned with our plan and completely comfortable that we are not looking to break even this year or next.”

Future plans

A vast user base gives immense flex but also great responsibility. To date, plans for revenue and growth remain discussed but unconfirmed and unproven. But fulfilling a valuation of that magnitude – and rewarding investors who back it at that price – means profitability before long.

Blomfield talks ideologically of “a control centre or dashboard for your financial world”, which hints that a broader range of products will be introduced. There is also the possibility that by “financial world”, Bloomfield means a world beyond money management.

There are rumours of customers being able to choose savings and loan providers, as well as offering management of utilities, such as gas, electricity and broadband. With that in mind, the possibilities seem endless – but not all possibilities lead to profit.

Marketplace banking

In a 2016 blog post, Bloomfield wrote, “the bank of the future will be a marketplace,” clearly referring to the approach above where your bank is no longer just where you silo your money. Rather, it will be the portal through which you manage all the parts of your financial life.

In theory, this sounds attractive, especially for generating revenue. The opportunities for partnerships seem limitless. Investors are likely betting on this utopia. But banks have had ambitions like this before, with products like insurance and mortgages offered in house.

So, what is different this time, other than the bright pink card? Well, we now have the technology (mobile, cloud) and progressive regulation (Open Banking) that might allow marketplace banking to become a reality.

Ambitious plans

However, to achieve that vision, each service in that “marketplace” requires cementing a partnership with another entity, agreeing to a revenue share, and realising the cross-selling opportunity. That’s not an easy task, and revenues may prove elusive. Despite protestations that it isn’t in the business of maturity transformation (taking deposits and issuing long term loans), that is still the backbone of the banking business model and the easiest way to get sticky customers and revenues. As the company – and its deposits – scale, that seems a logical step that would be a bold, significant statement of intent. And it would further round out the marketplace approach.

Monzo’s next phase is uncertain but it will be fascinating. We will all be watching and wishing them well as they set out to deliver a utopian promise to their burgeoning user base.