Over here, some of us were talking about whether it’d be a good idea to create a lower paid Monzo tier. £2/month was the figure being bandied about (mostly by me).

I thought I’d crank up the spreadsheet and make some guesstimates at costs, revenue and profit - and see if a lower tier would be financially viable for Monzo.

Here’s my working!

- I’m comparing this to the Monzo Plus tier. This generates
**£5/month**revenue for Monzo, with a**three month minimum**term. - There are a bunch of fixed costs for Monzo Plus - I’ve estimated them as follows:

Item | Estimated Per User Cost to Monzo |
---|---|

Holo Card | £3 |

Virtual Cards | £2.50 |

I’m assuming that each user will use all five virtual cards and they cost 50p to provision. I imagine it’s cheaper than that, but I have no frame of reference - shout if you have better figures!

Now, on to the monthly costs to Monzo:

Item | Max User/Month Cost to Monzo |
---|---|

Max interest (calendar month) | 1.666666667 |

Cash deposit | 0.5 |

Overseas allowance | 4 |

The interest figure is a calendar month calculation of interest payable (in reality it’ll differ because different months are different lengths, but annualised it’ll still end up the same so I’ve stuck with this for simplicity). I’ve also assumed that Monzo is making no profit from PayPoint and that the each user maxes out their overseas allowance (calculated as an average of 2% of £200 for ATM fees per month).

Now, you’ll notice that this puts Monzo at a loss. But it’s unlikely that every user will max out these three things. So I’ve made some more assumptions: that, on average, Plus members use two-thirds of their interest allowance, that they use one cash deposit every four months, and that they go away four times a year and max out their allowance every time. So that gives us some different numbers:

Item | Max User/Month Cost to Monzo |
---|---|

Max interest (calendar month) | 1.111166667 |

Cash deposit | 0.125 |

Overseas allowance | 1 |

Adding this all up gives us some profitability figures:

Total for the period | Average monthly profit | |
---|---|---|

Average profit (3 months) | 2.7915 | 0.9305 |

Average profit (12 months) | 27.666 | 2.3055 |

So, a three month stint on Plus would give Monzo just under £1 of profit on average (assuming that everyone orders a physical card and uses all the virtual ones) . But the longer a user holds an account, the more profitable it becomes.

Going back to the conversation over here, it seems (to me at least) that a £2 figure isn’t too far off the ball-park for a lower-tier that is software features only. The issue will be how much would Monzo drive additional sign-ups versus cannibalising Plus?

Assuming these figures are in the right ball-park, I think it’s certainly do-able.

Do pick over and challenge these figures, by the way - they’re built on the sand of assumptions so making them more robust would be really helpful!