I understand what you’re saying there, it seems like there’s a bit of a conflict of interest for Monzo who want to earn revenue from overdrafts but are providing tools so that we can manage our money & don’t need to use one.
In reality, even with the best tools, Monzo is still going to have plenty of users who need an overdraft -
So the question is, what are the benefits of providing these features to users & do they still help Monzo earn revenue? There’s several ways that they do -
- Providing superior features vs the banks is what draws customers to Monzo in the first place. Specifically the unique features like the ability to freeze & unfreeze your card and the instant transaction notifications, with a live balance, among others.
- I might be reading too far into this but the targets functionality appears to have been carefully designed to primarily draw the user’s attention to how much they have left in their account & then realise “I don’t have enough to get me to the end of the month”, at which point, the app has probably spotted that too (see the balance projection in the pulse graph) and has offered them an overdraft, which the user’s more likely to accept.
Whereas standard approach to budgets is to show the user that they’ve spent x out of their total budget so they’re more focused on how much they’ve spent, rather than how much they have left (even though the former is clearly displayed in the app too).
So the design of the app plays an important role here.
- Adding functionality like targets & savings pots / virtual savings accounts (roadmap) increases user stickiness.
There isn’t another bank (as far as I’m aware) that provides accurate, easy to manage categorization which feeds through to targets (the categories do need some attention but that’s on it’s way). So if you’re serious about managing your money, Monzo is a pretty good option.
By themselves, savings pots aren’t groundbreaking, all banks allow you to open as many separate savings accounts as you want online.
But linking savings pots to targets (something the banks still haven’t been able to do) so that the money you’re trying to save is deducted from your available funds for that category or the money that you’ve saved is shown in addition to your available funds (or something more clever, that I haven’t thought of), makes both features much more useful.
Once you’ve been managing your money using these features for a while, you’re less likely to be tempted away (by other service’s features anyway, obviously financial incentives are still a significant factor).
The last thing to bear in mind here is that Monzo’s overheads are much smaller than a traditional bank’s (I’m paraphrasing a quote from Tom there, that I can’t find anymore).
In 2014 Barclays spent 3 billion pounds on tech…they obviously make a lot more money than Monzo too (in a good year). But because Monzo doesn’t have to maintain the massive amount of the infrastructure that’s required to run a legacy banking system, it’s cost base is much lower. So it doesn’t need to make as much revenue from it’s overdrafts as a bank would have to, in order to cover it’s overheads.