I’m interested in your thoughts on the current state of Monzo and its competitors. Here are some general ramblings for consideration:
1: Monzo
Growth: Seems to be a steady increase in the number of signups recently and puts Monzo on course for some significant growth this year but it’s not the infamous hockey-stick. You have to assume that they have all their processes nailed so that if it really takes off then logistically they can scale their infrastructure and card production to accommodate. There was an issue with customer support at the end of 2018 for which they took responsibility but hiring and on-boarding will always be a challenge so this is likely the biggest risk as they scale. We’ve only seen them dip their toes in the water on the marketing side and given what looks like some impressive management information they seem well placed to focus their money in the right direction. However, they don’t seem intent on burning through all that lovely VC cash and so presumably will continue to focus their marketing on the cheaper more viral kind such as the “year in Monzo” feature which was a big hit on Twitter. It is not clear to me that fast scaling isn’t important, I’d be more comfortable as an investor with more money being spent to acquire customers but I appreciate that they appear to know what they are doing.
Features: There was clearly a drive to add the features that made Monzo more bank-like at the end of 2018 and, in general, they have achieved it. There is some polishing still to be done here (joint account CASS for example) but you have to assume that they’ll nail these during the year. While, as users, it would be great to think that the development team could now concentrate on the fun, wacky stuff that will differentiate it does seem inevitable that the next drive has to be activities that start to increase revenue and so my expectation is to see concentration on further reducing costs and getting some regular income. This is partly because the UK financial press seem fixated on income generation rather than the more laissez-faire silicon valley attitude that money will eventually come. I hope that Monzo can resist the draw to be profitable too early to satisfy this small group and instead add more of the Monzo special sauce. As a bank Monzo does need to be sensible and ensure that it is an ongoing business but it is also a true Uber -style startup and some of the value comes from owning a great brand, the power that comes with being at the heart of a user’s life and the other intangibles that will make Monzo a superpower. If they can become profitable while adding special sauce then everybody should be happy.
Complexity: Monzo looks to be built correctly from the ground up. They are solely UK based currently so adding features is not complex in the great scheme of things. Their infrastructure now looks to be solid and scalable and they are well placed to scale and add features. They are already a proper bank and have shown an excellent ability to deliver in terms of migration to current accounts and in terms of delivery of features. They are also not trying to be everything in an app and, as we’ll see with Revolut and Starling, I think that may be helpful in the long run.
2: Revolut
Growth: The growth of Revolut is a phenomenon and is not something that is reflected on much within the community. They do appear to be going hell for leather to be the biggest as quickly as they can and, as a model, it has clearly worked in some industries. (As an example, I have a lot more contacts in Revolut than I do in Monzo so it does seem a very real and present threat.) They are already international and are able to grow in a variety of markets. Metal cards were a hit and you have to assume that they will continue to innovate. New features such as commission free trading will drive additional growth but it isn’t clear to me that this is something people want within an app as opposed to something deserving of its own place on your home screen. Time will tell.
Features: The decline of crypto makes that feature less of a play in 2019 but the addition of commission free trading should more than make up for it. Their model appears to be as a financial control centre and their speed of development really is a force of nature. I don’t know that the user experience and user journeys are as polished as Monzo but perhaps that’s because I spend less time within the app and so am a little more unfamiliar with layout. Personally I stopped using it much when the crypto bubble burst and I didn’t like the fee I was paying but clearly there are a lot of people who like it very much and it shows that people are prepared to pay for a good product. They are a worthy competitor.
Complexity: I fear that Revolut have grown too fast and may regret some of the choices they have made. Let me explain:
a) They operate in a large number of countries and financial regulation is difficult at the best of times. It does mean that adding new features has a level of risk that will be difficult to manage.
b) It is hard to offer a product in multiple languages, customer support in different languages etc.
c) They are not yet a bank. Assuming that this is the end game then the task of migrating users in multiple countries to move to them as a bank is getting harder the more countries they are in and the more people they have on board. It was also a large cost for Monzo when they did it. It costs time and complexity where they will want to be working on other features.
I’m not saying that this can’t be done, I’m just saying that these are overheads on moving forward that Starling and Monzo do not have currently. Their expansion can be more measured as a result.
3: Starling
Growth: Starling is less open about its growth than the other two but it does appear that there are around half a million users currently. There is a lot of advertising on the Tube at the moment and so they are clearly spending to acquire new customers. They have a good product but there is no doubt that the closure of their community has affected public opinion (at least among the cognoscenti in the Fintech world) and I, for one, don’t feel a buzz about the product anymore. On saying that I don’t know too much about them. They did get business accounts out nice and early and there is clearly a lot of opportunity in that space too. Overall, dare I say it, it feels like their growth is stalling compared to the other two but this is purely based on not seeing any open stats. In many respects I read their behaviour as lining them up for an eventual acquisition as opposed to trying to make it on their own. No shame in that and the team there will not doubt get a lovely payday if and when that happens. If I were an old school bank I’d be making them an offer right about now,.
Features: Very similar to Monzo, they show leadership in some areas such as business banking and are agile in completing their “me too” features such as blocking gambling websites. Business account was a win for them over the others and a good play for that money that is due to be shared amongst startups in the business account space.
Complexity: Built well from the ground up. No real issues with spanning multiple territories and already a bank so should be able to grow, innovate and comply easily in a similar style to Monzo.
In conclusion, my forecast as follows:
- Monzo is in good shape to scale and innovate in a sustainable fashion
- Revolut is in good shape in terms of innovation but I fear it may find the migrations to being a bank while staying compliant in multiple territories difficult and I think there is risk there. However, they are real gunslingers and I admire their growth and their incredible development cycles.
- I see Starling being acquired. They would be great for one of the big banks to enter the new world with an established name and would be a good fit. White-labelling for other banks is a good play as well but the best fit to my mind is for them to be acquired.
Just some thoughts and sorry it’s so long!
