How does Monzo make money?

[anon40779440]

Curious to know how Monzo makes money currently, and how it plans to in the future? Does it take a share of Mastercard’s fees from point of sale? Or maybe does it invest a proportion of deposits. And will this change when the bank account product is available?

[thomaswelton]

No sure if Monzo is currently making money.
But it’s first product will be overdrafts, and will make money from that.

https://monzo.com/blog/2016/09/07/our-approach-to-overdraf…

[Andy1 (Andy Little)]

I think, like most startups, it’s losing a lot of money right now but plans to turn profits later.

[anon44204028]

Just to compare with Metro bank, that has been running since 2010, and three years after launching they were still making a loss. However the fact Monzo has no branches should help to ensure we turn a profit after a reasonable period.

[alexs (Alex Sherwood)]

Monzo doesn’t have any products which generate significant revenue at the moment. Tom has been reported as saying that

@alexs

his startup bank loses on average £40 per year per user at the moment.

but

@alexs

losses on customers will be cut by about £20 a year when it launches its own current accounts early next year.

then when the overdrafts are launched

@alexs

this should take them to break-even

I’ve provided more of a summary of Monzo’s plans for it’s product strategy / business model here this morning -

Product expansion plans?

As you & Richard have mentioned, the plan is to begin offering overdrafts next year. Tom has said that overdrafts will enable Monzo to break even. Then the next products that Monzo will focus enabling users to purchase next year will be which will probably be delivered through Monzo’s marketplace. Tom has talked about Monzo’s approach generally being to enable customers to select the products they need from multiple providers, through that marketplace, rather than Monzo providing them directl…

if there’s anything else you need to know, it’s probably been mentioned somewhere else in the community so please feel free to ask

[alexs (Alex Sherwood)]

Turns out Monzo is actually losing £50 per user, per year until the current accounts launch.

[BobT (Bob)]

How will Monzo make money?

From https://monzo.com/invest/monzo_investment_deck.pdf (page 13)

“In the short and medium-term, Monzo will make money by lending out deposits, without hidden fees or charges”

“Long-term, profit sharing and affiliate fees on third-party products will be the main source of revenue”

I’m guessing that profits from Monzo’s clothing range might just about cover a round of drinks on a Friday afternoon

[tommy5dollar (Tommy Long)]

Yeah, pretty confident they mean financial products, not merchandising!

[BobT (Bob)]

Yeah, I was thinking about a third revenue stream!

[Sukamol (Yindee)]

Just curious. It look like you nearly dont charge any fee from customer so how your get a revenue.

[adam.williams]

This has probably been discussed a lot already (did you search?), but to summarise: overdrafts and marketplace functionality (e.g. relevant offers for your utility needs, potentially cashback deals etc).

[Anarchist (Press ‘Help’ search ‘Contact us’ or email help@monzo.com or call 0800 802 1281)]

@BobT

I’m guessing that profits from Monzo’s clothing range might just about cover a round of drinks on a Friday afternoon

Not if they invited me, it wouldn’t

[samw (Sam Watkin)]

@BobT

I’m guessing that profits from Monzo’s clothing range might just about cover a round of drinks on a Friday afternoon

Somewhat irrelevant to the conversation about our business plan, but all the profits from Monzo - Make money easy go to Turn2Us . They do amazing work fighting poverty in the UK, and you should totally donate to them, as well as buying t-shirts

[db94 (Ritchie Latham)]

I’d like to re-phrase the original question, if I may. As a Monzo believer (and an investor) I would like to do whatever I can to help Monzo succeed - but I draw the line at unnecessary or overdraft fees (sorry! ). So my question is: what would be Monzo’s ideal (most profitable) usage scenario right now for someone who is just operating a ‘normal’ current account? As there’s currently no lending, and therefore no net interest margin (NIM), how does Monzo make money from other activities? Is it benficial if I direct more spending through my Monzo debit card? Hold a larger balance for some non-NIM reason? Set up bills and direct debits? Just spread the word to friends and show off the app? Or even just not use the account much at the moment??

I realise that the costliest customers were most likely those using it exclusively to withdraw large amounts of cash from ATMs in sub-saharan Africa, but who are the most lucrative?

Ta

[Anarchist (Press ‘Help’ search ‘Contact us’ or email help@monzo.com or call 0800 802 1281)]

They certainly aren’t keen on any ATM cash withdrawals.

[Alranson]

This is a great question!
I can posit two answers:

1. spread the word. The higher the customer growth, the easier and cheaper it is for the business to raise funding (which for an existing investor like you is a very good thing). VC investors buy in because they believe it will achieve scale - so help prove them right.
2. borrow. That’s how banks make their money. If you don’t want or need to borrow, then do as little as possible. Maybe wait for the day they offer bike or phone or travel insurance, then buy that.

[anon40728597]

Interesting article (opinion peice) I saw in the FT…

https://ftalphaville.ft.com/2017/11/29/2196236/digital-banking-a-tough-way-to-make-money/

[Apostle]

Oh dear. No wonder there is a push to control costs.

[alexs (Alex Sherwood)]

Here’s what the author of that story’s missing, according to one of Monzo’s co-founders Jason Bates (& me)..

Digital banking: a tough way to make money

[anon40728597]

I think I roughly agree with your points. It just sounds like usual resistance to change !