How should Monzo get paid for marketplace products?


(Phil Hewinson) #1

Hi all! I have a big question I’d love your feedback on: how do you think Monzo should get paid when people sign up to marketplace products?

For example, if we notice you might be able to save money by switching energy providers and suggest an alternative supplier, if you do decide to switch, that supplier will pay us.

Here are a few thoughts on our side:

  • The simplest model is for the partner to pay us a flat commission for each new customer who signs up. For example, they could pay us £50 and we might choose to split this with the customer who signs up: we get £25, and they get £25. The issue with this approach is that it might incentivise us to switch a customer every year, even if it isn’t in their best interests
  • A model I prefer is a lifetime revenue share model, whereby the partner pays us a fixed amount or percentage of revenue / profits for each year that the customer stays with them. This aligns Monzo better with both the customer and our energy partner as we benefit when we pair customers with the energy supplier that best meets their needs and gives them the best value. (That’s assuming we get paid the same amount by each partner of course!)
  • In general, a useful philosophy might be to ensure we are paid a fair and finite fraction of the value a customer gets by switching. For example, if we save a customer £250 / year on energy costs, making £25 / year seems fair, but making £250 / year doesn’t!

At Monzo we’re trying to build a better bank, and a big part of that is coming up with a business model that aligns us as closely as possible with our customers. Traditional banks make most of their money by lending, so are incentivised to have hidden fees and high charges.

Instead, we’re trying to build a marketplace model where we make money when we help our customers save money or make more of their money by connecting them to the best products and services on the market.

We need to make money in order to have a sustainable business, so coming up with the best way to make money is important. I’d love your feedback as we figure this out. Thanks!


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(Jake Tame) #3

Further to that the offer has to be as good if not better than bypassing Monzo. I agree that Model 2 is better suited but there is nothing stopping someone seeing a decent company in app and finding a better deal outside Monzo. Such as the recent trial with Bulb.


(Johnny Ellwood) #4

The fact that you guys are asking is what makes :monzo: awesome. I think option 2 will be the way to go personally. That way like you said you won’t get into the position where someone could be pushing for the best comission even if it’s not in the customers best interest.

I doubt that will ever happen but it will also take away any accusations:monzo: might get in the future.


(Geoff Pascoe) #5

Surely you can’t go with a percentage of revenue/profits? If you did that Monzo would be incentivised to sign customers up to the most expensive providers possible. A fixed amount would be a less bad idea…


(Marta) #6

Okay, so I want to mix things up a bit more.

The biggest risk for the marketplace, in context of credibility, is that Monzo will promote some companies more than others. In my eyes, regardless how Monzo says that’s not the case, it will not convince everyone. Some people were born sceptics and they will not want to hear otherwise.

Just to iterate, my views are totally the opposite of thinking that Monzo’s plan is a cash grab, deceit or to abuse user’s trust. This is, however, a very polarising area that can cause a ton of mistrust from users. My rules above are just formed about Monzo creating a Marketplace that no user can mistrust in the first place.

My ideal rules:

  1. Ideally, all companies regardless of the industry would pay same percentage commission. :money_mouth_face::money_mouth_face: If that’s too crazy, divide them into types, gas/electricity, insurance, investment and ISA and so on, and take % commission depending on the industry. If a company sells multiple products from few industries (can’t think of an example), each product would have applied ‘industry’ commission.
  2. I think the commission should be applied for some period of time, but not forever. If acceptable, make it same regardless of the industry, I’m thinking about maybe ‘one year’ commission period? For example, staying with travel insurance for another year is a pretty good testimony for the company.
    Monzo Marketplace will not be an exciting product for companies if they will have to discount product endlessly just because it’s via Monzo. If commission period ends, it might motivate companies to work on customer retention really hard because once the ‘commission period’ is over, their return is higher.
  3. No additional bonuses for Monzo for switching. Sorry, but that’s the suspicious bit Monzo could be accused of, so you can’t get money from it. :smiley: By creating a business model that doesn’t allow corruption, there’s not much shady stuff that Monzo can do. :wink:
  4. No ‘upsells’ for companies to be ‘featured’ or ‘recommended’ :no_entry:. Only Monzo decides what’s recommended, not a company who paid for it. This is the very misleading marketing tactic, and I don’t like it because it works SOOO well. Companies pay for advertising models like this, because it works. I will be quite sad if Monzo takes this road. It might be a bit too hyperbolic statement, but it’s preying on gullible users who might not have enough expertise or be able to dedicate enough time to make a good call on product/company.

Rule 2 is optional from my point of view as a Monzo user. However, I can’t ignore that if Marketplace is not exciting from ‘business’ point of view, it will hurt me as a Monzo user if I won’t have enough choice.


Rule 1 - it does mean what @podgib mentioned, the higher commission comes from a more expensive product. But fixed amount doesn’t solve it either:

  • more expensive products can afford to pay higher commission (and incentivise Monzo to do shady stuff)
  • cheaper products might not be able to afford a fixed commission, therefore avoid participating in Marketplace (“I’m too cheap already to afford to advertise” effect). While percentage commission won’t negate it completely, it can be more digestible than the fixed rate.

I’m hoping that % commission between products with more or less comparable price will be similar enough to not cause cash grab effect from Monzo.


(Dan Woodhouse) #7

The problem with any sort of % commission is that it gives the impression (it doesn’t matter whether this is Monzos intention or not) that they’ll push the more expensive products.

I think the idea of saving the customer £250 = £25 sends the right sort of message because the bigger the saving for the customer the bigger the commission for Monzo.


(Jason) #8

I think preferably :mondo: should get paid in Sterling. This will be good for them as the Pound strengthens over the next two decades.


#9

Lol! That was so wry it went over everyone’s heads. :smile:


(Max Walker) #10

Me also, As long as the deals themselves are worth it for the consumer. Monzo gets a little, the company involved is likely to be cheaper (because they aren’t handing out a massive commission upfront) and the profits go back to providing a good banking service with things like commission-free international purchases.

Please though don’t have a vote about it, I was sick of the ATM discussion by the end.


(Phil Hewinson) #11

Thanks @Avishai - some great thoughts here. The challenge with a one-year commission is that would financially incentivize Monzo to switch the customer to another provider after the year. For example, Bulb offers a single tariff that doesn’t increase after a year (unlike most energy suppliers), so the customer shouldn’t need to switch (assuming the Bulb price is still competitive and they still provide a great service).
However, Monzo would stop making money from this customer, but could make money by getting them to switch to another provider. This would cause a misalignment between Monzo and our customers’ incentives, which I’d like to avoid where we can. If we take a % of their revenue / profits, as long as the company is still making an attractive profit, a life-time rev-share should still be attractive to them. Moreover, they should still be incentivized to work hard on retention as a customer can easily switch to another supplier through Monzo if their standards lapse / prices stop being competitive.


(Geoff Pascoe) #12

Surely taking a % of revenue / profits would also cause a misalignment between Monzo and customers’ incentives? Monzo would be incentivised to get customers using companies with higher revenue per user, rather than companies with cheaper prices…


(Phil Hewinson) #13

@Avishai considered this well above - there’s no clean solution to this, but hopefully the differences in providers isn’t too great to cause a large misalignment.


(Marta) #14

@philhewinson If Monzo doesn’t have sponsored companies or other upsells, I don’t think I would mind Monzo putting a more attractive competition in my eyesight. If Monzo sees that X company is genuinely better (rating, price) than Y company, and I’m using Y company, Monzo should feel free to recommend me X company - I’d go as far as saying that’s what Marketplace is about.

Whether it will restart commission or not - I don’t mind, but only as long as there’s no shady marketing/advertising that’s focused on getting people switched just for the sake of switching. Even if restarting commission will - in the worst case - end up as a goal, it still seems subjectively less bad than Monzo getting switch bonus.

I can see how life-time revenue share is attractive to Monzo, but can you explain how Monzo would be then incentivised to get users best recommendations and best companies on board? If Monzo is already earning revenue, then Monzo might not give a damn about helping users make better product choices. Since many switches are financially motivated (cheaper product), with each switch Monzo will earn less revenue. It could mean that we end up on totally opposite side, (hyperbole incoming), where Monzo users Marketplace as a bait to lure users to take % off companies, and Monzo wouldn’t want people to switch. :wink:

Time-limited revenue share might incentivise Monzo to analyse market better, so Monzo can really offer users better comparison of products, get the best companies in their industries on board and create permanent nirvana state - everyone uses the marketplace, every company is on marketplace, and users are always happy because they know they are on the best product (because Monzo had shown them relevant metrics to help them make a decision). Because people switch anyway, I don’t think there’s a risk of running into no one ever switches anymore state.

It seems quite obvious that lifetime revenue will be higher than time-limited revenue share. However, another argument around it was to make Monzo more attractive to companies, especially those who already provide neatly priced product and live on low margins. What is Monzo’s point of view for ‘we are to cheap to advertise’ syndrome? :slight_smile:


(Duncan) #15

Hi @philhewinson,

The lifetime revenue share model is interesting, but you absolutely need to get the same commission per product category, and it has to be a fixed amount and not a percentage. If not, your customers won’t be able to trust that the “best” deal that you are promoting to them is actually the best for them - it might be that you are getting a bigger commission. It can’t be a percentage because then the conflict of interest will be that you are incentivised to promote more expensive providers as this directly increases your income and thus profitability (a provider might end up excluded from even being part of the search by not being able to cut a partnership deal with Monzo so that they don’t appear as a cheaper option in the comparison).


(Alex Sherwood) #16

That doesn’t make sense to me - as long as there aren’t any artificial incentives to make them behave differently, presumably companies will set their pricing based on supply & demand. So if Monzo takes a percentage of revenue then a company that sets a low price for it’s service will not earn Monzo very much commission per sale but will sell more, which means Monzo earns just as much commission as it would from a company that’s set a higher price & sells less as a result.

But users would have to understand that logic, to avoid being put off my that approach of course..as we’ve seen with the foreign ATM withdrawals poll, users don’t always educate themselves enough to figure out what’s really best for them.

On the flip side, if Monzo tries to take a fixed fee, then companies that operate with small margins would be unable to offer their products in the marketplace because if they did, then they would make a loss / insufficient profit from their sales.


#17

Perhaps Monzo should also pay as small commission to the company when the customer leaves? This would definitely incentives Monzo to seek out the best products…


(Duncan) #18

My comments were directed at @philhewinson, but to address your points:

In a highly competitive market where switching product is a mere tap or two on a smartphone, prices are likely to homogenise. I am not objecting to percentages per se, but different, undisclosed percentages per provider.

Obviously Monzo isn’t going to set its fees high enough that the end company can’t make a profit (or actually makes a loss?!), so I think that this part is a straw-man argument. While large companies can benefit from economies of scale, small companies can benefit from lower overheads, and more modern technology (witness: Monzo itself), so I don’t buy the argument that Monzo should create preferential policies for companies with small margins. As I stated: I think that the deals should be transparent (to users), fixed (in amount), and uniform (across a product category).


(Alex Sherwood) #19

Emphasis mine.

We’re on the same page here, I wouldn’t want that either.

To explain, I don’t think that Monzo negotiating a separate fee with every provider would be efficient, in terms of setting up these partnerships quickly, with a wide range of providers & it seems unlikely to be fair to them either, if competitors are being charged different fees. Or if you set the same fee for every provider in a certain category then some of those, with the different models & cost structures that you mentioned, would potentially lose out. A percentage removes that complexity & potential conflict.

I feel like I could be oversimplifying this though so it’d be good to hear if I’m missing anything :slightly_smiling_face:


(Duncan) #20

I’ve been thinking a little about this. I think that we are both worried that the marketplace won’t be good, but have different concerns. You want it to be open to as many suppliers as possible, and I think that is a laudable goal which I share. But my worry is, I think, less concise to convey. It’s tied to some larger ideas. I think that there is a conflict of interest at the core of this marketplace idea, and my worries about that conflict colour how I see it working optimally. The conflict is the same that Google and Facebook have in the advertising space - the user is the product. In their case the person paying the bills is the advertiser, and so the advertiser is the customer and the user’s privacy pays the price. I worry about an analogous thing happening here, where Monzo’s users are the product and Monzo’s suppliers are the real customers. As positive and open as @philhewinson sounds, the unfortunate reality is that Monzo is a business and with this business plan there is an unavoidable conflict of interest at the core.

Ideally Monzo would get users to pay for the service; that way the users’ interests will always genuinely come first. With the bills covered at home Monzo could charge a (reasonable) small fixed fee for referrals, rather than trying to fund themselves by parasitising parts of their partners’ businesses. But, sadly, it seems unlikely that Monzo are going to change their proposed business model because some guy on the forums posted some commentary.

I’ve worked in Shoreditch for a long time. I’ve seen firsthand the decision to make the user the product, what it does internally to product direction. Frustrated, disenchanted developers leaving the sinking ship like so many rats. Monzo’s not there yet, but it’s hard to turn an oil tanker round… and your business plan is kind of like an oil tanker once you’ve taken on ~£40M in funding. C’est la vie.


(Alex Sherwood) #21

Could you please expand on this?

In Monzo’s case, they have specifically said that they will protect user’s privacy -

As we’ve seen with the testing of the energy partnerships & as Tom’s mentioned, Monzo users may effectively pay for the services too, by sacrificing some of the savings that they could have gained, if they had signed up with the supplier directly. But as far as I can tell, that will be the cost to the user (in return for convenience), rather than privacy.

Monzo is offering suppliers a way to access users without paying for marketing & in return, they’re taking a portion of the incentive that the supplier would have paid the user to get them to switch & / or some of the money that they would have spend on marketing, in order to earn revenue. Once Monzo’s has enough users, that could mean that the supplier actually saves money compared to traditional marketing methods, while the user benefits from the insights, along with frictionless access to & management of, the service.

The reality is that if Monzo doesn’t enable access to useful suppliers & give useful recommendations, they won’t earn revenue. So there’s a clear incentive for them to make this service work for users, as opposed to users simply being taken advantage of. Call me naive but it seems like a win / win to me - I don’t have a problem with the suppliers benefiting too.

I’m strongly opposed to that idea because it immediately creates a barrier for those who can’t afford to pay for the service. Presumably if Monzo want to achieve their goal of offering the current accounts to the unbanked, that’s not an option. It sounds like you may have accepted that already though..

What do you mean?