I used to work at an online lender which acquire their customers via an online marketplace (e.g. money super market etc), so maybe I can give you an insight into how those ‘price comparison’ website works and how do companies ‘buy’ customer from price comparison websites, perhaps that can give you slightly different perspective?
There are 2 types of market places that my previous companies used to acquire customers from, and their business models are quite different, but I’ll briefly summarise how they work and how my previous company acquire customers via the 2 different types of market places.
Type 1: ‘Lead providers’.
Customers would go on to these Lead Providers to apply for a loan, then these lead providers will ‘auction’ customers to all their clients. For example, John Smith goes on to leadprovider.co.uk (fake website) and applies for a £200 loan, so based on the ‘credit score’ of the customer (which determines how risky the customer is), the lead provider will then auction this customer to all its client and sell to the client that offers the most money.
So for example, my previous company would see ‘John Smith’ and being quoted for £50. Then based on the customer’s credit score + our own internal statistical models, we would predict the lifetime value of the customer (e.g. likelihood of repaying, likelihood to re-borrowing etc), then decide if £50 was worth it. If we determine that in 12 months time, the customer will only make a revenue of only £30, then we would say no to £50. The lead provider will then ask other clients if they would like to pay for £50, and if everyone says no, then the lead provider will drop the customer to £40 etc, and keep dropping the price until someone’s statistical model says that the customer will be profitable etc.
If we first encountered John Smith via this lead provider, then in 6 months time approached by the same lead provider for the same customer, then we would always say no, and email John Smith to encourage the customer to apply directly via our website (to avoid paying for the same customer twice).
Pros and Cons for this model for Monzo:
Pros: Monzo could shortlist a select companies that Monzo deems ethical/ good enough to sell customers to, to protect the well-being of Monzo’s customer, and would only approach clients only if the customer explicitly consents (customer says they would like to apply for a loan or switch energy provider or credit card etc etc), and with an appropriate pricing model, Monzo would almost always be able to pair a customer with 1 shortlisted product/ company for the ‘highest price’ possible. This would ensure Customer always walk away with a product they were looking for.
Cons: Customer has no say over which product to pick - which product customer ends up walking away with depends on which company is willing to pay at the price Monzo is offering at. Of course customer can always say no to the company they are paired with and ‘re-apply’ via Monzo again hoping to get a ‘preferred product’, but this doesn’t provide the best customer experience and choices. --> Not the best option for customers.
From Monzo’s profitability perspective, Monzo cannot monetise from the same customer once per company as no company would want to pay to acquire the same customer twice, and this would restrict the future revenue stream for Monzo.
Disclaimer : my previous company was a payday lender and this model actually worked quite well in payday world because many of payday customers cannot get credit anywhere else and choice isn’t necessarily the most important thing to them. These customers are desperate for loans and they prize ‘ability to get a loan’ far higher than the cost of loan/ customer service etc. Despite being a very efficient model and ensuring customers looking for a product will almost always walk away with a product, I don’t think this model in my opinion will not work well for Monzo due to a very different customer demographic._
Type 2: ‘Price comparison websites’
This is perhaps a channel I think many people are more familiar with. Examples are Clearscore, Noddle, MoneySuperMarket etc. They essentially work like a search engine for loans. Users will provide their details, then these loan matchers will pull their credit scores, then match them with the providers with a ‘likelihood of being accepted’. Customers then have the ability to choose which product to apply for as all the information is being presented to them (likelihood of being accepted, APR charged etc). The power of choice now lies with the consumer.
My previous company would pay these companies a ‘sunk cost’ which is often quite high for a specific spot in their rankings. For example, if John Smith goes on to PriceComparison.com (fictional) to apply for a loan, PriceComparison will rank 10 loan providers, sorted by either ‘cost’ or ‘likelihood of being accepted’, depending on the customer’s preference.
My previous company (again hypothetical case) pays PriceComparison £50K a month in order to appear in rank #3 for example (third link from the top), regardless of how many customers gets converted. The way we calculate the ‘acquisition cost per customer’ is then £50K divided by number of customers acquired a month via PriceComparison.com. For example, if we manage to get 1000 customers via PriceComparison.com, then our acquisition cost would be £50 (before factoring credit losses + servicing costs). We would then have a statistical model to then calculate what is the optimum price to pay to appear in a given ranking. For example, we would have calculated that it costs £100K to appear in the top spot, but that would only generate 1500 loans (meaning acquisition cost per customer is 100K / 1500 = 66.6), then it’s actually cheaper per loan if we pay £50K to appear on the third link than £100K to appear on the top link.
Again, pros and cons for Monzo:
Pros: Customers will have the power to make informative choice. Instead of being ‘incentivised to convert’, Monzo will receive a fixed income for having a product listed via it’s platform, much like how Google search engine makes money.
Furthermore, many websites like ClearScore/ MoneySuperMarket etc price customers solely via their credit bureau data (and sometimes also their website cookies). However what I think Monzo has to their advantage is the customers’ Payment behaviour and data. I believe that customer’s spending behaviour is very strongly correlated by their credit score and posses hidden data not available in credit scores, and this data would allow Monzo to build a much stronger credit score to determine the credit-worthy versus less credit-worthy customers, then match them with appropriate products based on their risk.
For example, RateSetter would advertise their product on Monzo and MoneySuperMarket for example. But because Monzo was able to screen customers better than MoneySuperMarket, Ratesetter would find that despite paying £66 per customer via Monzo vs £50 per customer via MoneySuperMarket, Monzo customers have 5% default rate vs 20% default rate from MoneySuperMarket, and they actually make more profit per customer from Monzo customers. Monzo therefore would also have the power to charge higher listing fees than its competitors etc and lenders would still choose to list their products on Monzo etc.
Cons: : Ability for Monzo to monetise their customers these way really depends on how likely Monzo customers actually want to purchase a product etc. Also, customers may learn of a product via Monzo Marketplace, but eventually apply not via Monzo marketplace but via the lender’s website on their desktop directly. So from lender’s perspective, they will not be able to see that the customer originated via Monzo and would say to Monzo - why am I paying so much to list my products on your website when I’m not even generating any sales via you?
For a traditional price comparison websites (which most traffic predominately happens via desktop/laptop), everything is tracked via cookies so it’s easy to identify when the customer first sees the product. However, it’s quite easy for customers to view the product via Monzo, then switch to their laptop to actually apply for something and someone else basically takes the credit for Monzo’s advertising effort.
Monzo will have to incentivise customers from switching via Monzo rather than other platform in order to boost ‘sales/ volumes’, in order to persuade third-party providers to continue paying Monzo to list their products on Monzo.
And this brings us to a chicken-and-egg problem - third-party service providers will only want to pay Monzo if it’s worth the money, but with no third-party service providers listing their products on Monzo, Monzo consumers will not choose Monzo as their market place as there are already existing websites to get what they are looking for. Monzo will have to put a lot of effort to encourage third-party service providers and consumers to use Monzo marketplace to build the business case.
I think from a customer’s perspective, I would prefer the ‘price-comparison’ website model, which has worked very well for ClearScore and ClearScore’s customers. Personally I would very much prefer Monzo to shortlist approved companies, then present all the information in a clear and transparent manner to me so that I can decide which product best suits my needs, and apply for it via Monzo with only a few clicks. Monzo also is not incentivised to ‘sell’ me because they receive a sunk cost for each month. Monzo can then increase the revenue they earn by providing the platform with the highest conversion rate to increase their ‘listing fees’ etc.
Edit: I’m not sure if Clearscore uses a bidding system actually. The PCW (price-comparison website) my previous company used has a bidding system, and we basically pay them a ‘sunk-cost’ every month regardless of number of converted customers. I think some PCWs charge about £50 per conversion…