There’s some talk about interest rates being on the rise again:
I was wondering what this might mean for Monzo. A few initial thoughts:
- The road to profitability should become easier - more revenue from customers’ deposits held in the central bank.
- A potential increase in the interest rate payable to Plus and Premium customers? Especially if the base rate goes up quite a bit, the current rates could start looking uncompetitive.
- More features in the free tier? By attracting increased customer deposits, Monzo could make quite a bit of money from central bank interest. More features (and less paywalling?) might lead to increased deposits, more #FullMonzo and better returns.
- Greater capacity to incentivise / profit share with customers. For example, the unit economics (the profit per customer) might become good enough to be able to to things like cashback or interest on roundups (yes, these are the Chase features) - and still make a profit.
Having said all of that, it’s an interesting dilemma for the bank: increase the rates on Plus and Premium too much and Monzo actually loses out compared to the free product: the paid tiers work at the moment because you can’t game them to get more in interest than Monzo makes in revenue. But change their interest rates to 5% and that changes…
At that stage in the economic cycle, you might also think about attracting customers to the free tier - more deposits mean more revenue (and eventually more profit). But if you start moving features from paid to free then you’ll need to think about what happens when the economic cycle shifts back again.
Interesting times ahead for Monzo modellers and product strategy!
Keen to hear what I’ve got wrong and how folk think this might play out…