Can someone at Monzo assure us investors that there is no fallout from the SVB crisis happening right now? Does Monzo use SVB?
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Iām going to make a wild guess that Monzo banks withā¦
ā¦Starling?
Seriously though Monzo is a bank, why would it be using another bank. And Monzo will be regularly stress tested etc, there are strict controls on where it can keep assets. If Monzo - another bank - was threatened by the fall of SVB then the BoE would be dealing with that as part of the resolution process.
Nothing to worry about with Monzo basically.
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Security. Iād be disappointed if they kept all their eggs in a single basket in this volatile market. SVB being a case in point. In fact they are probably legally obliged to bank somewhere else.
What do you mean, ābank somewhere elseā. Itās a bank. What function do you think SVB might be performing for another bank.
Of course they have to have a variety of assets in different places, this is part of any bankās capital requirements.
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So, you think Lloyds keep their holdings in NatWest? And NatWest bank with Nationwide? And Nationwide deposit into an account at HSBC? Who bank their takings into Lloyds?
Thatās not how the banking system works.
There are rules and stress tests for banks regarding their capitalisation levels, around making sure they are able to cover eventualities and reduce the impact of of run on a bank.
Monzo comply with these rules in the UK. While things have probably changed a little now Monzo are doing more with Flex, is used to be the case that Monzo barely lent any of their money out and kept a deposit account with the Bank of England, where the money is as safe as it can get.
Part of the reason SVB has failed is because Trump changed the rules in America to reduce the regulations and stress testing of neo banks. Itās arguable that had the rules not been changed, SVB wouldnāt have had the opportunity to crash in the first place.
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Letās hypothesise - Monzo receives 20m in a funding round. They get all that money sent to a bank account they provide. Something causes a run on their own Bank the following week (or whatever). They are only covered for up to a certain amount (I donāt know what it is for a business but it sure as hell aināt 20m).
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This is what stress testing and capital requirements are for. Having the money in another bank would only increase the risk to that money not be available (eg if that other bank failed) in the event of a liquidity crises.
Look I think you may be a bit confused about the banking system but hopefully someone from Monzo will confirm for you that, no, they donāt do their banking through another bank 
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Monzo does use partner banks for some services, such as processing cheques in the UK (NatWest, I believe) and transactions in the US (as they are not a licensed bank over there, they partner with a licensed bank - but itās not SVB).
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Itās worth reading this article about what went wrong at SVB. Thereās quite a lot of detail in it, but it does clearly make the point that risks increased for SVB and if theyād been properly stress-tested they wouldāve known to reduce risk by rebalancing investments or increasing their cash levels.
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I think folks are potentially conflating two things here: customer deposits and VC investment into Monzo.
The former are protected under FSCS and almost certainly arenāt held in a normal bank account in another bank. Monzo used to keep them all with the central bank, but I think the last annual report says that theyāre getting higher yields by diversifying away from that.
On the latter, itās an interesting point. Can/do banks have their own business accounts with themselves? I seem to remember someone asking Tom about this years ago when the assumption was that Monzo would just bank itself. The answer was they actually use NatWest - because Monzo didnāt offer corporate banking accounts.
Thatās right. They use Sutton Bank.
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The big question really, who does the FSCS bank with? 
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you and me - the taxpayer
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Rather than demanding Monzo āassureā the holy investors, they should try educating. Jeeeeees.
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I donāt think itās an unreasonable question, tbh.
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Of course you donāt.
Why is it offensive? Educate me.
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You might be waiting a while.
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Yes, and I was really talking about a third thing: banking services to enable Monzo to process transactions.
The banking system is a very interconnected thing!
It is, but a big part of the BoEās regulatory regime is about trying to make sure one bankās collapse doesnāt bring down another. If a tiny bank like SVB going down could bring down a bank like Monzo with 7 million peoples deposits, that would be an almost unthinkable failure of everything built since 2008.
The BoE already said there isnāt a risk to other financial institutions with this one, so we are in the clear. They hopefully wouldnāt be putting SVB into insolvency if there was (theyād at least be using a bridge bank or something).
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I can try do the education bitā¦
As mentioned above - I think itās easiest to think of Monzo (or any other bank) as doing 4 things:
- We hold customer deposits - that could be for business banking customers or consumers.
- We provide banking services/ products to customers - For example plus/ premium, visibility through trends, etc.
- We perform payment processing operations which connects customers deposits to the outside world through the payment schemes (Mastercard, BACS, Faster payments, cheque processing, international payments, ACH (in USA), etc.).
- We operate as a business - Exactly the same as any other business; we have payroll, rent, invoices, etc. to pay and we receive money from VC funds, business activities, etc.
With these 3 groups of things, we can then think about which parts are performed by Monzo and which are done by another āpartnerā bank:
- Since Monzo is a bank, customer deposits are held with Monzo - I believe this is in accounts with the BoE but tbh iām not sure how this technically works behind the scenes - but this element isnāt important for what weāre talking about here. This is literally what it means to be a bank - to hold your own customers deposits. As another example, Revolut is an eMoney account and so theyāll use a partner bank to hold their customer deposits.
- Banking services such and plus/ premium are provided by Monzo. This is pretty obvious but I added it in for completeness.
- Payment processing operations are provided my Monzo but we may use a partner bank to simplify the process - Theoretically we donāt need a partner bank here at all but when youāre just getting started you donāt want to spend lots of time integrating fully with every payment scheme and so itās often easier to build on top of the systems that another partner bank already have in place. Thereās a great blog post explaining this in more detail here.
- Lastly Monzo as a business needs a business account - Since Monzo now offers business accounts - this could be with ourselves. However, it doesnāt have to be and at the moment, given the needs of Monzo as a business, using the Monzo business account wouldnāt be appropriate for a company of Monzoās size and complexity (Maybe it will be one day). I believe there are also some complexities in reconciliation processes if we were to use our own business account because youāre then using your own reconciliation processes to reconcile your own accounts. Also like most of you have multiple bank accounts - as a just in case - Monzo as a business can also have multiple business accounts with different providers.
As mentioned above, weāve other banks as our partner bank for payment processing in the past but the majority of payment processing now doesnāt rely on a partner banks as weāve integrated directly with the schemes.
Iām not going to comment on SVB or who Monzo uses for its business accounts (not least because iām not 100% sure).
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