Is Monzo affected by SVB?

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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I’m going to make a wild guess that Monzo banks with…

…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. I’d 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.

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What do you mean, ‘bank somewhere else’. It’s 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 bank’s 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?

That’s 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. It’s arguable that had the rules not been changed, SVB wouldn’t have had the opportunity to crash in the first place.

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Let’s 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 don’t know what it is for a business but it sure as hell ain’t 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 don’t do their banking through another bank :melting_face:

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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 it’s not SVB).

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It’s worth reading this article about what went wrong at SVB. There’s quite a lot of detail in it, but it does clearly make the point that risks increased for SVB and if they’d been properly stress-tested they would’ve 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 aren’t 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 they’re getting higher yields by diversifying away from that.

On the latter, it’s 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 didn’t offer corporate banking accounts.

That’s right. They use Sutton Bank.

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The big question really, who does the FSCS bank with? :upside_down_face: :joy:

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you and me - the taxpayer

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Rather than demanding Monzo “assure” the holy investors, they should try educating. Jeeeeees.

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I don’t think it’s an unreasonable question, tbh.

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Of course you don’t.

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 BoE’s regulatory regime is about trying to make sure one bank’s collapse doesn’t 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 isn’t a risk to other financial institutions with this one, so we are in the clear. They hopefully wouldn’t be putting SVB into insolvency if there was (they’d at least be using a bridge bank or something).

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I can try do the education bit…

As mentioned above - I think it’s easiest to think of Monzo (or any other bank) as doing 4 things:

  1. We hold customer deposits - that could be for business banking customers or consumers.
  2. We provide banking services/ products to customers - For example plus/ premium, visibility through trends, etc.
  3. 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.).
  4. 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 “partner” bank:

  1. Since Monzo is a bank, customer deposits are held with Monzo - I believe this is in accounts with the BoE but tbh i’m not sure how this technically works behind the scenes - but this element isn’t important for what we’re 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 they’ll use a partner bank to hold their customer deposits.
  2. Banking services such and plus/ premium are provided by Monzo. This is pretty obvious but I added it in for completeness.
  3. Payment processing operations are provided my Monzo but we may use a partner bank to simplify the process - Theoretically we don’t need a partner bank here at all but when you’re just getting started you don’t want to spend lots of time integrating fully with every payment scheme and so it’s often easier to build on top of the systems that another partner bank already have in place. There’s a great blog post explaining this in more detail here.
  4. Lastly Monzo as a business needs a business account - Since Monzo now offers business accounts - this could be with ourselves. However, it doesn’t have to be and at the moment, given the needs of Monzo as a business, using the Monzo business account wouldn’t be appropriate for a company of Monzo’s 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 you’re 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, we’ve other banks as our partner bank for payment processing in the past but the majority of payment processing now doesn’t rely on a partner banks as we’ve integrated directly with the schemes.

I’m not going to comment on SVB or who Monzo uses for its business accounts (not least because i’m not 100% sure).

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