Monzo CEO on 20VC Podcast

Quoting not working properly - h/t to @chrisdalziel in the Monzo in the Media topic who found this podcast:


This really deserves its own topic!

Some highlights from me:

  • £145 ARPU (Average Revenue Per User) for retail (personal) customers; £550 ARPU for business customers

  • In comparison, TS says that high street banks have an ARPU of £300-400 for retail

  • Monzo makes money from 1/3 transaction fees, 1/3 from on-balance sheet lending (loans/overdrafts/Flex), 1/3 “good” fees - subscriptions / interest margin etc.

  • TS seemed a bit dismissive of US efforts to date - first iteration was about trying to get the licence. Sceptical that current accounts are the key market entry point there - still working out the best product for customers. Trying to find the unique US differentiator. US plan is to build product, find the right fit, then be ambitious in finding scale. But still working on strategy.

  • Investments - TS did one interview and that evening had 150k signups same date.

  • 3/7/90 resource allocation across US/Europe/UK. Will invest much more when have product market fit.

  • On Europe, working on which markets. Long-term want to be big across all of Europe, but thinking carefully about sequencing for success. Too early to say which countries are one and two targets. Ireland is the regulatory base.

  • Biggest European challenge is different customer base, different pain points and understanding different markets. Looking for a business with high engagement and high ARPU. Not looking at thin presence for the sake of it.

  • Really big emphasis on trust, engagement and love for Monzo. 7x more likely that customers will say they ‘love’ Monzo than other banks. Therefore earn the right to do more.

  • IPO - have patient and supportive investors who will fund more if needed. Long-term ambition to go public. Too early to say where they’ll go public. No decisions made yet.

  • Next investment round will be patient capital, long-term investors.

  • Thinks there will only be a handful of companies like Monzo working at scale, building businesses with extraordinary margins and growth, over the next decade.

Definitely worth a listen…


Comment:

I’m always struck by TS when he talks about user trust, loyalty and love for Monzo. Every time I hear that now, it grates because the biggest thing for me that establishes trust - excellent customer service - is missing. I know that Monzo will be balancing profitability against spend on things like customer service, but I worry - a lot - that folks stay with Monzo in spite of the customer service, not because of it. And that they have created a long term albatross for short term gain.

I hope I’m wrong. And I hope that, as profitability increases, the quality of customer service will increase. But let us see…

9 Likes

I thought it was a really good interview, despite my misgivings about Stebbings, who I find grinding.

Good write up of the key points, interesting on the ARPU that the big banks cross subsidies their customers via mortgages, and that Monzo strategy on mortgages was fixing the front end without the pain of them on the balance sheet. Loved the insights into how they made it through 2020, and the approach to product.

I like TS, I don’t think customer service is that bigger issue to be honest to people outside of this bubble we’re in on here, it obviously isn’t showing in the customer research they are doing.

2 Likes

My instinct (not intuitive, not data based) is that it’s not generally a problem until it is. I’ve a couple of friends who were evangelical about Monzo then had really poor experiences so just went elsewhere.

But yet Monzo keep getting high satisfaction scores… So nothing changes. I suspect, though, the US and Europe will need better support - the Monzo halo I think is probably a particularly British phenomenon…

1 Like

Thanks for the summary Peter. I haven’t listened yet, and I could be wrong, but the above feels like the same figures which were in the last annual report (ca. 8 months ago) as opposed to updated metrics. Would have hoped for some more current data from TS.

Your comments around the US are very interesting, I’m surprised they’re not throwing the kitchen sink at it.

1 Like

Sounded very much like they’re just experimenting, trying to find product/market fit. TS seemed to imply that a credit product could also be their foundation in the states (like the current account is here).

I wouldn’t be surprised. It was friendly and interesting, but TS seemed very well prepared with stock answers and data. Point in case: what do you wish you hadn’t done / what would you shut - energy switching. All fine, decent conversation, but seemed very drilled and very stock to me. But perhaps that’s what a CEO should be doing.

1 Like

Valuation speculation - I’m aware this is a can of worms and baked full of assumptions and ‘what ifs’

Some rough calcs - (Obviously they didnt start the year at these customer numbers or ARPUs, just the only proxy ive got):

  • 11 million customers * £145 ARPU = £1.6bn
  • 500k business banking customers * £550 ARPU = £0.275bn

Total revenue = £1.875bn

I don’t really think £20bn range is out of the possibility at all at 10x (ish) revenue. If growth maintains at the same pace and if they’re successful in EU & US. I think this could even be a conservative estimate

2 Likes

Agree. But before I get rich on speculated investment returns, TS seemed to imply they’d go out again for private financing (long-term investors like pension funds) - which might dilute things significantly.

Still… good news, hopefully.

I was just about to comment on this, having listened now I thought that comment was particularly interesting in light of recent coverage about a ‘potential’ IPO in 2026. It doesn’t feel like they would necessarily need more capital, but maybe if they crack PMF in the US they might go gung ho and need more funding, which could also get the valuation up before IPO.

Why do you think this could dilute significantly though Peter?

1 Like

Oh now you’ve got me speculating - naughty!

What was our last valuation? 4 billion? So a valuation of 20 billion is an increase of 5, So a share price of 72!

No I’m not playing that game again, I am assuming I will get a share price of £1.19, whilst the VCs will get the £72 - that seems to be the going rate for fintech at the moment.

1 Like

So Monzo makes £145 per customer.

But when you consider that you have to be passed around 4-5 COps to actually solve your issue, I struggle to see how they’re making any profit on that :joy:

Wise’s recent trajectory and current revenue numbers looks strikingly similar to Monzo and they’re trading at c.£10-12bn market cap.

Sounds about right and would be a 2-2.5x increase on the last Monzo share price.

I see you’re familiar with the work of Freetrade.

1 Like

Any investment would come with dilution surely?

I suppose I was assuming that patient capital would want long term returns and that the investment would need to be a significant quantum to make it worth their while.

But I’ve not really thought it through properly! What do you think?

1 Like

Dilution for sure, just not sure I agree it would be significant in nature.

I would hope that they would be raising at a significantly higher valuation, so dilution would be less relative to other raises.

1 Like

Maybe dilution (new investment) and some more share buyback at the same time? :crossed_fingers:

An exit opportunity for early shareholders would be a win win. Less dilution, crowdfunders have the option for liquidity, new investors get to buy in.

Everyone wins. What’s not to like?

That’s the sad reality, they have shown time after time going they go for lower valuations versus expectations - these naturally dilute more, especially the crowdfunders. Also low valuations incentivise early investors to come in to prevent their diliution and favours recent investors more. I wish these companies, especially ones with strength like Monzo would grow a backbone.

The game is corrupt for sure.

Employees are usually safe guarded because they get options likely at lower prices too.

Anyway I’m sure all investors will make money - but crowdfunders will get a 5x and a pat on the head to say well done, now go and play.

Monzo is a bank - and we all know what bankers care about more than anything else.

Unfortunately they absolutely will shaft us crowd funders when the time comes - sorry

1 Like

I like TS too. Comes across as extremely inelligent and the right person for the job wihout giving anything away. Quite the politician!

46:28: “…this IPO decision… it’s an unmade decision… but it does require that we think diligently about it in the coming months and years

As an investor, I’ll wait. Given the current trajectory, the longer time goes on, the more valuable Monzo becomes.
*Not investing advice

2 Likes

Tom on the US market

Tweet in full;

I think there are 3 big reasons that mass-market neobanks haven’t taken off yet in the US.

  • Venmo and cashapp took the oxygen out of p2p payments in the US. This was a big growth vector for both Monzo and Revolut in Europe.

  • Much less frequent international travel by most Americans means that cheap FX isn’t as important as in Europe. Another big growth vector for Monzo and Revolut gone.

  • Credit card points (and building a credit scores to a lesser extent) are so central to mainstream US customers that a debit card + checking account is not even remotely attractive. The banks that already have massive scale can secure much greater share of interchange from the card schemes and fund higher reward points.

Its almost impossible to compete on points if you’re sub-scale.

Bilt somehow managed to convince Wells Fargo to fund a crazy good deal to give customers points on rent payments. But Wells Fargo are trying to back out of it because it’s costing them so much money.