- interest charges
- fee to hold credit card (usually premium cards)
- Late fee charges
- Higher interchange fee income for monzo
- Fx markup (hopefully not for monzo, but it is for others)
- 0% cards create income from all of the above
- One can sell credit card loan book later on (see mbna take over by Lloyds, or Virgin Money merger)
- People become more full monzo / plus / premium
Here’s an article on various revenue streams available to credit card companies
Monzo could perhaps target revenue from balance transfer fees - making a big deal of potential for Monzo budgeting and tracking tools to help people lower their debt more quickly if they move it to Monzo.
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Don’t think I’ve ever had a card where I’ve paid a fee to have it.
Out of that list the only ones that’ll generate money for my card providers will be the interchange fee. Whenever I’ve done a balance transfer it’s always been to a fee free card, so I’ve not paid a % of anything.
But you can’t expect them to just hand out money. They are a for-profit business.
Yes, I agree, ideally it would be a win-win situation i.e. they make £X and are able to pass some amount of £X onto customers like me and you but ultimately that £X probably comes form customers anyway
I think the cards with zero transfer fee typically have shorter interest free spending periods. At the moment there doesn’t seem to be a card on the market with with combination of more than 18 months interest free spending period and zero transfer fee.
To get longer interest free period you need to pay a transfer fee.
There’s probably also a large proportion of credit card users who don’t have good enough credit history to get offered zero fee transfers.
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I think my last was just before the latest lockdown, guessing the market has changed a bit since then. My latest I think was 18 months, which means I’ll have paid it all off in that period. To be fair I could pay it all now but easier just doing the small monthly payments now it’s 0%
What if they made it part of Plus/Premium and you get better benefits at each level?
You could have basic card for anyone, then extra benefits at each level for Plus/Premium account holders. May make the subscription services more attractive.
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As others have said, there are other revenue streams, but for most credit card companies (especially in the UK where interchange on credit cards is 0.3% vs ~2% in the US) the vast majority of revenue is going to come from customers who get stuck in persistent debt and pay interest on their balance! In my opinion, 0% balance transfers are somewhat just a marketing ploy to bring in customers who will inevitably end up in persistent debt and pay interest for years. You can think of the different scenarios:
- Customer transacts £1,000 each month and pays off in full. Revenue per year = £36 (12 * £1,000 * 0.3%)
- Customer balance transfers £1,000 with 0% APR and 3% transfer fee and makes all payments. Revenue per year = £30 (£1,000 * 3%)
- Customer balance transfers £1,000 with 0% APR and 3% transfer fee but misses payment after 6 months and starts being charged 20% APR. Revenue per year = £142 (£1,000 * 3% + £12 missed payment fee + (20% / 12 months in a year) * £1000 * 6 months)
- Customer takes out credit card with balance of £1,000, just makes minimum payment, maybe misses 3 payments a year. Revenue per year = £236 (3 * £12 missed payment fee + 20% * £1000)
I’ll repeat my comment from earlier:
Full transparency, we’re looking into something which hopefully takes some of the good bits from credit cards but removes some of these bad bits - Afraid i’m not going to go into more detail as it’s still early stages, but i’m excited and more should be revealed in the next few months! 
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Totally agree. However the ancient system of deposits/holds and non-instant refunds keeps me using one. Fortunately it seems we’re moving in the direction of instant refunds.
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Thanks, Theo!
I was wondering if there was a revenue stream I missed, especially for the 0% offers, that was more (for want of a better word) ethical, but seemingly not.
A couple of thoughts on interesting areas that Monzo could perhaps explore (or maybe has already ruled out), then one on community:
- I’ve said it before, but I’d be interested in the idea of a line of credit. Would it be feasible for Monzo to offer a credit facility, of say £5k for an eligible customer that they could split across overdraft, loan and “credit card”?
- I was thinking about my (very nice) metal card. Mastercard might be the blocker here, but I was imagining a scenario where I just have one card, but the underpinning rails change depending on what I use it for. For purchases, it identifies as ‘credit’ giving me consumer protection and Monzo a bit more interchange. For cash deposits, it’s whatever PayPal needs to be. For ATM withdrawals it’s debt. And so on… In the app everything would come out of my current account, with the line of credit acting as an overdraft. That model would make much more sense of the old loan product for specific purchases, if you could tap on a big one and access immediate (existing) credit for it…
These are all thoughts of an enthusiastic amateur on the internet, so I don’t expect anything like this to happen. But might be some interesting food for thought!
My comment on community is a bit of a reflection. Online communities are usually excellent at alpha and beta stages for products. Co-creation, idea storming, rapid testing is all really good and helpful - but as a rude comment in reply to me expertly demonstrates, Monzo is now a little too big for that. So how can companies like Monzo get some of that dynamic energy that early stage companies get, for their early stage products? I have no answers, but I mention it because I think that rethinking credit (cards) is an area that could really generate buzz and ideas - how do you distinguish between stage of company and stage of product?
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If others took your approach, a suitable reply might be along the lines that they don’t really care for your opinion, either. But most people are too polite for that.
Taking the invective out - and hunting really hard for the point: companies need to make money to be in business. You would do well to consider that there are two sides to any relationship, including commercial ones. Of course commercial businesses need to make profit; of course they should offer customers benefit.
So, you might want to take a deep breath, think about what’s driving businesses (or just folk you meet in everyday life). If you understand that, then you might be able to understand their perspectives a bit more, find a win-win scenario - in this case finding a scenario where a credit card works for Monzo and works for us, the consumers.
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Interested in this too, and support a lot of your thoughts overall ofc.
I may have misunderstood, but was talking to someone from Canada recently who seemed to be suggesting this was how their credit card and mortgage worked - in that the bank had just extended them X amount of credit.
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I think that’s totally how things work for business - but I might be mistaken.
And I think @j06 has said that there used to be offset accounts that did this sort of thing in the UK. So I’m not sure it’s particularly new, but maybe its time has come again?
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I’m just thinking really expansively here. I’m not saying that Monzo should do this - or even if it’s possible - but it’s an interesting thought exercise, rather than a blueprint, I think.
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You’d be surprised at how many people on the internet really aren’t.
I really don’t know what point you’re trying to make here. Monzo will only launch a credit card if it works for them. I asked a generic question about business models. Stop trying to make it a zero-sum game: you are (of course) entitled to focus on your interest and your benefit. That’s basic economics: I’m with Monzo because it offers me utility. But you only get the opportunity to vote with your wallet if a product if offered. That’s the point.
As for me, I enjoy talking about what sort of product Monzo (or Starling, if you’re a holy warrior) could release that would work for them and work for me. If you don’t like that, don’t engage.
Are you saying that @TheoGibson and co. shouldn’t be posting on here? Or that I shouldn’t be interested in business models and product? If you are, then one of us needs to leave the forum, because we both can’t be in the right place.
Is this a Donald Trump thing?
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One the biggest thing I like about a credit card is section 75 protection, especially with COVID. So would hope whatever form the Monzo product took, included this
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Having a little more time, let me expand on my thought processes here. Having read it back, I really sympathise with @ndrw - what I was saying sounded confusing.
Here’s a dubious insight into my mind:
- First thought: a Monzo credit card would be great because you’d get instant notifications and richer merchant data than you do for connected cards.
- Second thought: Because it’s a Monzo credit card, you can then do some deep integrations with the current account that they’re struggling to do with connected accounts. E.g. you spend on a credit card and that amount automatically gets moved to a pot.
- Third thought: I have a metal card because Premium. I’d probably do my day-to-day spend on a Monzo credit card instead. I wonder if Monzo have considered that? Would a credit card be limited to Plus/Premium? If so what style/material for the card?
- Fourth thought: Actually if I just wanted to use one card, then I could use the credit card - and hope that I can get a metal one - one for all purchases. I’d then set the app to automatically pay off each transaction as it happens, so it’s basically like a debit card.
- Fifth thought: It could be quite neat if they brought back the old ‘spread the cost’ concept: you select a transaction and it moves back to the ‘credit card’ so you can pay it off over a longer period if you want.
- Sixth thought: Let’s be radical and combine the overdraft, credit card limit and loan offer!
- Seventh thought: We now don’t need two cards! Perhaps with some Monzo magic I could just make use of one metal “credit card” that also works for debit stuff (like withdrawing cash etc). It’d also be better for the environment!
So that’s how I got there. I think sane people would probably stop at thought three or four!
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I don’t quite understand this line you are pushing (not being critical!).
Would I have say a £10k credit limit with Monzo that could be on a loan, card, overdraft etc? Why is that better? It sounds confusing to me
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If we go back to first principles, what even are loans, credit cards and overdrafts? They’re all ways of buying things that you don’t have money for at the moment. But they’re all slightly different, with different APRs and different terms around them - and different markers on your credit file.
If we were to rethink this from the basics, then it strikes me that there’s a need for “credit”, coupled with some nice regulatory / consumer protection things (like section 75). Do they really need to be separate things? If Monzo said that I’m good for £5k, and I could choose whether to use that on a card, as an overdraft or for a loan, does it really matter?
I’m just trying to prompt some debate on what a contemporary product might be - I don’t really know what right or wrong looks like, but I think it’s worth challenging some of our preconceptions about financial products and what they actually are. Let me say again, I’d be horrified if anyone took this idea and just ran with it without critical thought!
I’d love it if @TheoGibson or someone could give us an extended blog after they launch (or shelve the idea) of the thought processes, trials and experiments - including all the things they considered but ultimately set aside - as well as how they ended up with whatever form the final product takes!
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This would absoutely be better. For example If your bank gave you overall £10K credit and then let you choose between:
- 56 Days interest free credit if you use it as credit (in the form of a credit card)
- Fixed interest and monthly payments if you use some for a loan
- Fixed interest if you choose to use it as o/d buffer.
You could use any of features or all of them without having seperate lending facilities for each
I previously mentioned this here Starling Discussion & Feedback - #3250 by anon75400416
If the bank didn’t charge overdraft fees (Like Starling) unless you’re overall in debt with them it would be interesting to see if they could apply the same lending process to credit cards and loans by combining them
For example I may have £2500 in savings but want to take advantage of section75 protection for something that costs £2000. In this instance I could borrow the money and not have to pay interest because overall I am still in credit.
I feel this is the kind of innovation Fintechs like Monzo and Starling should be doing
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