Predictions for Monzo (and fintech) in 2022

[Peter_G]

I posted a bit about this before over here:

@Peter_G

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!

Monzo can quite easily ignore a marginal increase in interest rates for Plus/Premium (although I wish they wouldn’t - could @AlanDoe invoke someone from the Paid team to give us their thoughts? ) but as the rates increase above that, it might make more (short term) financial sense for Monzo to attract more folk to the free account (or create a third “paid for” tier that doesn’t pay interest but gives you the software features for a nominal monthly payment). Long term, it probably makes more sense to increase interest rates on Plus/Premium, even to the point where the customer can make money out of the account (or get it practicality for free). That way, you’ve got a set of sticky accounts that will maintain revenue when the cycle resets…

Edit: I’ll do some proper modelling later (maybe) but some rough sums show:

• Monzo would need to pay an interest rate of 3% for Plus to be free to the customer (assuming they kept the whole £2k in the account)

• This changes to a whopping 9% for Premium.

The former feels like it might be possible. The latter not so much (eyes his hat nervously).