Product expansion plans?

As you & Richard have mentioned, the plan is to begin offering overdrafts next year. Tom has said that overdrafts will enable Monzo to break even.

Then the next products that Monzo will focus enabling users to purchase next year will be

which will probably be delivered through Monzo’s marketplace. Tom has talked about Monzo’s approach generally being to enable customers to select the products they need from multiple providers, through that marketplace, rather than Monzo providing them directly.
This means that customers can choose the solution that’s most suitable for their needs & is best value while also removing the temptation for Monzo to offer a superior (not as profitable) product to new customers and then offering an inferior (more profitable) product to existing customers, by taking advantage of the customer’s inertia, which is the legacy banks approach.

I was watching a presentation which gives an excellent overview of marketplaces as a business model / investment proposition & the benefits for customers yesterday. It mentioned that Amazon makes ~25% gross margin from sales it makes directly to customers, whereas it makes 80%-90% gross margin from sales of goods from other merchants through it’s marketplace.
I think that gives some sense of how much more profitable the marketplace model can be.

If you want to know more about Monzo’s thinking on this topic, there’s a lot of resources that’ve been collated in this community :slight_smile: this was Tom’s most recent, in depth interview -

posts with analysis of Monzo by the media all have :newspaper: in the title (just search for that). There’s more :radio: podcasts. And you can find posts from the Monzo team by searching for "group:Monzo + your search term" :spy:


Hey! So Alex has done a great job at explaining some of the future possibilities for revenue generation :+1:

Overdrafts are the most immediate means of revenue generation once we launch current accounts.

In the longer term, providing a marketplace platform where users receive targeted and relevant information on alternative products or services based on their spending habits would be the aim. Businesses would pay to access this marketplace in order to offer their goods/services , which would be the basic model for revenue generation.

Ultimately, we want to do one thing (current accounts) really well and add some real value, instead of aggressively expanding our portfolio of banking products and making money from the hidden costs they incur.


@rodelliott just to add a few comments, in your opening comment you said “it’s well known in banking circles that current accounts are especially low margin” and for a legacy high street bank with branches and cash you are probably right. However, our financial success doesn’t mean we just copy what those banks do. If you take both sides of a simple balance sheet, we will have customer deposits (current accounts in credit) earning no interest. On the other side of the balance sheet we have unsecured overdrafts generating say 20-40%. I’m not sure I follow the logic that offering residential home loans at a margin of say 3% (albeit with a cost of capital about half) would offer ‘better margins’.

@alexs and @Naji have covered our position very well and that’s the difference between Monzo and the other banks! I’m happy to continue the discussion if you have more thoughts/questions. Paul


Can an international expansion be considered a product expansion?

Are there any plans to start operating outside of the UK?

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While it may be a long term plan they do need to launch and succeed in UK first before they consider operating elsewhere

As Richard mentioned Monzo definitely are planning to expand internationally…the ultimate goal is to get to a billion + users so it’s going to be pretty key! :runner:

Monzo’s eyeing expansion into the US quite closely -

We also know that Monzo’s testing Euro accounts at the moment & judging by the fact that they’re recruiting European language speakers already, that expansion might happen sooner than you think :eyes:

Ideally, you’ll also have native-level fluency in a European language so that you can help us serve our users well as we begin to expand across the world.

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Walk before you can run though. How many good companies have failed after expanding. Excluding the legacy banks that have retreated from international ambitions, M&S spring to mind, plus numerous other large U.K. companies. I’m sure people know what they are doing, but Monzo isn’t even fully running in the UK yet and already looking elsewhere? Ambitious yes, but Europe is a very different place with many differing views on banking. But good luck!

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This sounds more like the ClearScore approach, where ClearScore selects products that’re ‘suitable’ for me & then presents a list of options, for me to choose from.

Rather than the App Store approach, where I have access to a catalog of products to choose from & simply select the product that’s most suitable for me.

That concerns me because although ClearScore will say that choosing a suitable product means that they analyse my financial data to pick products that I’m eligible for & that will give me the appropriate credit limit etc. They can also factor in which products will earn them the highest referral fees, which products I am least likely to keep in the long term (they make money every time I switch) & maybe even, which products are likely to offer insufficient credit so I’ll upgrade sooner (but end up with more hassle).
Perhaps they’re not doing any of those things but my point is, they have commercial considerations & this curated approach - which takes away my visibility of / access to, all products - gives them the option not to offer the very best products for my particular needs & to offer the products that will make them the most money instead (a bit like the legacy banks).

I also don’t know how these products ended up in ClearScore’s catalog in the first place. But if companies have to bid to be part of it (or Monzo’s marketplace - as you’ve mentioned), then surely this could mean that a startup which doesn’t have the funds to place a high bid but which offers a superior product, ends up not being listed because a legacy company which has more funds but an inferior product can outbid them, for example?

Whereas the app store gives me a choice of all products & I simply select the product which is best for me…

I like the idea of Monzo suggesting products to me, based on my spending habits - “your peers save x amount per month on groceries if they shop at x, rather than y”. But I still want to be able to choose from any provider & any of their services.

I trust the people at Monzo but it’s a business that has to make money which can result in Tom’s pet hate - misaligned incentives. So I’d just prefer it if the marketplace was open & Monzo was completely neutral - this would make me trust Monzo more. It can simply take a portion of the revenue from every sale or something similar.

The last points I’ll make are that if a company has to bid to offer their product, then aren’t they less likely to risk investing in developing their integration with Monzo because they could end up being removed from the catalog before they make an ROI?
And isn’t Monzo creating a barrier to entry here, if businesses have to compete to offer their products in the marketplace, at a time when surely it wants as many partners as possible so that Monzo users have lots of solutions to choose from & are attracted to the store as a result?

Hopefully I’ve misinterpreted something or this just needs some clarification but what you’ve described doesn’t sound ideal…

For the record, I’m not suggesting that Apple is 100% neutral, when it comes to allowing apps to be published in it’s store but relatively speaking, this seems like the most open approach :wink:

Carrying on the business model discussion, according to this article -

Blomfield will need about 400,000 of them [users] to break even

I’m assuming that’s 400k users combined with the overdrafts product, as Tom mentioned here -

Hmm, people who’d use monzo seem like a thrifty lot - a bunch of people who like to budget and save money (e.g using the pulse graph) and students (who already have zero percent interest overdrafts on their student current accounts and wouldn’t use a monzo overdraft)… Obviously I have no idea of the monzo long-term plan but surely relying on just overdrafts to break even isn’t the best plan…?

You might be suprised how many people use overdrafts…As Paul pointed out -

James (one one of the Monzo team) likes to break out some stats when this question comes up in the developer’s Slack team -

All of the below figures are from the CMA’s 2015 retail banking financial performance report.

  • 7/10 people use overdraft on average each month, and average overdraft utilisation is around £700
  • average in-credit balance is around £2k
  • big banks make about £120-200/customer/year on current accounts

Apparently (there’s no source for this) about half of that £120 - £200 is punitive charges (which Monzo don’t do) & the other half comes from other sources of revenue, i.e. interest from overdrafts + whatever interest the Bank of England’s prepared to give Monzo, to hold their deposits of customer’s funds. So they could make £60-£100 per customer, per year (or…that could be way off the mark).

That makes sense, the flip side is that some users will have been attracted to Monzo because they really do need these tools, just to break even & since they’re close to the end of their bank balance, they’d be more likely to want an overdraft.

When it comes to students - I know that I used that overdraft up pretty quickly so if I had an opportunity to borrow more, I would have & I’m sure I’m not the only one. We all know the stories about living on pot noodles for half a term before the next portion of the student loan comes in…


Pretty much all student accounts (and graduate accounts) have interest-free overdrafts though… I don’t see Monzo’s overdraft facility being a particularly popular offering to students if there’s interest charged.

Ok but it’s one student account per student, right? I had to pay my student loans into my student account, in order to open it.

So what do you do once you’ve used up that overdraft?

I think Monzo would have to be ethically very careful about offering paid credit facilities to students who have already maxed out ~£3,000 of overdraft with another bank…


I agree, I’m getting the impression that Monzo’s overdrafts are going to be offered for a short loan period i.e. to get you to your next payday or perhaps, next loan installment & as a result, they’d perhaps be smaller than your typical several thousand pound overdrafts.

In which case the ethics are better because they won’t be sucking borrowers further into debit. The good news is that, as you can see from the posts so far, they’re taking this seriously.

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How do you restrict how long someone has an overdraft for, other than by motivating them to pay money in by using punitive measures? Also, short-term overdrafts are far less profitable than longer ones, unless you bump up the rate, at which point they become more like pay-day loans, which opens a whole new can of ethical worms (not that I have a problem with payday lending per se).

Well if you only lend enough to get a person to payday, then perhaps they won’t pay it back immediately but if they don’t, they won’t be able to borrow again until they do…

(Again, I could be wrong, this is very speculative at this point).

More on the business model - this article from the FT :arrow_down: doesn’t deserve a dedicated post because the summary that the author gives for the hurdles facing challenger banks don’t take into account Monzo’s business model (I’ve left my thoughts on that in the article’s comments :wink:) .

:newspaper: The trouble with ‘free’ banking for challenger lenders

But it does include a good case study that demonstrates what happens when a challenger bank gets their product right & the resulting willingness of customers to switch - despite the common argument that it’s hard to make them do so -

But the challengers have failed to find a compelling, distinctive customer offer and until they do the oligopoly will persist. In the modern history of British banking there has been only one such event, the introduction by Midland of free-if-in-credit current account banking in 1984. It was a disarmingly simple idea and the original 39 second advertisement was a chirpy little number with a catchy cartoon character, the occasional whoop for joy and a plain message. Nearly half a million customers promptly switched to Midland, eventually forcing the other big banks, which were still charging for handling cheques and issuing statements, to accept the challenge to their way of doing business and fall into line.

Here’s a quick update from @tom on the approach that Monzo’s considering for the marketplace from Twitter, where I’ve been bouncing ideas around with @zainjetha about whether Monzo’s marketplace will be completely open or whether they’ll take a more selective approach to offering products -

I’ve included the full thread for context, skip to the end to see Tom’s comments.

Always a pleasure @alexs

I think it seems clear that these integrations will be fully manageable from the app, which is cool.

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