Product expansion plans?

(Alex Sherwood) #12

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:

Open office January
Starling's Marketplace
Starling's Marketplace
(Alex Sherwood) #13

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 -

(Not Theresa May) #14

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…?

(Alex Sherwood) #15

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…

Competitor update
Come to Monzo HQ to talk about Overdrafts 😄
Overdraft position
The Overdrafts Pricing
The Overdrafts Pricing
Announcing the Overdrafts Preview!
Monzo vs the Retail Banks - Analysis from Orange Digital Ventures
What We Know About the Overdrafts / FAQ :moneybag: (open Wiki)
Switched from Monzo to a legacy bank (Barclays) :dizzy:
(Tommy Long) #16

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.

(Alex Sherwood) #17

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?

(Tommy Long) #18

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…

Our Approach to Overdrafts
(Alex Sherwood) #19

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.

(Tommy Long) #20

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).

(Alex Sherwood) #22

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).

(Alex Sherwood) #23

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.

(Alex Sherwood) #24

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.

Moneybox app integration
(Zain Jetha) #25

Always a pleasure @alexs

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

(Alex Sherwood) #26

Thanks, the same goes for you :raised_hands:

Yes it looks like at least some of them will :wink:

That’ll be awesome from a UX perspective but I’m also hopeful that Monzo won’t choose an approach that could limit the accessibility of outside provider’s products to their users. Maybe they can build every integration into the app but I’m not sure whether it’s possible to achieve both outcomes, if they choose that approach. Fortunately there’s much smarter people than me figuring this out :slight_smile:

Starling's Marketplace
Starling's Marketplace
(Zain Jetha) #27

I think the marketplace will have to initially consist of products which will make a difference to people’s financial lives and the best in market.

So perhaps they will start with one of each, maybe nutmeg for investment isa, perhaps masthaven for cash isa, PensionBee for pensions because they are amazing, and then scale upwards by adding people like wealthify, moneyfarm from there, hopefully keeping it purely fintechs, at least until post PSD2 and then only add legacy banking products if they are actually any good.

Of course purely speculation on my part, but I also believe monzo have a duty to give access to products which will benefit people but also giving s fair degree of choice. A legacy bank ISA may not help anybody, unless it’s a really good one. So hopefully products are included on merit.

(Alex Sherwood) #28

I completely agree with your thoughts about the rollout of marketplace.

But ultimately, I’d like any provider to be able to offer their product / app through the marketplace, assuming that they meet the minimum criteria for quality & security standards of course. The user can decide whether it’s good for them or not. It’s not up to Monzo to decide which cases are valid & more competition between providers is good for the user because it drives down prices, encourages innovation etc. A ratings system can help users distinguish between the good & bad products / apps and long term, providers that don’t add value won’t survive.

As I mentioned a while ago in this topic, Monzo not filtering the apps that are available in the marketplace would avoid any potential for conflicts of interest, whether real or perceived too.

(Zain Jetha) #29

Tom has suggested that there will be some level of curation which is a good thing rather than it being a free-for-all.

Some providers do not have users best interests at heart, for example Wonga, and also Amigo Loans who charge a whopping 49.5% APR. Should these be allowed on the marketplace? Probably not.

I think there should be a degree of vetting by monzo, and that all providers should be subject to providing a good UX/ customer support. If they were market-leading this would be better.

(Alex Sherwood) #30

I’m not suggesting a complete free-for-all :slight_smile:

I could have been more clear here - I’m imagining something like Apple’s App Store Review Guidelines, which exclude things that Apple consider’s ‘objectionable content’ & copycat apps.

Monzo can set their own minimum standards, based on their values and then wouldn’t have to worry about ‘curating’ certain category’s of products - payday loans are a good example.

(Zain Jetha) #31

I never thought you were suggesting complete free-for-all either! But instead, a democratic marketplace which is about gives every provider a fair chance? Yes, the minimum criteria app store approach works, but then this opens up a floodgate in the literal sense of the word.

Monzo in my opinion will be the the leading current account, even amongst the challenger banks. I have a Starling account, and sure it is very cool, but is certainly not as refined as Monzo. And when all the Monzo users get current accounts, plus the growing number of users who join weekly, they will far outweigh Starling or whoever else joins.

If Monzo are a leading current account, they should hope to provide a best-in-class experience by creating strategic partnerships with different providers. So I think there will be choices, perhaps a few for each category - so for Investment ISAs there will be Nutmeg and Wealthify and Moneyfarm. And perhaps for ISAs there will be Masthaven etc. And for Innovative Fund ISAs and Borrowing I would assume Zopa, and Ratesetter, etc.

These are all good, reputable providers and each marketplace integration will definitely require work on both parties to set things up to work well, bearing in mind Monzo are the lead challenger bank. I doubt they’d want to have some half-baked experience.

Do I want to see NatWest, Barclays, Santander on there? No, I don’t. And do they want to go on there - I don’t know, but I doubt it. They’d rather sell their ISA to someone with a current account and a credit card who’s already trapped in. But if one of them offers a really good product and there is a profitable partnership for both, then I can’t see why it shouldn’t be available on Marketplace.

I think there are advantages to curation, and hopefully it will be kept to best-in-class providers, all of whom have spent careful time crafting a beautiful, elegant UI and service. They are going to want to to sit nicely within Monzo too, and Monzo have a reputation to maintain too. So I think the curation is referring to the number of different services which will be available, rather than the categories. Products should be featured on merit, ethicality, and benefit to consumer, or else anybody can comply for compliance sake. I think a lot is given away in @tom tweet saying ‘some level of curation’ and several hints through interviews have been dropped that it will look more like strategic partnerships.

(Alex Sherwood) #32

Interesting to see that Tail are building their integration, which will be part of the Starling Marketplace & has a standalone app, on Starling’s open API.

That doesn’t mean that Monzo will take the same approach of course (we know that they won’t, in some cases) but I think it adds credibility to my suggestion that it’s feasible.