If I remember correctly, the credit loss provisions are made at the time the credit is lent out, not for the duration of the credit period. So they have to realise that loss at the time, which may be why we saw an increase in the number of people who were suddenly able to take out credit (albeit small amounts) that couldn’t before?
So that loss could be realised, they have increased their lending offering etc. I think…
EDIT: also, I think the 14% is just what they choose to do internally, I’m not sure that’s the industry standard % that’s expected… but also, given current cost of living etc, they’re probs just being cautious.
I think it’s a slow progress in the USA, they’re proving multi-currency, and there’s definitely nuances in the USA that they’re dealing with to then combat in the UK. I definitely think it’s slower than had been hoped a year ago, but they’ve hit profitability, so I’m personally, less concerned.
That’s exactly right as per the report. My point is, assuming you lose £14 for every £100 you lend is quite high, when you’re typically earning £20 for lending the £100 in the first place.
EDIT: also, I think the 14% is just what they choose to do internally, I’m not sure that’s the industry standard % that’s expected… but also, given current cost of living etc, they’re probs just being cautious.
I think ultimately, it’s just cautious by Monzo, I don’t think they assume they’ll hit that, but given banking uncertainty, I think I’d prefer them to be overly cautious now - vs some other banks who are having to set aside huge amounts retrospectively for covering bad debt.
To me, I don’t see that as a bad thing… or them expecting 14% to not return.
I’m curious why Monzo’s customer deposits are so low compared to elsewhere, and what if anything that means for just how many of those 7 million customers are actually using Monzo as a bank.
6 billion for 7.4 million looks very low to me when you compare it to the ratios of banks elsewhere.
Chase have 10 billion in deposits for 1 million customers for instance. I believe Starling is a similar ballpark. Metro is close to that ratio ballpark too.
Monzo seem to be a pretty bizarre outlier for a licensed bank, that it looks to me like the vast majority of their customers must still be treating them like an e-money institution providing just a spending card.
They’ve just recently snatched billions in deposits from oaknorth and paragon etc by moving the interest bearing pots in house. I reckon there will be a huge jump on the next one if they finally launch their investment product as well.
Mortgages and big Covid lending (in the case of Starling at least) + business bank account balances tend to be higher. I actually think the growth in deposits is pretty good for a bank that’s mainly a current account provider. Though interesting to see the earnings potential on active business accounts relative to personal accounts, probably why they’re looking to focus on that this year.
Yup, £1.7bn in deposits since February alone. I imagine that will continue to trend upwards as more people discover them, fixed-term savings account come to their term, and if/when Monzo introduce the ability for customers to create more than one Instant Access Saving Pot.
Since launching our Instant Access Savings Pots in
February 2023, we’re extremely proud of how many
customers are benefiting from the product, with them
adding over £1.7bn of deposits by mid-May 2023.
Could someone please explain in very simple terms:
a) Why Starling’s interest income is so much higher than Monzo’s (the difference in customer deposits between the two is very different compared to the difference in interest income), and
b) Why Monzo is so far behind Starling in terms of profit/loss? Is it purely/mostly the interest income that would bring it up to profitability, or what else?
Also, TS Anil’s statement “we could have chosen to be profitable a few quarters ago”, it sounds to me (no expert knowledge of finance) as a cop-out, not a serious statement without a lot of evidence or explanation to back it up.
Starling holds a lot more Business Account money, and therefore as a result holds more money, additionally, they also have more business loans which would have interest income for them, compared to Monzo who didn’t really aggressively target much lending until recently.
Finally, Monzo have only just released their own savings product, so never actually held that much money of their own on behalf of customers, most of that was saved in 3rd party banks. That’s changed, and 1.7bn of money flew into Monzo to save by mid May from launch in February - which is 28% or so of their overall holdings. So expect Monzo’s holdings to increase.
I think these both go hand in hand, in addition to the business side of things on Monzo not being as big as Starling. Monzo have been focussing on ensuring they have enough tools, team members, and services in place to support their customers that need it.
Additionally, I think Monzo are more wary when it comes to their loss predictions against their lending, looking at 14% (no idea what Starling’s are), so they may be realising more of that lending loss earlier, than others, but not actually then having to account 14% as more gets paid back - but that won’t materialise longer term.
In regards to TS Anil’s statement. I think they could have honestly targeted profitability sooner, and they could have done things to be more aggressive in their revenue generation - lending more, push for increases in deposits etc to generate more interest income.
Ultimately, for me, the interesting thing is that the interchange fee income from Monzo is a lot higher, potentially meaning more people are using their accounts, vs leaving money sat around in it compared to before.
Things will change, Monzo have only just started doing more things themselves, and it’ll get better…
The number of times joint accounts are mentioned, twice. Once in relation to easy access (to them) and once in relation to US development.
While you can’t read too much into annual reports on a companies next steps and developments, it looks like its all about long term investment (house / retirement) and not feature parity for joint accounts.
There’s speculation (somewhere on here) that the US work may be ported back over to the UK as a better way to handle Joint Accounts, so the fact they’re focusing on them in the USA & then ultimately, want to make them easy access to customers could go hand-in-hand with increased availability to them in the UK when they port that back.
Last year Chase were the darlings of interest rates, attracting huge numbers of customers - now Monzo offer more and I for one moved all my money that was in Chase back over to Monzo. Also I can’t really see any Starling savings accounts except a fixed 1 year at 3.25% with minimum £2,000 deposit.
So if Monzo keep this up, good interest rate on instant access savings, then they should blow Chase and Starling out the water.
I think given that they only launched their own Instant Access savings in Mid-february, attracting £1.7b in deposits in the 10 weeks since, is HUGE.
Monzo has focussed more on acquiring customers than monetising… now they are monetising and are seeing, in my opinion, fantastic results.
One of the most encouraging things for me is that the majority of their customers are young… naturally having less money. As this younger user base, who is totally engrained in the monzo banking world, progresses through their life and careers, they will become higher earners and Monzo will reap the rewards of this
It’s also very difficult to compare directly when reports come out at different times and look at different periods.
Chase had a great interest rate for savings then reported on that. That good rate is long gone. Monzo have introduced a great interest rate but haven’t have the benefit of that in their report really.
But it’s great to see things going in the right direction. Top work!
I think those numbers @Theodore linked to are very new actually (from their parents investor day last week), and come more than half a year after Chase’s market leadership reign (in savings rates) has ended. That would suggest it hasn’t impacted them much at all, given the ratio is steady with customer growth since the last one. Folks thought it would drop, and it hasn’t really.
Will be interesting to keep an eye on this statistic in particular come the next report for Monzo, I reckon. That’ll be telling as to how much impact the in house saver has benefited them.
I know some folks gravitated towards savings being the distinction to explain why Monzo’s is so low vs Chase and the others, but Starling got to that level of deposits without a saver too. And Metro’s isn’t even worth looking at. Never has been IIRC.
So I still find myself concerned that the spending card perception is a larger part of the problem than the lack of savings was. With your bank you tend to keep all your money with them until you use it. With a spending card you only give them the money you want to spend over a set period.
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