@OJFord shared his vision for Monzo’s acquisition & eventual demise in this topic and I thought it would be interesting to discuss whether an acquisition & integration of Monzo’s platform with a legacy bank’s systems is feasible.
OJ’s post -
My response:
It’s actually really difficult to find UK banks that have gone completely bankrupt & folded.
As for this
how would the BigBank integrate Monzo’s new technology into it’s own infrastructure?
The whole reason why Monzo exists, is because the legacy banks can’t build this functionality on top of their existing systems, if they could (& perhaps had more desire) they would have created Monzo already. This talk is pretty techy but Simon does a good job of explaining just how archaic some of those systems are here.
They couldn’t just switch their existing customers to Monzo’s platform either because those customers already rely on a wide range of banking products & those products won’t be supported by Monzo’s platform, especially as Monzo won’t be offering them itself.
The reason for many of Matt & Oliver and the rest of the development team’s sleepless nights, is they’re building Monzo using a microservices approach which is harder than creating an old school monolithic technology stack. But that should enable them to be much more nimble & continue developing new features / products & services which will keep Monzo modern.
And on top of that, the open API will enable third party developers to build creative solutions for Monzo’s users that Monzo hasn’t thought of or doesn’t have the time / desire to build.
Like most start ups, Monzo is relying on hype to attract new customers, word of mouth marketing is one of the most effective forms of marketing for any business after all. It’s the ability to adapt that will enable Monzo sustain it’s growth though
Edit - I wouldn’t usually point this out but since it makes my comments a bit more credible - Tom’s just liked this post so perhaps some of this is on the right track.
I’m not a huge privacy advocate but I’d have to think very carefully about what I’d do if Monzo was bought by someone like Facebook/Google.
The information that a company could gain from my spending habits is incredibly valuable, I don’t want it to be used to sell more relevant advertising space around me.
It would probably be enough for me to go back to regular banking.
Either way, I think we’re getting a bit ahead of ourselves worrying about this. Monzo doesn’t even have enough users to be considered a significant player in the UK market yet, according to Tom
With more thought, I think an IPO would be the most likely scenario - as a potential investor for the next round (missed out last time due to those pesky 90 seconds!) - this would be the outcome I’d be looking for as an exit.
Significantly less successful and forward-thinking businesses have IPO’d in recent years - so I can’t imagine it’s too far from a distant dream.
If your concern (judging by the article that you’ve posted a link to) is that Monzo will be bought by a big bank so that the bank can kill it (edit - I’ve just seen that you edited your post to confirm this), then;
a) I’d hope that Monzo wouldn’t sell.
b) Assuming that they do genuinely believe that getting to a billion users is feasible, that would make their acquisition pretty costly for a bank. And they or another legacy bank would have to buy at least one of the other challenger banks too, as they have a very similar business model.
c) I’m not sure that, that would be a sustainable strategy by the banks, Monzo has got to where it is with <£15m of funding so it’s seems feasible that another entrepreneur would simply create another Monzo.
You can certainly do this though, just invest in Monzo in the next crowdfunding round (if you haven’t already)!
Considering that is 50% of the world’s smartphone owners right now, and the biggest banks in the world have around 300 million customers, it doesn’t strike me as especially feasible any time soon.
No matter what its price is, if someone wants to buy it someone will if the opportunity is there like if Monzo ends up being publicly listed on a stock exchange. When a company can buy its biggest rival for £70 billion in the brewing industry, or chemical companies change hands for $130 billion, and banks switch hands for billions, the price is not the barrier. Someone will pay what it is worth.
These are extreme examples but you’ve phrased your statement as though there’s no ambiguity here so…do you see anyone offering to buy Facebook, Google or Apple outright?
They make a huge amount of money, surely if there’s always a company that can afford to acquire another business, someone would have done so now & taken on those profits?
If someone wanted to, then they could start buying the shares, yes.
Norway’s pension fund made $53bn in one quarter in 2015. Apple’s market capitalisation right now is $698bn. So Norway’s pension fund could buy Apple outright by just retaining its profits for a bit over three years (and it already owns some of it anyway). And that’s the extreme because Apple is the highest valued firm in the world.
You also don’t need to have the cash available to take over a company. Look at how the Glazer family bought Manchester United by borrowing against the club’s assets.
I thought we were talking about an acquisition by a bank here?
That only increases the price of the purchase because they have to pay off the debt that they took on, in order to fund the purchase.
And remember, we’re assuming that the bank is purchasing Monzo to kill it, not to make a profit (for the reasons I outlined in the first post) so you’re talking about a company potentially taking a huge loss here.
And yet they still went through with it and the club is profitable.
There’s a natural tendency for companies to buy their rivals and get rid of the name. Regulators stand in the way these days. It’s why so many industries have a ‘Big 4’ or ‘Big 3’.
A takeover, even if it got rid of the brand, doesn’t mean ‘killing’ it and nor does it mean taking a loss. And it’s really not an absurd thought. It can reduce costs through consolidation and increase profits.
You can choose to either build further the firm you buy in its own right (e.g. WhatsApp and Instagram weren’t closed by Facebook), or merge it into your own and replace the name (e.g. O2 no longer exists in Ireland since 3 bought it and how Lovefilm was made defunct by Amazon and now the name is just used for its DVD rental)
So the point is, if another business, bank or otherwise, wants to buy Monzo it will do so if it is able to, which includes taking on debt to do so. Whether that is to keep it going or to merge it into its own business.
The topic of this post is specifically will Monzo be bought by a legacy bank, if you’d like to debate about whether it might be bought by another different type of company, that’s a discussion for another post.
If you’re suggesting that a bank could buy Monzo & then offer it’s services to it’s existing customers or switch it’s existing customers to Monzo’s platform [edit - in other words, continue to run Monzo as a profitable business], I’d be interested to hear how you think that bank would address the challenges that I’ve mentioned in my initial post.
Why does it need to integrate them either way, either existing customers onto Monzo’s systems or Monzo accounts onto their systems?
It could be kept separate still under the Monzo name. It could rename it with some sort of suffix (Santander Digital, for example with my lack of marketing knowledge to pick a better name). Or put their name under it ‘Monzo, a Barclays brand’ and slowly merge the two over time.
If Monzo starts making big profits or gets the real potential soon for big profits it’s a completely feasible thing to happen, unless Monzo is kept private and the owners refuse.
Atom Bank’s biggest investor is a legacy bank. So the link between these new banks and old ones isn’t completely alien.
This is especially true if there’s a big bank out there who doesn’t have a UK presence but wants one. It’s easier to buy your way into it than start from scratch.
Good question, that bank would be left in a pretty awkward situation.
It’ll have some of it’s customers using a service that has a wide range of innovative product features which it can’t offer it’s existing customers because of it’s legacy banking platform. And it couldn’t move it’s existing customer’s to Monzo’s platform because that won’t support the products that those ‘legacy customers’ rely on. I don’t think that would go down too well with the legacy bank’s customers.
On the other side, most of Monzo’s revenue will come from it’s marketplace where customers will sign up for credit cards, loans, P2P lending products etc. So the legacy bank would be taking on Monzo’s customers who’re using their competitor’s products, with all the data protection / competition issues that would potentially cause - I’m not sure that would even be allowed by the regulator.
Or they cut off those services, make the Monzo users very unhappy & build their products on top of Monzo’s platform, while losing the bulk of Monzo’s revenue from the markeplace (which was factored into the acquisition price) in the meantime.
Atom is basically a legacy bank with a new UI & no branches, it’s business model is very different from Monzo’s.
So again, a purchaser doesn’t need to integrate. It can be a separate brand owned by the same bank. Why wouldn’t it go down well with existing customers? Do RBS customers get annoyed because Coutts customers get a completely different service? Is HSBC losing customers because First Direct will answer the phone immediately while HSBC gives you long phone menus to get through?
Let’s say someone like LBG buys it. It keeps brands separate. Monzo gets the customers who want what they offer and Halifax gets the customers who want their offering. But under LBG, they get all the profits.
And again, a foreign bank doesn’t have any of those obstacles even if they do exist. A big foreign bank coupd buy it with none of this existing customers vs new customer conflict.
The alternative of course, is Monzo gains 
