Digital Banking

Can Tom Blomfield turn Hot Coral cards into cold hard cash? Maybe next year.

Image source: Monzo.

Digital bank Monzo just published its 2019 Annual Report and, as usual, it’s a gorgeously designed and elegantly written body of work.

But if you don’t have time to read all 92 pages, which cover the period February 2018 to February 2019, here are the top 5 things we learnt:

1. Monzo is now growing by 200,000 customers a month

At its current rate of growth, the digital bank will likely pass 3m customers at some point in 2019, having recently passed the 2m mark and with CEO Tom Blomfield revealing in the report that Monzo is “adding more than 200,000 new accounts every month”.

For context, last year for the report covering 2017-18 Monzo’s monthly growth-rate was 60,000 new customers.

Blomfield also makes particular note of Monzo’s recent TV campaign as a major factor in powering this growth. Interesting to note that the benefits of this major nationwide media blitz are being reported here, yet the costs won’t be recognised until we see Monzo’s 2020 Annual Report.

2. Monzo has a weird definition of ‘salaries’

Being a bank is primarily about being the centre of people’s financial lives, and traditionally this has meant holding their salaries (being a so-called ‘Primary account’).

In Blomfield’s 2019 letter he reveals that “around 30% of active users deposit at least £1,000 per month (our definition of ‘salaried’), up from 13% a year ago.

There are a few interesting points about what he’s written here.

Firstly “active users” is a metric used only by Blomfield and isn’t defined anywhere else in the document. Certainly it refers to a subset of Monzo’s overall 2m user base, but what Monzo’s definition of active is, we’ll have to ask them.

Secondly, £1,000 per month is not a salary, which is why Blomfield caveats it as his own definition.

Average take-home salary in the UK is around £23,250 after tax, which would be around £1,900 per month.

Monzo knows exactly how many Primary accounts it has, partly because it runs a Switching Service and partly because it’s now building features reliant on knowing who’s expecting a salary. That Blomfield doesn’t reveal the true number suggests that it remains painfully low.

3. Per-customer Monzo is profitable, but still riddled with £47.2m in losses at a company-level

One of the most worrying figures for even the most ardent supporters of Monzo back in 2016-17 was its incremental revenue per-customer.

Due to the cost of running a pre-paid card, the topping up of which weighed heavily on Monzo’s balance sheet, the bank was losing £50 per customer, a figure that later rose to £65 per customer before Monzo finally managed to transition away from pre-paid cards.

Today Blomfield reported that average annual incremental revenue per customer is now +£4 and from salaried users (see caveats above) this sits at +£30, huzzah!

Unfortunately losses at a company level also rose 54.75% to £47.2m, largely due to a 178% increase in staffing costs to £25.65m (up from £9.21m in 2018).

4. Lending is going badly (or at least slowly)

Monzo leant £19.2m to its customers in 2019 mostly in overdrafts, but also from a small number of loans.

The bank also revealed it’s expecting to lose £3.1m from these initial loans... which is a bad start.

Luckily Monzo brought in the brilliant Tim Trailor, former vice president at Klarna, as Chief Credit Officer during the year, so hopefully he’ll be able to turn Monzo’s lending business around in 2020.

5. Mortgage switching, insurance, credit scores and aggregation are all coming

Always the tease, Blomfield wasn’t willing to wrap up without hinting at Monzo’s Next Big Thing.

First he gives us “we’re trialling mortgage switching through a broker”, which sounds not dissimilar from Monzo’s experiment in utility switching with Octopus Energy.

Then there’s “in the future we’d like to do more to demystify credit scores, and let people keep track of all of their borrowing in Monzo”.

With ClearScore’s failed merger with Experian now in the rearview mirror, Monzo might find a partner there willing to experiment with them, and “keep track of all of their borrowing” certainly sounds like some kind of account aggregation, whether that’s with consumer credit like American Express or Klarna (see Tim above) or loans and mortgages from other banks.

Lastly Blomfield says Monzo will expand the partnerships it’s been doing in-home utilities to include insurance too, clarifying that these projects “won’t all be on our balance sheet”.

2019 takeaways

As mentioned, Monzo’s Annual Report 2019 is an incredible body of work and there are lots of other nuggets to dig out (watch this space).

Overall the takeaway is that Monzo is well-capitalised, even more so after its new £113m funding announced in the last few days, so its current losses are entirely sustainable for the foreseeable future.

What’s less clear is how Monzo starts building a business model, something which its lack of success in lending and failure to attract large numbers of Primary accounts makes clear.

Monzo clearly has bottled something very valuable, the devotion, passion and admiration of 2m+ customers. This time next year that figure will undoubtedly be well over 3.5m+, and possibly higher based on its success across the pond.

The question Blomfield and co have yet to answer is what the business model of Monzo is, and whether it can be just as successful in turning all those Hot Coral cards into cold hard cash.