INSUBCONTINENT EXCLUSIVE:
challenger bank that now boasts more than a million customers, has raised £85 million in Series E funding
venture capital firm General Catalyst, and Accel
Existing backers Passion Capital, Goodwater, Thrive Capital, Orange Digital Ventures, and Stripe also participated.
The latest funding was
at a pre-money valuation of £1 billion (~$1.27b), meaning that Monzo is now a bonafide member of the U.K
fintech unicorn club, joining recent entrant Revolut.
Meanwhile, the bank upstart is also planning to launch a large crowdfunding round
Like a lot of other fintechs — and before it was fashionable — Monzo has historically opened up its fundraising to its passionate
community and other armchair investors.
In a brief call earlier today with Monzo co-founder and CEO Tom Blomfield, he told me the new
funding will be primarily used for increasing headcount to further develop the Monzo product line and to cover other operational costs now
that the challenger bank has reached &contribution margin positive&.
In other words, on average each customer is generating more revenue
than the cost of servicing their current account, which is undoubtedly evidence of how much progress Monzo has made over the last year
This includes bringing down costs, such as weaning customers off costly debit card &top ups& and imposing a cap on fee-free foreign ATM
withdrawals — as well as starting to generate meaningful revenue.
On where that revenue is now coming from, Blomfield cited lending in the
form of Monzo overdraft product, interest it earns on deposits (currently Monzo doesn&t share that interest with customers, even if it is
very small in percentage terms), and interchange fees (the money Monzo makes any time you spend on your Monzo debit card).
Another revenue
stream is the nascent Monzo marketplace, which he says will be the next focus going forward now that the Monzo current account, with the
omission of savings accounts and cash deposits, is basically &done&.
That noteworthy given that Monzo embraced developers extremely early on
in its existence, holding four very popular hackathons and conducting a few early partnership pilots, but has since mostly stalled on the
roll out of marketplace banking and other partnership integrations, sometimes to the frustration of the wider U.K
fintech ecosystem and developers
The exception being the recent integration with TransferWise for sending money abroad.
Blomfield doesn&t dispute this framing but says it
wasn&t that Monzo changed course on offering an open API or working on deeper integrations that will put partner products inside of the
Monzo banking app, but that gaining a banking license and building out all of the features of the current account had to be the short-term
Now that heavy lifting is complete and armed with new operational capital, it is marketplace game on.
To that end, the Monzo CEO says
headcount over the next year could double again, from around 450 now to 900
And in terms of customer growth, extrapolating stats from a recent Nationwide annual report (PDF link), the challenger bank says it now
accounts for 15 percent of all new bank accounts opened each month in the U.K
It also says it has 800,000 monthly active users.
Account switching — that is customers ditching their existing bank — still makes up
the bulk of customer acquisition, even if Monzo recently began targeting 16-18 year olds who would be opening their first ever bank account
Another key metric: the number of customers who deposit their salary each month with Monzo is now at around 26 percent, although I&m told
that this isn&t as important for Monzo as it might be for traditional banks and isn&t the main correlation with engagement or those
accessing a Monzo overdraft.
Asked what Monzo biggest challenge will be over the next year, its CEO doesn&t mince his words: &Increasing
This means ensuring that its lending models are correct (ie avoiding too many defaults as it scales) and steadfastly growing the marketplace
and third-party product partnerships that will bring in additional revenue.
I was also intrigued to see a U.S
venture capital firm once again back the U.K
challenger bank — many of its existing backers have a U.S
bent and Blomfield has made no secret of his ambitions to expand across the pond at some stage
In an email exchange a few hours before publication, General Catalyst Adam Valkin (who was previously at Accel in London where he invested
in GoCardless, which Blomfield also co-founded), gave me the following statement:
We&re investing in Tom and his team because they are
delivering a high-quality banking experience for consumers at scale that is sorely missing from the market
Today incumbent UK banks represent billions of market cap but suffer from low NPS scores, reflecting their inability to meet their
Monzo, in contrast, explicitly builds product and banking features in a community-driven approach based on customers& feedback and requests
This has driven very high organic growth, strong retention and engagement, and unprecedented customer love for and trust in Monzo
Beyond this, Tom and the Monzo team have improved upon the traditional business model of banking, removing the traditional offline
retail-based banking model in favor of a highly scalable and lower cost mobile-only experience
All of this creates the potential for Monzo to become a leading U.K
bank, launch a successful financial marketplace, and eventually expand internationally
