It’s a challenge to grow a challenger bank. It’s actually a real test to see if these new standalone digital bank models are scalable. Monzo’s recently published yearly report gives some food for thought as both customers and revenues grew alongside increasing losses.
Take servicing costs, for example. The UK challenger’s “per-user contribution margin” — in effect, the annual cost or profit from servicing each customer — reached £2 by the end of February, from minus-£30 a year earlier, according to the FT. Monzo founder and CEO Tom Blomfield said this figure had since increased to more than £5 per customer since compiling the statistics. Monzo will have to continue to build escape velocity so that its revenue growth exceeds its loss growth if it intends to build a healthy business.
Monzo grew its customer base by 1.1 million people over the past 12 months and now has over 2 million customers. That growth has been exceeded by the growth in customer deposits. Over the past year, Monzo grew its deposit base from £71.3m to £461.8m, a +£390.5m change. So, more customers but also more money from each customer.
Revenues scale, driven first by deposit growth
Top line growth is important but most challenger banks are also working to create stickier accounts — ones that customers use as their primary accounts and not just as a throwaway account. Getting users to auto deposit their paychecks is one way to measure how successful a bank is in getting new account holders using their services. Just 12 percent of Monzo users hooked up their paychecks in 2018. That number has risen to 30 percent in 2019.
As more users deposit funds in Monzo, that greases the revenue wheels as Monzo monetizes card transactions. Here, too, Monzo has grown its net revenues from £1.8 million to £9.1 million in a year. The company also started introducing premium business accounts in 2019. It’s too early to see how those are performing and whether they can be a big driver of revenues for the firm.
Lending is more significant
Late in 2018, Monzo started testing making small denomination loans between £200-£1,000 with payback periods of three, six, nine or 12 months. The challenger bank moved from basically no lending practice to a loan book of £19.2 million in a few months.
As Monzo rolls out new financial products, one way it can measure how well it’s servicing its customers is through a Net Promoter Score. This metric shows how likely a customer is to recommend Monzo to another customer. Monzo’s 2018 NPS was 70 (out of 100). In 2019, it was 80.
Increase in headcount, losses
Monzo is also growing its headcount. The company went from 300 employees in 2018 to 713 in 2019. Monzo’s losses also grew over the past 12 months from £30.5 million to £47.2 million, which the company attributed mostly to the near-tripling of staff.