Towards the end of 2015, people in coffee shops and pubs around London began to brandish a new type of status symbol: a distinctive, hot coral, prepaid card branded “Mondo”. Silicon Roundabout tech bros handed their friends “golden ticket” codes to skip the queue and sign up for the card and its connected app. By 2017, Mondo had changed its name to Monzo and become a fully licensed bank, swapping its prepaid cards for regular debit cards attached to a current account.
In just over five years, Monzo upended a sector known for conservatism. More than just creating a brand, it did something that’s considered to be the gold standard for any new brand or service: it created a strong identity and forged a connection with customers. Monzo managed to make people excited about banking. And, as incumbents dithered, the challenger product did what any startup aims to do: it scaled. It now has over four million customers.
During this time, the company has ballooned from a small team squatting in the offices of early investor Passion Capital to an operation with 1,500 people in the heart of the City. In June 2019, it became the UK’s second most valuable fintech with a valuation of £2 billion, behind only OakNorth (both were later eclipsed by Revolut’s $5.5 billion (£4.5bn) valuation in February 2020).
“They have changed the game,” says Sarah Kocianski, head of research at financial consultancy 11:FS. “The technology was there, so they could operate for cheap. People were ready, everybody had a phone in their pocket, the regulators were ready. Monzo just made the biggest splash, partly because it was the loudest and partly because of the speed of customer acquisition.”
Monzo now faces a major challenge. The startup bank is far from being profitable, still relying on external funding, and its company accounts show it has been burning through cash as it expands, losing around £47.2m in 2018, up from £30.5m the previous year. In May 2020, it faced a drop of almost 40 per cent in its valuation as it sought to raise between £70-£80m to survive the coronavirus pandemic, and soon after co-founder Tom Blomfield stepped down as CEO, taking on the role of president instead. But it still has big ambitions. Monzo’s plan is to evolve from plucky challenger to mainstream bank, to expand into the huge US market – and finally turn a profit.
Standing in its way is some major competition: UK fintechs like Starling and Revolut, as well as traditional banks, which have far larger reserves of cash (as of the end of 2019, neobanks had 19.6 million customers – Lloyds Banking Group alone had 30 million). In the US, it will come up against Chase Bank, Bank of America, Citibank and Wells Fargo. And that’s if it manages to stay on track during the worst pandemic in living memory, as the Covid-19 outbreak plunges the world economy into recession and causes companies to crumble.
Monzo’s office just before the UK went into lockdown
Sitting in one of Monzo’s glass offices on a rainy afternoon in March, a few days before London is locked down, 34-year-old Tom Blomfield (right) leans forward conspiratorially. “I’m terrible with my money,” he says. “I have lots and lots of stories – at one point, bailiffs sent me a notice because I hadn’t paid my council tax.”
He had signed up to a service that automatically updated your details when you move house, he says, but it didn’t work. “I just wanted the faff to go away. Like I haven’t switched my phone bill for 15 years, I’m overpaying via a massive amount on home broadband, car insurance, all this stuff.”
His credit is fine now, he says, checking his score on the Monzo app. It should be – Blomfield, based on his shares in Monzo, was worth around £80m in 2018, according to the Daily Telegraph. But his experience illustrates the ethos behind his business: solving the most annoying problems in banking, in a way that is accessible to anyone.
Blomfield may still sport a clean-cut Oxford University law graduate look, but he is already a serial entrepreneur. He founded his first company, Boso.com, an eBay for students, when he was 21, but failed to make any money (the startup was taken over by his more experienced co-founders, who managed to get funding, and the business was eventually sold to a Canadian company). His next entrepreneurial attempt, payments company GoCardless, struggled to raise seed capital when it first launched in 2011 (it has received $122.3 million in investment since then). In 2014, he joined entrepreneur Anne Boden to launch the UK’s first mobile-only bank, offering current accounts via an app as well as other products such as loans and mortgages.
The venture, originally called Bank Possible, was later renamed Starling Bank. Frequent clashes between Boden and Blomfield, who held the role of chief technology officer at Starling, have been well documented. Neither Monzo nor Starling would comment on the reasons behind the rift.
The disagreement between Blomfield and Boden mapped out the battle lines for challenger banks in the UK: Blomfield and future Monzo co-founders Jonas Templestein, Jason Bates, Paul Rippon and Gary Dolman all left Starling in 2015. Now both banks sit less than a minute away from each other, which has done nothing to quell rumours of an ongoing rivalry – and reportedly led to Starling Bank installing frosted windows on its offices to stop Monzo staffers peering in.
Monzo started life as a prepaid card connected to a smartphone app, which enabled customers to see how they spent their money and budget accordingly. In April 2017, it received its full UK banking licence, meaning users could access a current account through the app. When other banks started developing similar products, Monzo introduced new features, such as the option to “freeze” your debit card temporarily if a user suspected it was lost or stolen, instead of cancelling it – if found, it would be easy to get it working again. Major high street banks now offer the same feature. It offered no international fees within the European Economic Area countries, and when travelling elsewhere, customers could take £200 out every month without incurring a charge. In 2018, it introduced gambling blocks to help cardholders kick addiction, which in turn inspired a merchant block to help people stop spending at a specific vendor, such as a fast food outlet. As the banking market becomes ever more crowded, the only way to stand out is to keep innovating – and keep competitors guessing what you might do next.
Blomfield prides himself on being candid, and seems to have trouble keeping secrets to himself. Within minutes of saying hello, he almost flashes the company’s yet-to-be-launched metal card, stopping himself from opening his wallet with an awkward gulp. The white card (which manufacturers found impossible to paint coral because the colour rubbed off, according to a source close to the bank), is being trialled by a select number of users as part of Monzo’s latest attempt at a new premium package.
In September 2019, Monzo pulled the plug on its initial premium offering, Monzo Plus. It was the extra features, not the metal card, that fell flat, with a confusing array of perks that failed to attract users. The situation worsened when Monzo tried to tweak its offer to customers – leaving existing users unsure of what they had signed up to. The company’s forum, once used to connect with its user base directly, became a complaints page, as angry customers tried to figure out what had happened. The relaunch, which was planned for March 2020, has yet to happen.
Monzo is also entering the fray of business banking with an account targeted at SMEs and freelancers that aims to join together functions including payroll, loans and balances. Unlike rivals Starling Bank, Atom Bank and ClearBank however, Monzo did not receive a Banking Competition Remedies (BCR) grant, aimed at boosting competition in the business banking space, and had to dig into its own coffers to develop the product. Blomfield shrugs this off as “a shame”.
If successful, the business product, he says, will play a large part in Monzo’s roadmap to profitability. His plan for the company to break even in the next two to three years involves a combination of card usage (when people use their cards, Monzo earns money through interchange fees – paid by a retailer’s bank to a cardholder’s bank when a transaction is made) and balance sheet lending (loans and overdrafts). But the real opportunities could be in the premium account, a savings marketplace, or an insurance offering. These would not just produce more profit; they would add appeal to current and new customers, and could convince more of them to make Monzo their main bank.
According to the latest figures from Monzo, around 80 per cent of customers actively use their accounts: around 60 per cent use it on a weekly basis, and 40 per cent on a daily basis. Of those 80 per cent of active users, 30 per cent deposit over £1,000 in their accounts every month, potentially making it their primary account. It’s growing these “sticky” users that will make money for Monzo.
The company’s plan from the start, Blomfield says, has been to invest in infrastructure upfront and run accounts at a very low cost, before adding more products and services. “Broadly across these three lines, we think we can get to the region of £100 to £200 of revenue per customer,” he says. “If you look at a big bank, they are making around £400 to £500 per customer, but they have costs of around £400 per customer as well. Our costs at the moment are around £35 per customer, because it’s all based on modern technology. We don’t have a massive branch network; we employ around 1,500 staff, not tens of thousands of staff.”
The aim is to keep the cost base consistent, but gain revenue, getting to profitability over time. He says this will take a couple more years. “It’s hard to say how these things will pan out,” he says. “I looked at our original plans and we have diverged quite a lot. We have a lot more customers than we thought we would originally, which is great.”
Blomfield can’t afford to slow down his ambitious plans for Monzo. Although investors such as Passion Capital or Y Combinator claim to be in it for the long haul, the tolerance for growth without profitability in the tech world has gone out of fashion after Uber and WeWork.
“All the investors are super bullish, hugely confident in Tom and Jonas and the team,” says Eileen Burbidge, a partner at VC firm Passion Capital and an early investor and non-executive director at Monzo. Yet other investors are pressing for a timeline to profitability – not just because they want returns, but because they are concerned that Monzo will stall in future funding rounds without it.
TS Anil, US chief executive and the new CEO of Monzo
As the competition gets fiercer in the UK, Monzo is also looking to expand elsewhere. Rather than invest in Europe like Starling Bank, Revolut or N26, Monzo is planting a flag in one of the oldest and most complex financial markets in the world: the US. Some might call it a fool’s errand; Monzo’s leadership calls it common sense. It’s a large, English-speaking market where customers have “real needs” that Monzo thinks it can meet. And, crucially, they would be ahead of the curve. Revolut has had a presence in the US since at least 2017, but has yet to announce a strategy. Starling has stayed away entirely.
The US launch thus far has been muted. A source close to the business called it “stealth mode”; a source within a rival bank called it “bizarre and nonsensical”. Company insiders say the US launch is Monzo “dipping its toe in the water”. After four years and international scrutiny, it has lost the element of surprise that it had in the UK. Instead of going in guns blazing, it has handed out 2,500 prepaid cards at pop-up events.
Heading Monzo’s US efforts is TS Anil, a financial services veteran who has worked at Standard Chartered, Citi and Capital One. He joined Monzo from Visa, where he was global payments head and global product head for over four years. In May, Anil was also announced as taking over the UK CEO role from Blomfield, now leading the company on both sides of the Atlantic.
Speaking from his home office in California in March, Anil is positive about Monzo’s expansion plans in the US. “The most important thing that we will do will be getting that process started,” he says. “We are already in pilot mode in the US, and we have a bunch of customers already and a long waiting list of 25,000 people.” The bank filed for a US licence in April, but it could be between 18 to 24 months until it gets the green light. Until then, it will offer the prepaid card.
He concedes that what might have worked for Monzo in its home market may fall flat in the US. “I expect we will be in pilot mode, if you will, learning from our customers for the next several months while we continue to refine our offering,” he says. In March, the 20-strong Monzo US team planned to move its operations from Los Angeles to San Francisco to tap into talent, grow the business and stop relying on a UK engineering team. Owing to the coronavirus pandemic, however, at the time of writing that move had not happened.
“It’s a competitive market, there’s all kinds of competitors in the US… but we want to learn from [them],” says Anil. “We believe it’s a very large market, so success in the US is different than if it were a smaller market where you are fighting to share all the time. There are lots of unmet needs.”
One big difference between the UK and the US is the latter’s reliance on cheques – Americans wrote 5.1 billion in 2017. This may seem archaic in the UK, but Monzo could have to bridge that gap if it wants to persuade people to join its digital-first bank. Both Anil and Blomfield chuckle when cheques are brought up, but Anil insists that if Monzo finds demand, it will offer them. “It does feel like a bit of the old world. But if that’s what customers need here, that’s what they need… We’d like to make them all digital customers, but if their daily life requires them to write some cheques, then we should figure out how we do that.”
Instead of targeting core users to evangelise the business, Monzo has tried to include a variety of demographics in its US testers. “We’ve got metrics as good or better than the UK now in terms of engagement and retention,” Blomfield says.
Will it offer the premium metal card to compete with the titanium Apple Card? “Everything is on the table at this point,” Anil says. He maintains that the sheer size of the market means that Monzo “doesn’t have to win everywhere”.
The biggest investment that Monzo must make in the US is marketing. In a market where very few challenger banks have emerged, the word “Monzo” means very little. This lack of brand awareness is a problem, Anil concedes, but not an insurmountable one. “My gut says we can get to the scale that we want with relatively manageable investment,” he says. “There will always be pressure to be efficient with every dollar we spend, there will always be pressure to make vigorous choices. We were never going to be a ‘throw a bunch of money around’ sort of company. We haven’t been doing that in the UK, I don’t see us doing that in the US.”
He shrugs off the tentative language surrounding the US launch. “There is always risk in these kinds of operations, getting a licence and all of that stuff,” he says. “Our ambition and our eventual goal is very clear: to meet the financial needs of millions of American customers.”
Tom Blomfield with a “hot coral” Monzo card. Rumoured issues mean that the premium metal version won’t be the same colour
In the five years since Monzo launched, traditional banks have launched their own apps and woken up to the potential of digital services. Blomfield argues that Monzo is still “the best banking app out there” and claims that its organic growth rate is 95 per cent per month, without any advertising spend. His aim is not just to reach a billion customers, but for Monzo to be where people can control pensions, insurance, current accounts – an aggregator of financial services.
As the company has grown, it too has changed. Three of Monzo’s co-founders have left: Jason Bates, who was chief customer officer, left after a year to launch a fintech consultancy; Gary Dolman, its first finance chief, retired in March 2019 and is now a venture partner at investment firm Antler; and Paul Rippon took a sabbatical in January to run a farm of 300 alpacas in the north of the UK. All three remain shareholders.
Ask any Monzo investor why they decided to back the company, however, and they will inevitably tell you a story about how they met Blomfield. He has become synonymous with the business, whether he likes it or not. When I ask whether he thinks investors will ever let him leave, he laughs loudly – “I’m not sure they would”. Although stepping down as CEO, he will remain the figurehead of the company and dispense with running day to day business.
Blomfield is clearly uncomfortable with the attention. “Even internally, honestly, I think we have the cult of the founder,” he says. He’s right. It is almost impossible to have a conversation with anyone at Monzo without them bringing him up. “Some founders are put on a pedestal,” he says. “I don’t think that’s particularly healthy or fair.”
While Blomfield says he tries not to let the attention affect him, it has influenced the way he, and Monzo, acts. Monzo’s journey from banking outlier to neobank frontrunner put it under intense media scrutiny, something that Blomfield admits is both a blessing and a curse. “In Britain we have an unhealthy cycle of building people and companies up and then trying to rip them down,” he says.
He is still sore about a 2019 incident, after BBC Watchdog criticised the bank for freezing people’s accounts without explanation. “We had a camera crew outside and a frozen block of ice depicting a Monzo card,” Blomfield says. It took five hours to melt. The bank issued a statement claiming that it could not alert customers as to why their accounts had been frozen because of a law that prevented banks “tipping off” customers to potential criminal investigations into their finances. He still feels the media attention was unfair.
Monzo’s obsession with being seen as a customer-centric bank has also sometimes led it astray. Blomfield and co-founder Jonas Templestein did not realise, for instance, that their messages to customers on their own product development forum could end up in the press.
Today, the company has a 65-strong “people collective”, equivalent to a supercharged HR function. “We have our finger on the pulse more,” says Tara Mansfield, head of people at Monzo.
Everyone in the company is required to take a personality test that will classify them in four colours: fiery red, sunshine yellow, Earth green or cool blue. The test, which is based on the work of Carl Jung and which I am assured is completely scientific, is used to measure what attributes people have in order to put them in the right teams and make sure their managers motivate them in the right way. All staff fall in the middle bit of the spider chart, with some of all of the colours – except for Blomfield, who is bright red. “He is a red dominant, a classic director,” says Mansfield.
She says that Monzo tries to create an environment where people “feel like they can bring themselves to work.” One example is being mindful of language. “We have had feedback before that the collective noun ‘guys’ – like, ‘hey guys, what’s up’ – some of our women engineers said ‘it makes us feel really excluded, and we’re not guys’. And so we said all right, we don’t say ‘guys’ any more.”
Also banned are the words “blacklist” and “whitelist”, terms used in programming that she says have “connotations”. “I think people knowing that we’re not just going to go ‘really?’ and ignore them, but take them seriously, helps them feel more included and more confident,” Mansfield says.
However, the company has not released its diversity breakdown, and Lisa Nowell, hired as chief risk officer at the end of 2019 from ClearBank, is the only senior woman in the Monzo team. “We are in the final stages [of recruitment] with a couple more very senior women. Our board is doing better,” Blomfield says. “Most of our investors are women, which is good, but we need to make sure at every level, it’s as representative as can be.”
Tara Mansfield, head of people at Monzo. Part of her work has been ensuring language used within teams is as inclusive as possible
There was one scenario that Monzo’s plans for expansion couldn’t have factored in: the coronavirus pandemic, which broke out in the UK during the reporting of this feature. In the days leading up to the lockdown, little had changed about Monzo’s way of working, aside from fewer handshakes. The corridors and glassed-off meeting rooms were in high demand. New recruits still arrived for their two-day induction.
Co-founder Jonas Templestein described running Monzo to me as “a rollercoaster”. “You might think it’s always going to be great days, but sometimes it will be bad days.”
The bad days are here: it’s now Covid-19, not competition or strategy, that might derail Monzo’s masterplan. Almost immediately after the lockdown was announced, Monzo’s growth strategy flailed and then stalled completely. At the end of March, Monzo said that it would furlough up to 295 of its staff under the government’s job retention scheme. Blomfield said he would sacrifice his own salary for an entire year. Monzo has never confirmed Blomfield’s pay, but the company’s last annual report shows that the highest paid director made £117,000 last year. In a phone interview in April, Blomfield called the government’s job retention scheme a “really positive move”. In May, the company’s valuation looked set to take a hit as it sought to raise a new funding round in an effort to secure its cash position until Q2 of 2021, in a deal that would value it at £1.25bn, down from £2bn. Market and investor pressure caused Blomfield to make a laboured pivot to name himself president of Monzo, and instate Anil in his old role, pending regulatory approval.
The relaunch of the premium product, which included mid-tier and top-tier offerings with benefits for travel and leisure, was scheduled for March, when UK lockdown was imposed, has not yet happened. Blomfield says the product has had to be overhauled. “We are reconfiguring so that we can launch a version which strips out those benefits, but still has a bunch of compelling benefits, which will broadly be the middle tier,” he says. “Then we’ll add to that and release the top tier when these restrictions are lifted, I think.”
The US strategy may also be affected. “Certainly some of it has slowed down a bit,” he says, “and it’s unclear whether that’s going to be a long-term or short-term thing.”
The biggest impact for Monzo so far has been foreign spend. When a UK user spends £100 on their card in the UK, Blomfield explains, Monzo gets 20p; when they spend $100 in the US, Monzo gets $2 due to higher interchange fees abroad. “We’ve seen foreign spend, especially outside Europe, decline by 70 or 80 per cent.”
The planned HQ office move to upgrade its 3,700 square metre space in Finsbury Square to over 11,000 square metres at Broadwalk House near Liverpool Street station could also be affected. “The timing is up in the air a little bit,” Blomfield concedes. “The good thing is we’re all very well set up to work remotely.” He refuses to be drawn on whether Monzo will still need to triple its space.
Monzo isn’t the only company affected. Major rival Starling Bank, which had planned to reach profitability by the start of 2021 and IPO in two to three years’ time, has pushed back its deadlines, despite claiming to be in a healthy position thanks to its growing SME banking business and a fundraising round in February of this year.
CEO Anne Boden says the business will not be profitable by January 2021 but will still reach the threshold in the coming year. “What coronavirus has done is stress all of our businesses,” she says. She claims that Starling is less affected by coronavirus than other neobanks as it relies less on international transactions. “We haven’t been that impacted by the coronavirus issue, because our demographic is different,” she says.
Alistair Newton, research vice president of banking and investment services at Gartner, says coronavirus is catalysing change and driving banks to make decisions in hours that used to take months or even years. “You will see some consolidation in the fintech space, you will see some fintechs who needed time to develop their business models and will not be given that time, so will go to the wall,” he says. This could then pile pressure on the rest of the market. “Even a single failure will sharpen the focus on business models.”
Monzo is modelling “a bunch of different scenarios” for how long the coronavirus crisis will last, Blomfield says. “I think our base cases are sort of four to five months, and four to six months, say, of basic lockdown, which includes no international travel, and then a return towards normality,” he says. “The question is just timing.”
Natasha Bernal is WIRED’s business editor. She tweets from @TashaBernal
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