How Does Monzo Make Money? The Monzo Business Model In A Nutshell

Monzo is an English neobank offering a mobile app and a prepaid debit card for consumers and businesses. It was one of the first app-based banks to enter the UK market, founded by Gary Dolman, Jason Bates, Jonas Huckestein, Paul Rippon, and Tom Blomfield in 2015. All were employees of Starling Bank, a similar neobank challenging the dominance of established financial institutions in England. The company enjoys many revenue streams: business and consumer subscriptions, interchange and overdraft fees, personal loans, and more.

Origin Story

Monzo is an English neobank offering a mobile app and a prepaid debit card for consumers and businesses. It was one of the first app-based banks to enter the UK market.

The company itself was founded by Gary Dolman, Jason Bates, Jonas Huckestein, Paul Rippon, and Tom Blomfield in 2015.

All were employees of Starling Bank, a similar neobank challenging the dominance of established financial institutions in England.

Twelve months after Blomfield left the company because of strategic differences, the platform was launched with the similar-sounding name Mondo.

It set a record for the fastest crowd-funding campaign in history by raising £1 million in just 96 seconds.

In 2016, the company gained regulatory approval to become a licensed bank in the United Kingdom with over 250,000 customers on the waiting list to sign up.

Soon after, the name was changed from Mondo to Monzo in light of a possible trademark infringement.

Today, more than 5.17 million people globally use the Monzo platform.

Value Proposition:

Monzo offers a modern, user-friendly banking experience through its mobile app and prepaid debit card, targeting both consumers and businesses. Its value propositions include:

  • Convenient Mobile Banking: Monzo provides a seamless mobile banking experience, allowing users to manage their finances on-the-go through its user-friendly app.
  • Transparent and Fee-Free: The company is known for its transparent fee structure, with no hidden charges for basic account services. This transparency appeals to users looking for straightforward banking.
  • Personalized Insights: Monzo’s app offers insights into users’ spending habits, helping them budget and make informed financial decisions. It categorizes expenses, provides real-time transaction notifications, and sets spending goals.
  • Easy Account Setup: Opening an account with Monzo is a quick and hassle-free process, attracting users seeking convenience and simplicity in banking.
  • Freeze Card Function: Monzo allows users to freeze and unfreeze their debit cards instantly through the app, enhancing security and control over their accounts.

Customer Segments:

Monzo primarily targets the following customer segments:

  • Digital Natives: Monzo appeals to tech-savvy individuals, particularly millennials and younger demographics, who prefer mobile-first banking solutions and value digital convenience.
  • Budget-Conscious Consumers: The platform is attractive to consumers who prioritize budgeting, spending tracking, and financial management tools to help them save and control their finances.
  • Small Businesses: Monzo Business caters to small business owners, offering them simplified financial management, invoicing capabilities, and multi-user access.

Distribution Strategy:

Monzo’s distribution strategy focuses on providing its banking services through digital channels:

  • Mobile App: The Monzo mobile app is the primary distribution channel, enabling customers to access and manage their accounts, make transactions, and receive notifications.
  • Online Account Setup: Customers can easily open a Monzo account online, streamlining the onboarding process without the need for physical branch visits.
  • In-App Features: Monzo offers a range of features within its app, including spending insights, budgeting tools, and card management, enhancing the user experience.

Marketing Strategy:

Monzo’s marketing strategy centers on promoting its mobile banking app and attracting a growing user base:

  • Digital Advertising: The company leverages digital advertising channels, including social media platforms, search engine marketing, and display ads, to reach potential customers online.
  • User Referral Program: Monzo encourages existing users to refer friends and family through referral incentives, expanding its customer base through word-of-mouth and incentives.
  • Educational Content: Monzo provides educational content and resources on personal finance topics, helping users make informed financial decisions and manage their money effectively.
  • Partnerships: The platform collaborates with energy providers, such as OVO Energy and Octopus Energy, to incentivize users to switch to these services, potentially earning referral fees or revenue sharing.
  • Premium Subscription Plans: Monzo promotes its premium subscription plans, Monzo Plus and Monzo Premium, highlighting their additional features and benefits.

Monzo revenue generation

The Monzo app and associated consumer accounts are free to use, but the company nevertheless enjoys many revenue streams.

Business subscriptions

Monzo Business is a service helping small businesses manage their finances. While the Lite plan is free, Monzo charges £5/month for the Pro plan. This includes features such as invoicing, multi-user access, pre-paid tax capability, and a free, six-month Xero subscription.

Consumer subscriptions

A recent addition to company income are consumer subscription plans:

  1. Monzo Plus (£5/month) – the entry-level option allowing customers to access all of their bank and credit cards on a single interface. Other features include customized spending, reporting, and budgeting.
  2. Monzo Premium (£15/month) – where users receive a white metal banking card and get access to other perks such as discounted phone and travel insurance. They also enjoy a higher interest rate on personal savings.

Interchange fees

When a Monzo user purchases with a branded debit card, an interchange fee is collected by the card issuer from the merchant and shared with the company.

These fees are typically around 1%, depending on the total purchase price.

Overdraft fees

Monzo also charges consumers a fee whenever their bank balance is negative.

Recent legislation changes mean that banks in the UK can no longer charge a daily fee for negatively drawn balances. Instead, Monzo charges an interest rate of up to 39%. The exact fee is reliant upon the user’s credit score, the total amount owing, and the number of days it has been outstanding.

Net interest margin

The company also lends user funds to other banking institutions and collects interest in return. This is known as net interest margin.

Personal loans

Monzo offers personal loans to its customers.

Loans are capped at £15,000 and the interest rate depends on the amount borrowed. Loan amounts up to £7,000 will be charged 23.5% interest. Larger loans will attract a fee of 7.5%.

Cash withdrawals

Monzo customers in the UK and Europe can withdraw up to £250 in cash every 30 days. Withdrawals exceeding this threshold are charged a flat 3% fee.

Energy partnership

In 2019, Monzo partnered with electricity providers OVO Energy and Octopus Energy to encourage users to sign up for a new account.

The specifics of the deal between the three organizations are unclear. But it is safe to assume Monzo receives a referral fee for sending customers to the energy companies. The arrangement may also include revenue sharing.

Key takeaways:

  • Monzo is an English neobank founded by a collection of former Starling Bank employees. It was one of the first app-based banks to be approved for the UK market.
  • Monzo makes money by offering personal and business premium subscriptions with added features and functionality. It also takes a percentage of transactional interchange fees and charges interest on any bank overdraft.
  • Monzo also charges consumers interest if they take out a personal loan with the company. Furthermore, fees are charged when cash withdrawals exceed daily limits.
Value PropositionMonzo offers a compelling value proposition for its users, including: – Digital Banking: Providing a seamless and fully digital banking experience accessible through a mobile app. – Transparency: Offering real-time transaction notifications and spending insights to help users manage their finances better. – No Hidden Fees: Promising no hidden fees for spending abroad, making ATM withdrawals, or maintaining an account. – Easy Budgeting: Enabling users to set budgets and track expenses in various categories effortlessly. – Quick Account Setup: Allowing users to open an account quickly without the need for visiting a physical branch. – P2P Payments: Facilitating easy peer-to-peer payments and money transfers among users. – Overdraft Facility: Offering overdraft facilities for eligible users. – Savings Features: Providing savings features like “Pots” to help users save money for specific goals. – Security: Ensuring strong security measures, including freeze/unfreeze card functionality and in-app support. – Integration with Third-Party Services: Allowing integration with various third-party financial services.
Core Products/ServicesMonzo’s core products and services encompass: – Current Accounts: Providing personal and business current accounts to users. – Debit Cards: Issuing Monzo-branded debit cards for account holders. – Mobile App: Offering a user-friendly mobile app for account management and transactions. – Savings Pots: Enabling users to create separate “Pots” for savings and financial goals. – Monzo Plus and Monzo Premium: Offering premium account options with additional features for a monthly fee. – Joint Accounts: Allowing users to open joint accounts with others. – Overdrafts: Providing overdraft facilities to eligible account holders. – International Payments: Supporting international payments and transactions. – Bill Splitting: Offering a bill splitting feature for shared expenses. – Integration with Third-Party Apps: Enabling integration with third-party financial and lifestyle apps.
Customer SegmentsMonzo serves a range of customer segments, including: – Individuals: Targeting individuals looking for a digital-first banking experience. – Businesses: Offering business accounts and financial services to startups and small businesses. – Students: Providing student accounts and financial education to students. – Travelers: Attracting travelers with fee-free international spending and currency conversion. – Tech-Savvy Users: Appealing to tech-savvy users who prefer managing their finances through a mobile app. – Millennials and Gen Z: Capturing the younger demographic with innovative features and a modern user experience. – Savers: Catering to individuals looking for savings features and easy budgeting tools. – Joint Account Holders: Serving couples and shared households with joint account options. – Frequent Online Shoppers: Offering online shoppers a secure and convenient payment solution. – Business Owners: Assisting business owners with financial management and expense tracking.
Revenue StreamsMonzo generates revenue through various revenue streams: – Interchange Fees: Earning fees from merchants every time a Monzo card is used for a transaction. – Monzo Plus and Premium Subscriptions: Generating revenue from users who subscribe to premium account tiers. – Overdraft Fees: Charging interest and fees on overdraft facilities for eligible users. – International Transaction Fees: Earning fees on currency conversion and international spending. – Partner Commissions: Receiving commissions from partner offers and referrals within the app. – Business Banking Fees: Charging fees for business account services and features. – ATM Fees (Abroad): Earning a percentage on ATM withdrawal fees when used abroad. – Lending: Earning interest on loans and lending activities. – Monzo Marketplace: Partnering with third-party financial services that pay fees for user referrals. – Data Insights: Offering anonymized data insights to businesses and financial institutions for a fee.
Distribution StrategyMonzo employs a strategic distribution strategy to reach users and promote its services: – Mobile App: Offering a mobile app as the primary channel for account management and transactions. – Referral Program: Encouraging users to refer friends and family through referral incentives. – Word of Mouth: Relying on positive user experiences to generate word-of-mouth referrals. – Online Marketing: Implementing online marketing campaigns to attract new users. – Partnerships: Collaborating with other fintechs and financial services providers to expand offerings. – Educational Content: Providing educational content and resources to inform and attract users. – Community Engagement: Building an engaged user community through forums and social media. – In-App Features: Using in-app features and notifications to promote offers, savings, and referrals. – Physical Cards: Issuing physical Monzo debit cards for user convenience. – Customer Support: Offering responsive customer support through the app for inquiries and assistance.

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