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.
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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.
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:
- 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.
- 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.
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