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Okay, welcome back to another episode of Banking Without Borders.
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So in July 2020, Monzo published their annual accounts, and buried on page 75 was a sentence that set off a chain reaction of events.
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Directors could not be certain the bank would still exist in 12 months.
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There was significant doubt about its ability to continue as a going concern.
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Now it's important to say straight away that that is not a bankruptcy filing, but the timing could hardly have been worse.
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Six weeks earlier, investors devalued Monzo from£2 billion to£1.25 billion.
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It was the middle of COVID and funding had dried up.
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And on the day those accounts were published, Sifted reported that customers were moving money out of Monzo.
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So the fear that they could go bust was genuine and justified because banks don't publish sentences like that by accident.
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Every word would have been agreed and signed off by the board.
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So when a bank tells you in writing that it might not be here next year, you should probably believe it.
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But how did this happen?
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How does the most talked about bank or digital bank in Britain with the hot coral card and the crowdfunding records end up printing a warning about its own survival?
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And what's even stranger, look at them today.
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This moment was clearly not fatal.
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It was clearly just a blip, which means somewhere between then and now, Monzo didn't just recover, they became a fundamentally different business.
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So Jan, let's just start with how Monzo got into so much trouble in the first place.
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What actually happened?
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I believe it came down to one thing, and that's missing diversification journey.
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So Monzo, they hold a banking license since 2017, I believe, early 2017.
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But initially when they first received it, they didn't really operate like a bank.
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See, a bank typically has multiple different income sources, such as lending, which is typically very, very easy to calculate with.2% of the payment.
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If your broad might have been a little bit more.
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When COVID hit initially, you know, spending kind of stopped.
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Everyone was at home, there was a lockdown, especially travel, right?
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So the lucrative spending that stopped almost entirely, um, and that led them to a situation where all of the income or most of the income kind of fell away at once, right?
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And um, absolutely, yeah, absolutely bad situation to be in.
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And there was no real real other income source to fall back to.
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I believe they only lent about 144 million pounds in the year to February 2020, so just about when COVID started, and the bank of Monzo's size, yeah, they would have normally far larger loan book earning interest from their customers paying off their loans.
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Um, that wasn't the case.
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And also Monzo's whole cost structure back then, it was built on growth.
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They were growing fast before that, and they expected to continue growing, yeah, continue growing fast, and then COVID hit, something no one really expected, and um they obviously had their costs accumulating and had to find ways to, you know, to cut it down eventually.
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Monzo were essentially like a payments provider rather than a bank.
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I know they can be the same thing, but it's almost as if the banking side of Monzo Bank didn't really exist at this point.
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Yeah, it didn't.
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No, it didn't.
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And um whose fault is that?
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Thank you very much.
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Hard to blame anyone, but uh Tom Blomfield, who was the CEO and founder of Monzo at the time, you know that's someone who came from a technology background.
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So it's it's not a banking executive.
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I believe that person probably has never um never learned how to build a bank before that.
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Um so it was kind of learning by doing, and maybe he just overlooked um the importance of diversification, especially so early on.
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Another contributing factor, Johnny, was the fact that the funding mark it kind of has has dried down.
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Even before COVID, I think there was the case where there was some sort of fatigue, you know, investors not willing to open their pockets as as much as they used to, right?
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Especially when it came down to challenger banks, because it almost felt like everywhere you looked, there was a new challenger bank appearing, and most of them loss making, you know, and that kind of led to some fatigue.
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So it was really difficult for Monzo to to raise money at that time.
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And I believe their the round that they had planned um just before 2020 has had also been repeatedly delayed, probably because they couldn't find the right investor.
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Um so that kind of yeah, led them to a challenging situation, kind of a struggle, even yeah, because they they continued making losses, right?
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And uh not not little losses.
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It's it's been quite fascinating, even if you look at the the the data here.
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So we have um the year to February 2019, they made 50 million in loss for that year, then the year to February 2020, 123 million, to 21, 131 million, wow, to 22, 119 million, to 23, 116 million.
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So their losses have kind of increased um every single year, with one exception that's 21 to 22, probably because the cost cutting measurements that uh came into place that they have prepared for when they had the you know, when they they gave out a notice that they had problems, those cost-cutting measures they started working exactly at that time, um, which is why the losses haven't increased for that specific year.
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Um but it's it's kind of fascinating, right?
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So Monzo lost roughly half a billion pounds across five financial years.
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Um and then combine that with a situation where you have problems raising capital, who that can be quite tricky.
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That's an interesting figure, half a billion, isn't it?
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And saying that that is the cost of building a bank to where Monzo is today.
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That's the amount of money that it took to get them where they are today, without jumping too far ahead.
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Because I think we should pull back for a moment and look at what they put in place to try to steer the ship in the right direction.
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Essentially, those cost-cutting exercises that Jan just mentioned.
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And it it kind of begins with furlough.
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In March 2020, if we all recall, that was somewhat the beginning of the pandemic here in Britain.
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Monzo put 295 members of staff on furlough.
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That would have cut costs significantly.
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And one of the questions that I thought, Yan was who did they furlough?
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Because they're not exactly a restaurant or a pub or a club.
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But it turns out it was customer support agents, Yan, which was quite striking to me because surely they could work from home.
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Does make sense though, Johnny?
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Spending stops.
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Yes.
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There'll be less people having problems with their card, with their app, with their transactions in general, you know, less fraud happening to Monzo customers, so less need for support customers.
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Uh support staff.
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I think that's a natural behavior.
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I would expect that person making.
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Yeah.
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That's yeah, that's a that's a good point.
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And the support staff in the US were cut next.
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And this was really the beginning of the end for the America venture.
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Uh, they cut the Vegas support team.
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165 roles were taken out of Las Vegas.
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I couldn't even believe that they had their support team there in the first place.
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I had no idea.
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That feels like a miscalculation.
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Can anyone jump in the comments?
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Why would you run your support for the states in Vegas of all places?
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It seems like an expensive place to live.
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Good gambling for the start.
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Like what?
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It doesn't make any sense, does it, to me at least?
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Then the new CEO comes in, and this is obviously the beginning of the end for the US arm because they take Tia T'Nil, who was hired to run the US business, and he becomes the group CEO.
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I think that's the right move based on what Jan said earlier as well about Tom being a technologist and not necessarily a banker, or he certainly doesn't have the resume of a banker.
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But just after this, Jan, they have to try to raise money.
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They sell shares cheaply.
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They raise 60 million pounds at a 1.24 billion pound valuation, which is, as we mentioned earlier, a 40% drop down from the valuation of£2 billion.
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That raises some money for Monzo, and then there's further redundancies.
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Around 8% of the workforce or 120 rolls are cut.
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And at that point as well, Blomfield steps away from the company.
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And so we're trying to turn the ship around, they're trying to recover, but also at the same time, the FCA opened a file and investigation into Monzo in May 2021.
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And then further down the line in October, they dropped the US license application Yan.
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I think this is probably one of their biggest costs at the time as well.
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I think the American regulators have uh essentially just disapproved them.
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They didn't get the license, but it would have also helped them save more money.
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In December 2021, they go to raise its Series H and it raises£450 million in an arguably a negative environment for Monzo, right?
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We have a new CEO, we've given up with the US, Tom has left, but that strangely is actually quite positive.
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Why do you think that was, Yan?
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Why do you think because they're still the same bank, they've still got the same license, nothing has really changed, but from March 2020 to December 2021, during all of this period of turmoil, they've actually been able to raise the largest amount of money in the history of the company.
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Well, John, they had a strong year.
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The year, financial year ending in 2022, was one of their strongest years so far.
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They increased from 80 million pounds in revenue to 154 million, so they almost doubled it.
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And they probably had indicated earlier that their expense management measures came into effect, started to work, were bearing fruits, and losses would be down.
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And that was actually the first year where losses decreased instead of increased, and um, yeah, quite fascinating.
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But whoever bought in at this low valuation in in June 2020 it was of 1.2 billion pounds, who that person, you know, kind of tripled their money um within one year.
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Yeah.
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One and a half years, to be fair.
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But that's fascinating to me, isn't it?
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Yeah, I mean, they would have been taking on some risk.
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You know, this was the height of the pandemic.
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Public sentiment was negative as well, right?
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Yeah.
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At that time.
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Customers moving money away, at least claiming to.
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Social media was kind of uh negative.
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I believe you even recorded a short on Monzo.
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Could Monzo go bust?
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This has been a concern for a while now, especially after Monzo released that.
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Or was it a TikTok?
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I'm not sure.
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Um but both.
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There was a lot of attention on this subject.
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I think that TikTok received maybe one and a half million plays.
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Uh there were a lot of comments, a lot of shares.
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I put it out as it was.
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I didn't make anything up.
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I explained the going concern, the statements in the accounts.
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There was genuine panic around this.
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The sentiment was of fear of Monzo, would they make it?
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Could they survive?
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Clearly they survived.
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But what have they built, Jan, that's got them to where they are now?
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That's what I think we should talk about.
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Yeah.
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Because there's a huge shift in the business model.
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Long story short, Johnny, they built a bank.
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Excellent.
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They weren't one before.
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They were essentially payments provider, but they they started diversifying.
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They started relying on other income streams and that that kind of put them into a position where they oh they're incredibly fast growing.
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I mean, look at the look at the numbers.
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If you if you look at their the yearly revenue, it's fascinating, right?
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What they have become.
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They almost grew uh what was that 10x on revenue at least?
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No, more than 10x on revenue within within four years.
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So from 2022 to 2026, or well, that's five years, five financial years at least.
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Wow, 10x.
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Yeah, which business grows 10x in that time?
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I don't think there are many.
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Maybe some AI businesses, but they're also there's also higher risk involved with those, I would say.
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So it's very, very fascinating.
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And I think what what it comes down to, the the major cash cow is the interest income, which they now receive plenty of.
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Um, and that's due to the fact that they you know increased the customer deposits by appearing more trustworthy, I would say, um, by you know, offering investment features, I believe, many different things, and um customer deposits grew by five x within that same period of time, and then obviously the whole interest rate environment also changed when inflation became a topic.
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UK interest rates skyrocketed essentially, which which was bad for people seeking to get loans, but great for people giving loans away, right?
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Or great for banks that held cash and deposited it with the the central bank and then earned interest on that.
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Um, also like the fact that they've they've be been innovative, right, with with other income sources.
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I mean, you can see that from the fact that fee and commission income um has also grown dramastic uh dramatically.
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Yes, it's now at 459 million pounds a year.
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Um, and out of that subscription revenue is 122 million.
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Yes.
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And we had a look at the annual report, and I think it's very fascinating that the subscription revenue is incredibly profitable for them.
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I believe they have a 50% profit margin on that subscription revenue.
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About 15% of users are subscribed to one of their paid plans.
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That's huge.
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That's a lot.
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Just recurring revenue, guaranteed income, 15% of users, and that's only going to increase.
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That's not going to decrease.
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We've seen that with Revolue.
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That's so subscriptions are very popular.
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Do you think that is a hedge, Yan, against the potential future decline of interest rates?
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It's certainly not as big as 1.2 billion pounds, what they're making in interest income, but they must be thinking about trying to hedge against that going down.
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100%.
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I think that's part of the strategy.
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Um that's that's part of them trying to prevent for uh future interest rate decline, which will come eventually.
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We don't know when, but it will come, I'm pretty sure.
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And um, I'm certain actually, I'm not just sure.
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Um it will come, interest rates will go down in the UK, which will be bad for the saver, but it will be good for the economy, overall economy.
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And it might even lead to people subscribing to more more Monster subscriptions, increasing debt in the process.
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One thing is very, very fascinating, Johnny, and that's the fact that they make 183 pounds per active user on a free account, which is actually really, really good in its free version.
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So compare that to Revolut standard, for example.
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Revolut, I believe they're making like 60, 70, maybe it's 80 pounds.
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I don't know the figure, a figure from the top of my hand, but something like that on an account that's in its free version, way worse than Monzo's.
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Monzo's standard account is excellent, it's an excellent bank account.
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You can use it almost entirely for free.
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There are very few things that you actually have to pay money for.
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And they they managed to make 183 pounds on that.
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Absolutely fascinating.
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Yes.
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And they've they've done some better things recently with sort of ungating features like virtual cards, for example, where they now give you or allow you to have, I believe, one virtual card on the free account.
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That was a good move.
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And just the adding of new products, I think, will entice people into use it.
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For example, having more investment products, there are more funds that you can invest in that are available.
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And they are essentially you pay a fee when you invest, but they are still a part of the free plan.
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It feels very rich with features, is what I'm trying to say, that could arguably be stamped with free.
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And I think that is very powerful for Monzo, and I think that allows them to garner or to gather more members, more active users.
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One in five, Yan, one in five people in this country use Monzo and actively use it as well.
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Yeah.
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Uh, I I think that's yeah, remarkable considering this is a bank that was founded, I'll say 2015, possibly 10 to 11 years ago.
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Yeah.
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You know, how old is Lloyd's?
00:16:33.200 --> 00:16:34.639
You know, how old is Nat West?
00:16:34.879 --> 00:16:36.159
How old is HSBC?
00:16:36.320 --> 00:16:41.039
The trick to Monzo is that, you know, you create these products that people tell their friends about.
00:16:41.279 --> 00:16:45.919
You create these products that people like you and I love to talk about, love to use, love to test.
00:16:46.080 --> 00:16:58.799
That is essence why they've managed to be so successful, is because they haven't been afraid to innovate, try new things, give people more through banking rather than just a current account and an overdraft where they can charge fees.
00:16:58.960 --> 00:17:07.839
With all this said, you know, celebrating how great Monzo are and how you know big they've become, they're still nowhere near Revolut, are they?
00:17:09.519 --> 00:17:10.400
Yeah, not quite.
00:17:10.559 --> 00:17:11.440
Not quite, Johnny.
00:17:11.519 --> 00:17:17.279
But I think they're they're on a very healthy path to potentially reach the levels of Revolute.
00:17:17.359 --> 00:17:19.599
Um, maybe even a healthy revoluted.
00:17:19.680 --> 00:17:21.200
You really think I believe so, Johnny B reason?
00:17:21.759 --> 00:17:24.480
You're talking you're talking about 75 million customers, Yan.
00:17:24.640 --> 00:17:28.799
I think that's you're talking about 40 markets, licenses in 30.
00:17:28.880 --> 00:17:29.599
This is Revolut.
00:17:30.160 --> 00:17:33.680
You know, only 4.5 billion pounds in revenue for a moment.
00:17:33.839 --> 00:17:37.359
We should put on on the screen and for audio listeners, I'll try to read you it, read this out.
00:17:37.440 --> 00:17:40.319
But Monzo at 1.7 billion, right?
00:17:40.480 --> 00:17:46.880
15.2 million customers, Yan, Revolu, only 4.5 billion from 68 million customers.
00:17:47.119 --> 00:17:53.200
Like that to me is a massive discrepancy, which makes me think, yes, Monzo could easily overtake revolution and revenue.
00:17:53.359 --> 00:17:59.680
But mate, I don't know how they beat them for for users or for markets.
00:17:59.920 --> 00:18:01.440
Okay, I think that can be done, Johnny.
00:18:01.839 --> 00:18:02.799
When they they move slow.
00:18:03.039 --> 00:18:13.279
You need to understand that they're in a position where they've they've perfected essentially their business, their product in one specific market, and they became uh almost a dominating bank there.
00:18:13.359 --> 00:18:15.599
I think they have more UK customers than Revolute, even.
00:18:15.680 --> 00:18:16.000
Yes.
00:18:16.160 --> 00:18:20.720
And now they're in a position where they're just starting to expand um within the European Union.
00:18:20.799 --> 00:18:25.039
They've they've launched Ireland, they've launched Spain, they're gonna launch other markets for sure.
00:18:25.359 --> 00:18:33.599
And it'll it'll just be a matter of time until they have a yeah, somewhat of a dominant position within the European, within within whole Europe essentially.
00:18:33.759 --> 00:18:39.599
And once they've achieved that, then it's just a matter of time until they start looking to other markets, maybe potentially reopen the US.
00:18:39.759 --> 00:18:46.000
But I really like the fact that they they said, hey, we'll we'll focus on this this one region at first, right?
00:18:46.240 --> 00:19:03.200
Became re become really good there instead of launching, launching in the US, launching, you know, potentially somewhere in Asia, launching in South America, and then doing every every little region a little bit, you know, which is really expensive as well, and then failing potentially in half of them.
00:19:03.279 --> 00:19:08.559
It's much healthier for the business to grow naturally within one region, right?
00:19:08.720 --> 00:19:14.400
Become become known for having a very good product, and then kind of organically expand to neighboring countries.
00:19:14.480 --> 00:19:15.759
And that's what they're doing right now.
00:19:15.920 --> 00:19:17.680
And I don't think there's much that can prevent them.
00:19:17.839 --> 00:19:21.599
One thing that I always mention to you, Johnny, you're kind of privileged in the UK.
00:19:21.839 --> 00:19:25.039
Great banking products, incredibly competitive banking market.
00:19:25.359 --> 00:19:28.960
And that's not the case in many other European countries, unfortunately.
00:19:29.119 --> 00:19:32.480
In Germany, for example, it's very common to have a base fee with your account.
00:19:32.559 --> 00:19:41.920
And Monzo, in its current form, if they'd launched there, I could almost guarantee that they'd become one of the major banks within a very short amount of time.
00:19:42.079 --> 00:19:43.200
I mean, they're literally competing.
00:19:45.920 --> 00:19:52.160
They're people using Revolute Standard as their main bank account in Germany and then sharing their thoughts on social media on how good it is.
00:19:52.240 --> 00:19:53.440
I've literally seen that the other day.
00:19:53.759 --> 00:19:56.960
That it says a lot about the German banking market, but it is hotting up.
00:19:57.039 --> 00:20:03.440
That might explain why Chase UK launched Chase DE, although it's not really a full bank account at the moment, it's a savings account.
00:20:03.759 --> 00:20:12.079
Again, they've kind of done Monzo's approach of slow and steady building out a business in one country before moving on to the next, although they've taken a bit of a timid approach to Germany.
00:20:12.160 --> 00:20:13.599
I think you've laid out the ball case.
00:20:13.759 --> 00:20:15.920
I'll lay it out for Revolut a bit here.
00:20:16.160 --> 00:20:19.839
Revolut has decade, well, a decade head start on Monzo in Europe.
00:20:20.000 --> 00:20:26.640
I think in the UK, Monzo are far better perceived than Revolut, but I'd be curious to hear from people in the comments.
00:20:26.720 --> 00:20:31.440
I get the feeling, Jan, in Europe, Monzo don't have any reputation.
00:20:31.599 --> 00:20:32.640
They've got none.
00:20:32.960 --> 00:20:37.599
But Revolut's is quite strong, licensed as a bank in Lithuania since 2018.
00:20:37.680 --> 00:20:41.279
It's not like 20, like getting your banking license in the UK in 2026.
00:20:41.440 --> 00:20:45.519
Like they have been a licensed bank, at least in the EEA, for a long time.
00:20:45.599 --> 00:20:48.079
And Monzo, what they're just going to go in there and eat their lunch.
00:20:48.160 --> 00:20:51.920
I would say that their product is better, although it will be different in Spain.
00:20:52.079 --> 00:20:54.079
It will be it is different in Ireland.
00:20:54.240 --> 00:21:00.240
But I would say that the product will be better than Revolut's because it's not as convoluted with the number of tiers.
00:21:00.400 --> 00:21:03.680
Like Revolut's offering, far better free banking structure.
00:21:03.839 --> 00:21:14.400
But at the same time, Jan, they have zero brand equity in Europe, apart from people that know them from the UK, which is the people that are watching this, the people are listening to this, but at scale, that just doesn't exist.
00:21:14.559 --> 00:21:16.160
And I think that's a big problem for them.
00:21:16.240 --> 00:21:21.039
And again, I would say this: I do not think that they can really truly challenge Revolut.
00:21:21.680 --> 00:21:25.039
At least if they are going to, it's going to be across decades.
00:21:25.119 --> 00:21:26.799
It's not going to be four over years.
00:21:27.200 --> 00:21:28.160
I say decade.
00:21:28.240 --> 00:21:32.400
I think I say one decade, Johnny, and Monzo will be at the point where Revolut is in right now.
00:21:32.720 --> 00:21:40.799
And that's obviously speculation, but I think looking at the looking at the way their business is structured, looking at the depth of their pockets, I think that's definitely feasible.
00:21:40.960 --> 00:21:42.240
And you have to keep one thing in mind.
00:21:42.400 --> 00:21:49.200
Monzo is a company who has yeah has relied quite a bit on on YouTube advertising as well in the past.
00:21:49.279 --> 00:21:55.039
I mean, if you watch British YouTubers, you you see uh that in many different cases they're affiliated with Monzo, right?
00:21:55.200 --> 00:22:08.559
Monzo pays them to advertise their products and then these these these YouTubers You know, people in Germany, people in in Spain, I assume, people in many different European countries that are also English speaking, they obviously show interest in these YouTubers as well.
00:22:08.640 --> 00:22:11.519
And they consume the content and they know what Monzo is.
00:22:11.680 --> 00:22:14.480
At least I knew what Monzo was, even before way before we started.
00:22:14.559 --> 00:22:17.440
Uh but everyone everyone talks about Revolut.
00:22:17.599 --> 00:22:19.440
Everyone everyone talks about available at the moment.
00:22:19.759 --> 00:22:21.119
Why would you talk about this, Johnny?
00:22:21.200 --> 00:22:24.160
Why would you talk about the product if it's not available to you yet?
00:22:24.240 --> 00:22:24.480
Right?
00:22:24.640 --> 00:22:29.359
It will be available to you and it will launch with better conditions than what Revolut has to offer.
00:22:29.440 --> 00:22:30.720
And that makes me excited.
00:22:30.880 --> 00:22:31.279
You know?
00:22:31.440 --> 00:22:32.480
That makes me really excited.
00:22:32.559 --> 00:22:37.440
And if I know one thing about Germans, it's the fact that they hate spending money if they could save it.
00:22:37.839 --> 00:22:38.480
You know?
00:22:39.200 --> 00:22:41.200
Honestly, that's and that's the perfect.
00:22:42.720 --> 00:22:44.240
Get in the comments if you're German.
00:22:44.559 --> 00:22:48.480
Oh, I mean, I'm sure that's true, and I'm sure everyone will agree with me.
00:22:48.559 --> 00:22:51.920
Um, that has a little bit of context into the German culture.
00:22:52.000 --> 00:22:54.160
Um, Germans don't like to spend money.
00:22:54.240 --> 00:22:57.039
Um, and yeah, that makes makes a lot of sense then.
00:22:57.279 --> 00:23:01.279
But they are going to Ireland mo Monzo going to Ireland.
00:23:01.359 --> 00:23:03.119
Well, that those conditions seem fine.
00:23:03.359 --> 00:23:04.400
English speaking.
00:23:04.640 --> 00:23:08.799
You know, there's gonna be a hell of a crossover from the UK and Ireland.
00:23:08.960 --> 00:23:10.640
People have gonna heard about it, of course.
00:23:10.720 --> 00:23:17.759
But going to Spain, you know, new language, new banking culture, there's real competition in Spain, including Revolute.
00:23:20.559 --> 00:23:21.279
You know, it's hard.
00:23:21.359 --> 00:23:22.480
It's gonna be extremely hard.
00:23:22.559 --> 00:23:22.960
I don't know.
00:23:23.119 --> 00:23:25.519
It's too early to tell because we can't see any of the numbers.
00:23:25.680 --> 00:23:31.519
For year-ending accounts for 2027 are gonna be the, you know, the first full year where we're gonna see, you know, what's actually happening.
00:23:31.599 --> 00:23:36.240
And also amongst an environment where interest rates should be coming down as well.
00:23:36.400 --> 00:23:39.039
That's gonna be the real test for Monzo, isn't it?
00:23:39.119 --> 00:23:50.079
Not only for whether or not they are gonna start to succeed in Europe, but even if the business can actually still survive, you know, where they've made so much money from interest income, and if that starts to come down.
00:23:50.400 --> 00:23:52.079
Just one thing I would like to mention, Johnny.
00:23:52.240 --> 00:23:54.960
Yeah there's there's one aspect that concerns me.
00:23:55.119 --> 00:23:59.680
That's the fact that the expenses have been have been rising drastically as well.
00:23:59.759 --> 00:24:04.559
Um operating expenses are up over a third, um, almost nearing a billion pounds.
00:24:04.720 --> 00:24:05.759
A billion pounds a year.
00:24:05.839 --> 00:24:11.519
Imagine small startup spending, I mean, you know, small startup, I just banged against my table, sorry.
00:24:11.680 --> 00:24:13.039
Um, small startup.
00:24:13.200 --> 00:24:15.839
Um, it really isn't a small startup anymore, but it was.
00:24:16.240 --> 00:24:20.799
And them spending a billion pounds a year, you know, that kind of scares me a little bit.
00:24:20.960 --> 00:24:26.960
Also the fact that they have 5,275 people employed, also incredibly scary.
00:24:27.200 --> 00:24:39.279
And um yeah, I'm sure that's all calculated, but I hope to see uh continue seeing conservative growth from them because that's literally what brought them into the situation that they were in right now.
00:24:39.440 --> 00:24:48.640
Yes, they've done aggressive marketing, but they've not, you know, um overestimated things, they've not um increased the expenses more than than they should have, right?
00:24:48.720 --> 00:24:54.079
If they've always you know they've they've cut it down from this this bad position they were in 2020.
00:24:54.720 --> 00:24:55.920
Learned from this, hopefully.
00:24:56.079 --> 00:25:00.240
Um focused on one region, tried to grow organically as much as possible.
00:25:00.480 --> 00:25:06.480
Yes, done some marketing, but you know, um done it in a reasonable way, and I hope to continue seeing that from them.
00:25:06.720 --> 00:25:08.319
I think the future is bright.
00:25:08.480 --> 00:25:10.400
Maybe the future is coral.
00:25:11.039 --> 00:25:12.559
Um we'll see.
00:25:12.799 --> 00:25:18.799
Curious to hear from people, particularly people that use Monzo, because I know the community is really engaged.
00:25:18.960 --> 00:25:21.359
What are your thoughts about the current product?
00:25:21.680 --> 00:25:28.559
Do you think the idea of going into the European markets could potentially distill the UK service?
00:25:28.720 --> 00:25:33.200
Resources could get moved across and the UK might be forgotten about or disregarded.
00:25:33.279 --> 00:25:36.799
So do get in the comments, let us know, join the Discord, become a founding member.
00:25:36.880 --> 00:25:40.880
We got a lot of people on there, a lot of people that are particularly interested in Monzo as well, especially.
00:25:40.960 --> 00:25:48.160
So do come in, say hello, and share your thoughts with not just us with on the episode, but share your thoughts with us about anything you want to discuss.
00:25:48.400 --> 00:25:53.920
Jan, do you think Monzo now have escaped any moment like this again?
00:25:54.000 --> 00:25:55.359
Like how we started the episode?
00:25:55.440 --> 00:25:56.880
Do you think this could ever happen again?
00:25:57.119 --> 00:26:00.160
Hopefully not, but we still see some reliance on interest rates.
00:26:00.319 --> 00:26:08.559
Um, so if they they fall, you know, if they're interested in combo fall as well, and that might put them into a position where they don't want to be in.
00:26:08.720 --> 00:26:14.720
Um and that's the only thing I I hope they they think about, you know, and I I'm sure they they are thinking about that.
00:26:14.880 --> 00:26:19.839
I'm sure they've learned from their mistakes in the past, and I'm sure they're not gonna put all X into one basket.
00:26:20.000 --> 00:26:21.759
Time will tell, but I'm bullish.
00:26:21.920 --> 00:26:22.640
I'm positive.
00:26:22.720 --> 00:26:24.319
I I think Monzo will succeed.
00:26:24.480 --> 00:26:25.680
I think it's a great product.
00:26:25.920 --> 00:26:27.759
Um love the way the app is organized.
00:26:27.839 --> 00:26:28.559
I hope they will.
00:26:28.720 --> 00:26:32.799
I hope they'll they'll succeed, and I hope they'll they'll conquer Revolute essentially.
00:26:32.880 --> 00:26:34.559
No, it conquer conquer swing word.
00:26:35.279 --> 00:26:36.960
Um you know what I mean, right?
00:26:37.119 --> 00:26:37.519
Beat them.
00:26:37.920 --> 00:26:40.240
Essentially reach their position.
00:26:40.640 --> 00:26:41.119
Exactly.
00:26:41.359 --> 00:26:43.839
Yeah, I know I really, I really hope they would.
00:26:44.160 --> 00:26:44.559
I'm with you.
00:26:44.720 --> 00:26:45.599
And I don't hate Revolut.
00:26:45.839 --> 00:26:46.079
I'm with you.
00:26:46.240 --> 00:26:49.680
Don't want to get sidetracked here, but I I mean me neither.
00:26:50.079 --> 00:26:51.039
It's important nuance.
00:26:51.119 --> 00:26:51.599
No, no, it's important.
00:26:51.920 --> 00:26:54.960
We're gonna talk about this because it's about competition for Revolute.
00:26:55.119 --> 00:26:57.440
I think Revolut need more competition.
00:26:57.680 --> 00:26:57.920
They do.
00:26:58.240 --> 00:27:00.640
Why do we think they're devaluing the product?
00:27:00.799 --> 00:27:03.359
Why do they think they're making it more expensive?
00:27:03.519 --> 00:27:05.440
Because they have they have pricing power.
00:27:05.759 --> 00:27:06.079
They do.
00:27:06.799 --> 00:27:07.839
There's just not enough competition.
00:27:07.920 --> 00:27:10.160
It's a monopoly, it's becoming a monopoly.
00:27:10.319 --> 00:27:11.839
They are becoming a monopoly.
00:27:12.079 --> 00:27:18.240
Which is weird because there's so you know, the banking market is just so saturated, but there aren't many Revolutes.
00:27:18.319 --> 00:27:25.519
There are lots of legacy providers, but if there's one provider that can get on to the same sort of level, they're they're offering a similar product, right?
00:27:25.680 --> 00:27:26.640
Monzo to Revolute.
00:27:26.799 --> 00:27:27.680
It's very similar.
00:27:27.839 --> 00:27:34.559
You know, Monzo launch mobile plans around the time Revolut launched mobile plans, both have subscription plans that are growing.
00:27:34.720 --> 00:27:36.640
Monzo added YouTube Lite recently.
00:27:36.799 --> 00:27:41.920
Revolute increased their subscription prices, Monzo also increased their subscription prices.
00:27:42.160 --> 00:27:45.200
I don't know if that's a result of better competition.
00:27:45.839 --> 00:27:47.519
But yeah, I think you're right, Jan.
00:27:47.599 --> 00:27:48.480
This is important.
00:27:48.640 --> 00:27:50.079
It's worth mentioning, isn't it?
00:27:50.240 --> 00:27:51.279
Yeah, absolutely right.
00:27:53.039 --> 00:27:59.599
Um, very exciting topic this week, and uh we've only stated our opinion, so I'm really curious on yours opinion as well.
00:27:59.680 --> 00:28:11.599
Um write them into the comments, let us know uh what you think about Monzo, what you think about their past expansion, their you know, current expansion, um, and also the fact whether you think that Monzo can conquer Europe or not.
00:28:11.759 --> 00:28:14.559
I'm I'm really curious to to see what all you guys think about it.
00:28:14.720 --> 00:28:15.759
See you in the next episode.
00:28:15.920 --> 00:28:16.799
Thanks, everyone.
00:28:16.960 --> 00:28:17.359
Goodbye.
00:28:17.599 --> 00:28:18.240
Thank you, everybody.
00:00:00.080 --> 00:00:02.479
Okay, welcome back to another episode of Banking Without Borders.
00:00:02.640 --> 00:00:10.880
So in July 2020, Monzo published their annual accounts, and buried on page 75 was a sentence that set off a chain reaction of events.
00:00:11.119 --> 00:00:14.400
Directors could not be certain the bank would still exist in 12 months.
00:00:14.560 --> 00:00:19.359
There was significant doubt about its ability to continue as a going concern.
00:00:19.519 --> 00:00:26.480
Now it's important to say straight away that that is not a bankruptcy filing, but the timing could hardly have been worse.
00:00:26.719 --> 00:00:32.240
Six weeks earlier, investors devalued Monzo from£2 billion to£1.25 billion.
00:00:32.719 --> 00:00:35.439
It was the middle of COVID and funding had dried up.
00:00:35.600 --> 00:00:40.399
And on the day those accounts were published, Sifted reported that customers were moving money out of Monzo.
00:00:40.640 --> 00:00:47.359
So the fear that they could go bust was genuine and justified because banks don't publish sentences like that by accident.
00:00:47.520 --> 00:00:50.479
Every word would have been agreed and signed off by the board.
00:00:50.640 --> 00:00:57.119
So when a bank tells you in writing that it might not be here next year, you should probably believe it.
00:00:57.280 --> 00:00:58.159
But how did this happen?
00:00:58.320 --> 00:01:07.439
How does the most talked about bank or digital bank in Britain with the hot coral card and the crowdfunding records end up printing a warning about its own survival?
00:01:07.599 --> 00:01:09.840
And what's even stranger, look at them today.
00:01:10.000 --> 00:01:11.920
This moment was clearly not fatal.
00:01:12.079 --> 00:01:20.640
It was clearly just a blip, which means somewhere between then and now, Monzo didn't just recover, they became a fundamentally different business.
00:01:20.879 --> 00:01:24.879
So Jan, let's just start with how Monzo got into so much trouble in the first place.
00:01:25.040 --> 00:01:26.000
What actually happened?
00:01:26.239 --> 00:01:30.159
I believe it came down to one thing, and that's missing diversification journey.
00:01:30.239 --> 00:01:35.439
So Monzo, they hold a banking license since 2017, I believe, early 2017.
00:01:35.599 --> 00:01:39.359
But initially when they first received it, they didn't really operate like a bank.
00:01:39.599 --> 00:02:06.799
See, a bank typically has multiple different income sources, such as lending, which is typically very, very easy to calculate with.2% of the payment.
00:02:07.040 --> 00:02:09.280
If your broad might have been a little bit more.
00:02:09.439 --> 00:02:13.120
When COVID hit initially, you know, spending kind of stopped.
00:02:13.280 --> 00:02:16.879
Everyone was at home, there was a lockdown, especially travel, right?
00:02:17.039 --> 00:02:27.520
So the lucrative spending that stopped almost entirely, um, and that led them to a situation where all of the income or most of the income kind of fell away at once, right?
00:02:27.759 --> 00:02:31.280
And um, absolutely, yeah, absolutely bad situation to be in.
00:02:31.360 --> 00:02:34.639
And there was no real real other income source to fall back to.
00:02:34.800 --> 00:02:51.439
I believe they only lent about 144 million pounds in the year to February 2020, so just about when COVID started, and the bank of Monzo's size, yeah, they would have normally far larger loan book earning interest from their customers paying off their loans.
00:02:51.599 --> 00:02:52.560
Um, that wasn't the case.
00:02:52.639 --> 00:02:56.400
And also Monzo's whole cost structure back then, it was built on growth.
00:02:56.479 --> 00:03:12.800
They were growing fast before that, and they expected to continue growing, yeah, continue growing fast, and then COVID hit, something no one really expected, and um they obviously had their costs accumulating and had to find ways to, you know, to cut it down eventually.
00:03:13.039 --> 00:03:16.400
Monzo were essentially like a payments provider rather than a bank.
00:03:16.560 --> 00:03:23.280
I know they can be the same thing, but it's almost as if the banking side of Monzo Bank didn't really exist at this point.
00:03:23.599 --> 00:03:24.159
Yeah, it didn't.
00:03:24.319 --> 00:03:24.879
No, it didn't.
00:03:24.960 --> 00:03:26.479
And um whose fault is that?
00:03:26.719 --> 00:03:32.560
This episode is sponsored by no one really, just Jan and I and our website, depositscout.com.
00:03:32.719 --> 00:03:37.520
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We also track switch offers as well.
00:03:51.360 --> 00:03:54.159
There's loads of features that I really like about Deposit Scout.
00:03:54.319 --> 00:03:55.919
Jan, do you want to just share one?
00:03:56.000 --> 00:03:56.879
What's your favorite?
00:03:57.120 --> 00:04:03.360
My favorite feature is the rate history graph, Johnny, because it quickly tells you which products are worth signing up for right now and which are not.
00:04:03.520 --> 00:04:08.560
As an example, eTorus Cash Icer offers 4.87%, which is the top of the table.
00:04:08.719 --> 00:04:15.199
But it's also, if we look at the rate history graph, the all-time high of whatever they've they've offered in the past, 4.8%.
00:04:15.599 --> 00:04:20.000
They've never offered so much in interest, and it's definitely a good option right now.
00:04:20.160 --> 00:04:25.839
The rate history graph allowed me to uncover this within a short time, and that's why I love it so much.
00:04:26.079 --> 00:04:28.240
So depositscout.com is free to use.
00:04:28.399 --> 00:04:29.600
Link in the description box.
00:04:29.680 --> 00:04:30.800
We'll put it in the show notes.
00:04:30.959 --> 00:04:31.439
Check it out.
00:04:31.519 --> 00:04:33.759
It's the best way to support Jan and I.
00:04:33.839 --> 00:04:35.600
That's depositscout.com.
00:04:35.759 --> 00:04:36.399
Thank you very much.
00:04:36.639 --> 00:04:44.319
Hard to blame anyone, but uh Tom Blomfield, who was the CEO and founder of Monzo at the time, you know that's someone who came from a technology background.
00:04:44.399 --> 00:04:46.079
So it's it's not a banking executive.
00:04:46.240 --> 00:04:50.879
I believe that person probably has never um never learned how to build a bank before that.
00:04:50.959 --> 00:04:58.079
Um so it was kind of learning by doing, and maybe he just overlooked um the importance of diversification, especially so early on.
00:04:58.240 --> 00:05:04.079
Another contributing factor, Johnny, was the fact that the funding mark it kind of has has dried down.
00:05:04.160 --> 00:05:13.839
Even before COVID, I think there was the case where there was some sort of fatigue, you know, investors not willing to open their pockets as as much as they used to, right?
00:05:13.920 --> 00:05:25.920
Especially when it came down to challenger banks, because it almost felt like everywhere you looked, there was a new challenger bank appearing, and most of them loss making, you know, and that kind of led to some fatigue.
00:05:26.079 --> 00:05:29.920
So it was really difficult for Monzo to to raise money at that time.
00:05:30.000 --> 00:05:38.480
And I believe their the round that they had planned um just before 2020 has had also been repeatedly delayed, probably because they couldn't find the right investor.
00:05:38.560 --> 00:05:45.839
Um so that kind of yeah, led them to a challenging situation, kind of a struggle, even yeah, because they they continued making losses, right?
00:05:45.920 --> 00:05:47.839
And uh not not little losses.
00:05:48.160 --> 00:05:51.680
It's it's been quite fascinating, even if you look at the the the data here.
00:05:51.839 --> 00:06:11.360
So we have um the year to February 2019, they made 50 million in loss for that year, then the year to February 2020, 123 million, to 21, 131 million, wow, to 22, 119 million, to 23, 116 million.
00:06:11.439 --> 00:06:36.319
So their losses have kind of increased um every single year, with one exception that's 21 to 22, probably because the cost cutting measurements that uh came into place that they have prepared for when they had the you know, when they they gave out a notice that they had problems, those cost-cutting measures they started working exactly at that time, um, which is why the losses haven't increased for that specific year.
00:06:36.399 --> 00:06:38.160
Um but it's it's kind of fascinating, right?
00:06:38.240 --> 00:06:42.079
So Monzo lost roughly half a billion pounds across five financial years.
00:06:42.240 --> 00:06:49.600
Um and then combine that with a situation where you have problems raising capital, who that can be quite tricky.
00:06:50.399 --> 00:06:52.480
That's an interesting figure, half a billion, isn't it?
00:06:52.560 --> 00:06:56.000
And saying that that is the cost of building a bank to where Monzo is today.
00:06:56.079 --> 00:06:59.680
That's the amount of money that it took to get them where they are today, without jumping too far ahead.
00:06:59.759 --> 00:07:07.519
Because I think we should pull back for a moment and look at what they put in place to try to steer the ship in the right direction.
00:07:07.759 --> 00:07:10.800
Essentially, those cost-cutting exercises that Jan just mentioned.
00:07:10.879 --> 00:07:13.759
And it it kind of begins with furlough.
00:07:13.920 --> 00:07:19.120
In March 2020, if we all recall, that was somewhat the beginning of the pandemic here in Britain.
00:07:19.439 --> 00:07:22.800
Monzo put 295 members of staff on furlough.
00:07:23.120 --> 00:07:24.879
That would have cut costs significantly.
00:07:24.959 --> 00:07:28.319
And one of the questions that I thought, Yan was who did they furlough?
00:07:28.560 --> 00:07:32.240
Because they're not exactly a restaurant or a pub or a club.
00:07:32.560 --> 00:07:40.240
But it turns out it was customer support agents, Yan, which was quite striking to me because surely they could work from home.
00:07:40.560 --> 00:07:41.759
Does make sense though, Johnny?
00:07:41.920 --> 00:07:42.639
Spending stops.
00:07:43.120 --> 00:07:43.279
Yes.
00:07:43.600 --> 00:07:55.360
There'll be less people having problems with their card, with their app, with their transactions in general, you know, less fraud happening to Monzo customers, so less need for support customers.
00:07:55.439 --> 00:07:56.480
Uh support staff.
00:07:56.639 --> 00:07:59.199
I think that's a natural behavior.
00:07:59.279 --> 00:08:00.560
I would expect that person making.
00:08:00.800 --> 00:08:01.360
Yeah.
00:08:02.160 --> 00:08:04.000
That's yeah, that's a that's a good point.
00:08:04.160 --> 00:08:07.120
And the support staff in the US were cut next.
00:08:07.199 --> 00:08:11.439
And this was really the beginning of the end for the America venture.
00:08:11.519 --> 00:08:14.480
Uh, they cut the Vegas support team.
00:08:14.639 --> 00:08:17.519
165 roles were taken out of Las Vegas.
00:08:17.680 --> 00:08:20.639
I couldn't even believe that they had their support team there in the first place.
00:08:20.800 --> 00:08:21.279
I had no idea.
00:08:21.519 --> 00:08:22.879
That feels like a miscalculation.
00:08:23.040 --> 00:08:24.399
Can anyone jump in the comments?
00:08:24.480 --> 00:08:28.000
Why would you run your support for the states in Vegas of all places?
00:08:28.319 --> 00:08:29.600
It seems like an expensive place to live.
00:08:29.759 --> 00:08:30.720
Good gambling for the start.
00:08:31.040 --> 00:08:31.360
Like what?
00:08:31.439 --> 00:08:33.279
It doesn't make any sense, does it, to me at least?
00:08:33.440 --> 00:08:44.159
Then the new CEO comes in, and this is obviously the beginning of the end for the US arm because they take Tia T'Nil, who was hired to run the US business, and he becomes the group CEO.
00:08:44.320 --> 00:08:52.559
I think that's the right move based on what Jan said earlier as well about Tom being a technologist and not necessarily a banker, or he certainly doesn't have the resume of a banker.
00:08:52.720 --> 00:08:57.039
But just after this, Jan, they have to try to raise money.
00:08:57.200 --> 00:08:58.399
They sell shares cheaply.
00:08:58.480 --> 00:09:08.000
They raise 60 million pounds at a 1.24 billion pound valuation, which is, as we mentioned earlier, a 40% drop down from the valuation of£2 billion.
00:09:08.720 --> 00:09:12.639
That raises some money for Monzo, and then there's further redundancies.
00:09:12.799 --> 00:09:16.000
Around 8% of the workforce or 120 rolls are cut.
00:09:16.080 --> 00:09:19.120
And at that point as well, Blomfield steps away from the company.
00:09:19.279 --> 00:09:28.480
And so we're trying to turn the ship around, they're trying to recover, but also at the same time, the FCA opened a file and investigation into Monzo in May 2021.
00:09:28.559 --> 00:09:32.720
And then further down the line in October, they dropped the US license application Yan.
00:09:32.960 --> 00:09:36.320
I think this is probably one of their biggest costs at the time as well.
00:09:36.559 --> 00:09:39.759
I think the American regulators have uh essentially just disapproved them.
00:09:39.840 --> 00:09:44.000
They didn't get the license, but it would have also helped them save more money.
00:09:44.159 --> 00:09:53.840
In December 2021, they go to raise its Series H and it raises£450 million in an arguably a negative environment for Monzo, right?
00:09:53.919 --> 00:10:02.639
We have a new CEO, we've given up with the US, Tom has left, but that strangely is actually quite positive.
00:10:02.799 --> 00:10:04.159
Why do you think that was, Yan?
00:10:04.240 --> 00:10:19.679
Why do you think because they're still the same bank, they've still got the same license, nothing has really changed, but from March 2020 to December 2021, during all of this period of turmoil, they've actually been able to raise the largest amount of money in the history of the company.
00:10:19.840 --> 00:10:21.600
Well, John, they had a strong year.
00:10:21.759 --> 00:10:26.320
The year, financial year ending in 2022, was one of their strongest years so far.
00:10:26.480 --> 00:10:31.759
They increased from 80 million pounds in revenue to 154 million, so they almost doubled it.
00:10:31.919 --> 00:10:40.720
And they probably had indicated earlier that their expense management measures came into effect, started to work, were bearing fruits, and losses would be down.
00:10:40.879 --> 00:10:47.279
And that was actually the first year where losses decreased instead of increased, and um, yeah, quite fascinating.
00:10:47.519 --> 00:10:59.279
But whoever bought in at this low valuation in in June 2020 it was of 1.2 billion pounds, who that person, you know, kind of tripled their money um within one year.
00:10:59.440 --> 00:10:59.679
Yeah.
00:11:00.159 --> 00:11:01.600
One and a half years, to be fair.
00:11:01.679 --> 00:11:03.360
But that's fascinating to me, isn't it?
00:11:03.440 --> 00:11:05.279
Yeah, I mean, they would have been taking on some risk.
00:11:05.360 --> 00:11:07.200
You know, this was the height of the pandemic.
00:11:07.440 --> 00:11:09.279
Public sentiment was negative as well, right?
00:11:09.440 --> 00:11:09.600
Yeah.
00:11:09.840 --> 00:11:10.240
At that time.
00:11:10.480 --> 00:11:13.039
Customers moving money away, at least claiming to.
00:11:13.200 --> 00:11:14.960
Social media was kind of uh negative.
00:11:15.039 --> 00:11:17.120
I believe you even recorded a short on Monzo.
00:11:17.360 --> 00:11:18.960
Could Monzo go bust?
00:11:19.039 --> 00:11:22.080
This has been a concern for a while now, especially after Monzo released that.
00:11:22.399 --> 00:11:23.279
Or was it a TikTok?
00:11:23.360 --> 00:11:23.919
I'm not sure.
00:11:24.240 --> 00:11:25.600
Um but both.
00:11:25.919 --> 00:11:27.919
There was a lot of attention on this subject.
00:11:28.080 --> 00:11:31.279
I think that TikTok received maybe one and a half million plays.
00:11:31.360 --> 00:11:33.840
Uh there were a lot of comments, a lot of shares.
00:11:34.000 --> 00:11:35.360
I put it out as it was.
00:11:35.440 --> 00:11:36.639
I didn't make anything up.
00:11:36.799 --> 00:11:40.000
I explained the going concern, the statements in the accounts.
00:11:40.240 --> 00:11:41.919
There was genuine panic around this.
00:11:42.000 --> 00:11:45.200
The sentiment was of fear of Monzo, would they make it?
00:11:45.279 --> 00:11:46.000
Could they survive?
00:11:46.320 --> 00:11:47.600
Clearly they survived.
00:11:47.840 --> 00:11:51.840
But what have they built, Jan, that's got them to where they are now?
00:11:52.000 --> 00:11:53.679
That's what I think we should talk about.
00:11:53.759 --> 00:11:53.919
Yeah.
00:11:54.080 --> 00:11:56.159
Because there's a huge shift in the business model.
00:11:56.480 --> 00:11:58.399
Long story short, Johnny, they built a bank.
00:11:58.559 --> 00:11:58.799
Excellent.
00:11:58.960 --> 00:11:59.919
They weren't one before.
00:12:00.000 --> 00:12:03.200
They were essentially payments provider, but they they started diversifying.
00:12:03.279 --> 00:12:11.200
They started relying on other income streams and that that kind of put them into a position where they oh they're incredibly fast growing.
00:12:11.279 --> 00:12:12.960
I mean, look at the look at the numbers.
00:12:13.039 --> 00:12:16.399
If you if you look at their the yearly revenue, it's fascinating, right?
00:12:16.480 --> 00:12:17.519
What they have become.
00:12:17.679 --> 00:12:21.120
They almost grew uh what was that 10x on revenue at least?
00:12:21.200 --> 00:12:24.320
No, more than 10x on revenue within within four years.
00:12:24.399 --> 00:12:30.000
So from 2022 to 2026, or well, that's five years, five financial years at least.
00:12:30.480 --> 00:12:31.840
Wow, 10x.
00:12:32.240 --> 00:12:35.200
Yeah, which business grows 10x in that time?
00:12:35.279 --> 00:12:36.159
I don't think there are many.
00:12:36.240 --> 00:12:41.039
Maybe some AI businesses, but they're also there's also higher risk involved with those, I would say.
00:12:41.120 --> 00:12:42.480
So it's very, very fascinating.
00:12:42.559 --> 00:12:49.679
And I think what what it comes down to, the the major cash cow is the interest income, which they now receive plenty of.
00:12:49.840 --> 00:13:12.639
Um, and that's due to the fact that they you know increased the customer deposits by appearing more trustworthy, I would say, um, by you know, offering investment features, I believe, many different things, and um customer deposits grew by five x within that same period of time, and then obviously the whole interest rate environment also changed when inflation became a topic.
00:13:12.879 --> 00:13:21.679
UK interest rates skyrocketed essentially, which which was bad for people seeking to get loans, but great for people giving loans away, right?
00:13:21.759 --> 00:13:27.200
Or great for banks that held cash and deposited it with the the central bank and then earned interest on that.
00:13:27.440 --> 00:13:33.120
Um, also like the fact that they've they've be been innovative, right, with with other income sources.
00:13:33.200 --> 00:13:38.960
I mean, you can see that from the fact that fee and commission income um has also grown dramastic uh dramatically.
00:13:39.200 --> 00:13:42.399
Yes, it's now at 459 million pounds a year.
00:13:42.559 --> 00:13:45.759
Um, and out of that subscription revenue is 122 million.
00:13:45.840 --> 00:13:46.000
Yes.
00:13:46.159 --> 00:13:52.159
And we had a look at the annual report, and I think it's very fascinating that the subscription revenue is incredibly profitable for them.
00:13:52.320 --> 00:13:55.279
I believe they have a 50% profit margin on that subscription revenue.
00:13:55.519 --> 00:13:58.799
About 15% of users are subscribed to one of their paid plans.
00:13:58.960 --> 00:13:59.519
That's huge.
00:13:59.679 --> 00:14:00.240
That's a lot.
00:14:00.399 --> 00:14:06.159
Just recurring revenue, guaranteed income, 15% of users, and that's only going to increase.
00:14:06.240 --> 00:14:07.279
That's not going to decrease.
00:14:07.360 --> 00:14:08.480
We've seen that with Revolue.
00:14:08.559 --> 00:14:10.320
That's so subscriptions are very popular.
00:14:10.559 --> 00:14:16.320
Do you think that is a hedge, Yan, against the potential future decline of interest rates?
00:14:16.480 --> 00:14:25.840
It's certainly not as big as 1.2 billion pounds, what they're making in interest income, but they must be thinking about trying to hedge against that going down.
00:14:26.080 --> 00:14:26.480
100%.
00:14:26.799 --> 00:14:28.480
I think that's part of the strategy.
00:14:28.639 --> 00:14:35.279
Um that's that's part of them trying to prevent for uh future interest rate decline, which will come eventually.
00:14:35.440 --> 00:14:37.759
We don't know when, but it will come, I'm pretty sure.
00:14:37.919 --> 00:14:40.159
And um, I'm certain actually, I'm not just sure.
00:14:40.240 --> 00:14:46.480
Um it will come, interest rates will go down in the UK, which will be bad for the saver, but it will be good for the economy, overall economy.
00:14:46.559 --> 00:14:52.320
And it might even lead to people subscribing to more more Monster subscriptions, increasing debt in the process.
00:14:52.480 --> 00:15:05.200
One thing is very, very fascinating, Johnny, and that's the fact that they make 183 pounds per active user on a free account, which is actually really, really good in its free version.
00:15:05.360 --> 00:15:07.679
So compare that to Revolut standard, for example.
00:15:07.840 --> 00:15:11.440
Revolut, I believe they're making like 60, 70, maybe it's 80 pounds.
00:15:11.519 --> 00:15:19.200
I don't know the figure, a figure from the top of my hand, but something like that on an account that's in its free version, way worse than Monzo's.
00:15:19.360 --> 00:15:22.480
Monzo's standard account is excellent, it's an excellent bank account.
00:15:22.559 --> 00:15:24.960
You can use it almost entirely for free.
00:15:25.039 --> 00:15:27.600
There are very few things that you actually have to pay money for.
00:15:27.759 --> 00:15:30.559
And they they managed to make 183 pounds on that.
00:15:30.720 --> 00:15:31.840
Absolutely fascinating.
00:15:32.000 --> 00:15:32.399
Yes.
00:15:32.639 --> 00:15:43.200
And they've they've done some better things recently with sort of ungating features like virtual cards, for example, where they now give you or allow you to have, I believe, one virtual card on the free account.
00:15:43.360 --> 00:15:44.240
That was a good move.
00:15:44.320 --> 00:15:48.399
And just the adding of new products, I think, will entice people into use it.
00:15:48.480 --> 00:15:53.759
For example, having more investment products, there are more funds that you can invest in that are available.
00:15:53.840 --> 00:15:59.039
And they are essentially you pay a fee when you invest, but they are still a part of the free plan.
00:15:59.200 --> 00:16:05.840
It feels very rich with features, is what I'm trying to say, that could arguably be stamped with free.
00:16:06.000 --> 00:16:12.879
And I think that is very powerful for Monzo, and I think that allows them to garner or to gather more members, more active users.
00:16:13.120 --> 00:16:21.360
One in five, Yan, one in five people in this country use Monzo and actively use it as well.
00:16:21.519 --> 00:16:21.840
Yeah.
00:16:22.159 --> 00:16:30.159
Uh, I I think that's yeah, remarkable considering this is a bank that was founded, I'll say 2015, possibly 10 to 11 years ago.
00:16:30.320 --> 00:16:30.480
Yeah.
00:16:30.639 --> 00:16:33.120
You know, how old is Lloyd's?
00:16:33.200 --> 00:16:34.639
You know, how old is Nat West?
00:16:34.879 --> 00:16:36.159
How old is HSBC?
00:16:36.320 --> 00:16:41.039
The trick to Monzo is that, you know, you create these products that people tell their friends about.
00:16:41.279 --> 00:16:45.919
You create these products that people like you and I love to talk about, love to use, love to test.
00:16:46.080 --> 00:16:58.799
That is essence why they've managed to be so successful, is because they haven't been afraid to innovate, try new things, give people more through banking rather than just a current account and an overdraft where they can charge fees.
00:16:58.960 --> 00:17:07.839
With all this said, you know, celebrating how great Monzo are and how you know big they've become, they're still nowhere near Revolut, are they?
00:17:09.519 --> 00:17:10.400
Yeah, not quite.
00:17:10.559 --> 00:17:11.440
Not quite, Johnny.
00:17:11.519 --> 00:17:17.279
But I think they're they're on a very healthy path to potentially reach the levels of Revolute.
00:17:17.359 --> 00:17:19.599
Um, maybe even a healthy revoluted.
00:17:19.680 --> 00:17:21.200
You really think I believe so, Johnny B reason?
00:17:21.759 --> 00:17:24.480
You're talking you're talking about 75 million customers, Yan.
00:17:24.640 --> 00:17:28.799
I think that's you're talking about 40 markets, licenses in 30.
00:17:28.880 --> 00:17:29.599
This is Revolut.
00:17:30.160 --> 00:17:33.680
You know, only 4.5 billion pounds in revenue for a moment.
00:17:33.839 --> 00:17:37.359
We should put on on the screen and for audio listeners, I'll try to read you it, read this out.
00:17:37.440 --> 00:17:40.319
But Monzo at 1.7 billion, right?
00:17:40.480 --> 00:17:46.880
15.2 million customers, Yan, Revolu, only 4.5 billion from 68 million customers.
00:17:47.119 --> 00:17:53.200
Like that to me is a massive discrepancy, which makes me think, yes, Monzo could easily overtake revolution and revenue.
00:17:53.359 --> 00:17:59.680
But mate, I don't know how they beat them for for users or for markets.
00:17:59.920 --> 00:18:01.440
Okay, I think that can be done, Johnny.
00:18:01.839 --> 00:18:02.799
When they they move slow.
00:18:03.039 --> 00:18:13.279
You need to understand that they're in a position where they've they've perfected essentially their business, their product in one specific market, and they became uh almost a dominating bank there.
00:18:13.359 --> 00:18:15.599
I think they have more UK customers than Revolute, even.
00:18:15.680 --> 00:18:16.000
Yes.
00:18:16.160 --> 00:18:20.720
And now they're in a position where they're just starting to expand um within the European Union.
00:18:20.799 --> 00:18:25.039
They've they've launched Ireland, they've launched Spain, they're gonna launch other markets for sure.
00:18:25.359 --> 00:18:33.599
And it'll it'll just be a matter of time until they have a yeah, somewhat of a dominant position within the European, within within whole Europe essentially.
00:18:33.759 --> 00:18:39.599
And once they've achieved that, then it's just a matter of time until they start looking to other markets, maybe potentially reopen the US.
00:18:39.759 --> 00:18:46.000
But I really like the fact that they they said, hey, we'll we'll focus on this this one region at first, right?
00:18:46.240 --> 00:19:03.200
Became re become really good there instead of launching, launching in the US, launching, you know, potentially somewhere in Asia, launching in South America, and then doing every every little region a little bit, you know, which is really expensive as well, and then failing potentially in half of them.
00:19:03.279 --> 00:19:08.559
It's much healthier for the business to grow naturally within one region, right?
00:19:08.720 --> 00:19:14.400
Become become known for having a very good product, and then kind of organically expand to neighboring countries.
00:19:14.480 --> 00:19:15.759
And that's what they're doing right now.
00:19:15.920 --> 00:19:17.680
And I don't think there's much that can prevent them.
00:19:17.839 --> 00:19:21.599
One thing that I always mention to you, Johnny, you're kind of privileged in the UK.
00:19:21.839 --> 00:19:25.039
Great banking products, incredibly competitive banking market.
00:19:25.359 --> 00:19:28.960
And that's not the case in many other European countries, unfortunately.
00:19:29.119 --> 00:19:32.480
In Germany, for example, it's very common to have a base fee with your account.
00:19:32.559 --> 00:19:41.920
And Monzo, in its current form, if they'd launched there, I could almost guarantee that they'd become one of the major banks within a very short amount of time.
00:19:42.079 --> 00:19:43.200
I mean, they're literally competing.
00:19:45.920 --> 00:19:52.160
They're people using Revolute Standard as their main bank account in Germany and then sharing their thoughts on social media on how good it is.
00:19:52.240 --> 00:19:53.440
I've literally seen that the other day.
00:19:53.759 --> 00:19:56.960
That it says a lot about the German banking market, but it is hotting up.
00:19:57.039 --> 00:20:03.440
That might explain why Chase UK launched Chase DE, although it's not really a full bank account at the moment, it's a savings account.
00:20:03.759 --> 00:20:12.079
Again, they've kind of done Monzo's approach of slow and steady building out a business in one country before moving on to the next, although they've taken a bit of a timid approach to Germany.
00:20:12.160 --> 00:20:13.599
I think you've laid out the ball case.
00:20:13.759 --> 00:20:15.920
I'll lay it out for Revolut a bit here.
00:20:16.160 --> 00:20:19.839
Revolut has decade, well, a decade head start on Monzo in Europe.
00:20:20.000 --> 00:20:26.640
I think in the UK, Monzo are far better perceived than Revolut, but I'd be curious to hear from people in the comments.
00:20:26.720 --> 00:20:31.440
I get the feeling, Jan, in Europe, Monzo don't have any reputation.
00:20:31.599 --> 00:20:32.640
They've got none.
00:20:32.960 --> 00:20:37.599
But Revolut's is quite strong, licensed as a bank in Lithuania since 2018.
00:20:37.680 --> 00:20:41.279
It's not like 20, like getting your banking license in the UK in 2026.
00:20:41.440 --> 00:20:45.519
Like they have been a licensed bank, at least in the EEA, for a long time.
00:20:45.599 --> 00:20:48.079
And Monzo, what they're just going to go in there and eat their lunch.
00:20:48.160 --> 00:20:51.920
I would say that their product is better, although it will be different in Spain.
00:20:52.079 --> 00:20:54.079
It will be it is different in Ireland.
00:20:54.240 --> 00:21:00.240
But I would say that the product will be better than Revolut's because it's not as convoluted with the number of tiers.
00:21:00.400 --> 00:21:03.680
Like Revolut's offering, far better free banking structure.
00:21:03.839 --> 00:21:14.400
But at the same time, Jan, they have zero brand equity in Europe, apart from people that know them from the UK, which is the people that are watching this, the people are listening to this, but at scale, that just doesn't exist.
00:21:14.559 --> 00:21:16.160
And I think that's a big problem for them.
00:21:16.240 --> 00:21:21.039
And again, I would say this: I do not think that they can really truly challenge Revolut.
00:21:21.680 --> 00:21:25.039
At least if they are going to, it's going to be across decades.
00:21:25.119 --> 00:21:26.799
It's not going to be four over years.
00:21:27.200 --> 00:21:28.160
I say decade.
00:21:28.240 --> 00:21:32.400
I think I say one decade, Johnny, and Monzo will be at the point where Revolut is in right now.
00:21:32.720 --> 00:21:40.799
And that's obviously speculation, but I think looking at the looking at the way their business is structured, looking at the depth of their pockets, I think that's definitely feasible.
00:21:40.960 --> 00:21:42.240
And you have to keep one thing in mind.
00:21:42.400 --> 00:21:49.200
Monzo is a company who has yeah has relied quite a bit on on YouTube advertising as well in the past.
00:21:49.279 --> 00:21:55.039
I mean, if you watch British YouTubers, you you see uh that in many different cases they're affiliated with Monzo, right?
00:21:55.200 --> 00:22:08.559
Monzo pays them to advertise their products and then these these these YouTubers You know, people in Germany, people in in Spain, I assume, people in many different European countries that are also English speaking, they obviously show interest in these YouTubers as well.
00:22:08.640 --> 00:22:11.519
And they consume the content and they know what Monzo is.
00:22:11.680 --> 00:22:14.480
At least I knew what Monzo was, even before way before we started.
00:22:14.559 --> 00:22:17.440
Uh but everyone everyone talks about Revolut.
00:22:17.599 --> 00:22:19.440
Everyone everyone talks about available at the moment.
00:22:19.759 --> 00:22:21.119
Why would you talk about this, Johnny?
00:22:21.200 --> 00:22:24.160
Why would you talk about the product if it's not available to you yet?
00:22:24.240 --> 00:22:24.480
Right?
00:22:24.640 --> 00:22:29.359
It will be available to you and it will launch with better conditions than what Revolut has to offer.
00:22:29.440 --> 00:22:30.720
And that makes me excited.
00:22:30.880 --> 00:22:31.279
You know?
00:22:31.440 --> 00:22:32.480
That makes me really excited.
00:22:32.559 --> 00:22:37.440
And if I know one thing about Germans, it's the fact that they hate spending money if they could save it.
00:22:37.839 --> 00:22:38.480
You know?
00:22:39.200 --> 00:22:41.200
Honestly, that's and that's the perfect.
00:22:42.720 --> 00:22:44.240
Get in the comments if you're German.
00:22:44.559 --> 00:22:48.480
Oh, I mean, I'm sure that's true, and I'm sure everyone will agree with me.
00:22:48.559 --> 00:22:51.920
Um, that has a little bit of context into the German culture.
00:22:52.000 --> 00:22:54.160
Um, Germans don't like to spend money.
00:22:54.240 --> 00:22:57.039
Um, and yeah, that makes makes a lot of sense then.
00:22:57.279 --> 00:23:01.279
But they are going to Ireland mo Monzo going to Ireland.
00:23:01.359 --> 00:23:03.119
Well, that those conditions seem fine.
00:23:03.359 --> 00:23:04.400
English speaking.
00:23:04.640 --> 00:23:08.799
You know, there's gonna be a hell of a crossover from the UK and Ireland.
00:23:08.960 --> 00:23:10.640
People have gonna heard about it, of course.
00:23:10.720 --> 00:23:17.759
But going to Spain, you know, new language, new banking culture, there's real competition in Spain, including Revolute.
00:23:20.559 --> 00:23:21.279
You know, it's hard.
00:23:21.359 --> 00:23:22.480
It's gonna be extremely hard.
00:23:22.559 --> 00:23:22.960
I don't know.
00:23:23.119 --> 00:23:25.519
It's too early to tell because we can't see any of the numbers.
00:23:25.680 --> 00:23:31.519
For year-ending accounts for 2027 are gonna be the, you know, the first full year where we're gonna see, you know, what's actually happening.
00:23:31.599 --> 00:23:36.240
And also amongst an environment where interest rates should be coming down as well.
00:23:36.400 --> 00:23:39.039
That's gonna be the real test for Monzo, isn't it?
00:23:39.119 --> 00:23:50.079
Not only for whether or not they are gonna start to succeed in Europe, but even if the business can actually still survive, you know, where they've made so much money from interest income, and if that starts to come down.
00:23:50.400 --> 00:23:52.079
Just one thing I would like to mention, Johnny.
00:23:52.240 --> 00:23:54.960
Yeah there's there's one aspect that concerns me.
00:23:55.119 --> 00:23:59.680
That's the fact that the expenses have been have been rising drastically as well.
00:23:59.759 --> 00:24:04.559
Um operating expenses are up over a third, um, almost nearing a billion pounds.
00:24:04.720 --> 00:24:05.759
A billion pounds a year.
00:24:05.839 --> 00:24:11.519
Imagine small startup spending, I mean, you know, small startup, I just banged against my table, sorry.
00:24:11.680 --> 00:24:13.039
Um, small startup.
00:24:13.200 --> 00:24:15.839
Um, it really isn't a small startup anymore, but it was.
00:24:16.240 --> 00:24:20.799
And them spending a billion pounds a year, you know, that kind of scares me a little bit.
00:24:20.960 --> 00:24:26.960
Also the fact that they have 5,275 people employed, also incredibly scary.
00:24:27.200 --> 00:24:39.279
And um yeah, I'm sure that's all calculated, but I hope to see uh continue seeing conservative growth from them because that's literally what brought them into the situation that they were in right now.
00:24:39.440 --> 00:24:48.640
Yes, they've done aggressive marketing, but they've not, you know, um overestimated things, they've not um increased the expenses more than than they should have, right?
00:24:48.720 --> 00:24:54.079
If they've always you know they've they've cut it down from this this bad position they were in 2020.
00:24:54.720 --> 00:24:55.920
Learned from this, hopefully.
00:24:56.079 --> 00:25:00.240
Um focused on one region, tried to grow organically as much as possible.
00:25:00.480 --> 00:25:06.480
Yes, done some marketing, but you know, um done it in a reasonable way, and I hope to continue seeing that from them.
00:25:06.720 --> 00:25:08.319
I think the future is bright.
00:25:08.480 --> 00:25:10.400
Maybe the future is coral.
00:25:11.039 --> 00:25:12.559
Um we'll see.
00:25:12.799 --> 00:25:18.799
Curious to hear from people, particularly people that use Monzo, because I know the community is really engaged.
00:25:18.960 --> 00:25:21.359
What are your thoughts about the current product?
00:25:21.680 --> 00:25:28.559
Do you think the idea of going into the European markets could potentially distill the UK service?
00:25:28.720 --> 00:25:33.200
Resources could get moved across and the UK might be forgotten about or disregarded.
00:25:33.279 --> 00:25:36.799
So do get in the comments, let us know, join the Discord, become a founding member.
00:25:36.880 --> 00:25:40.880
We got a lot of people on there, a lot of people that are particularly interested in Monzo as well, especially.
00:25:40.960 --> 00:25:48.160
So do come in, say hello, and share your thoughts with not just us with on the episode, but share your thoughts with us about anything you want to discuss.
00:25:48.400 --> 00:25:53.920
Jan, do you think Monzo now have escaped any moment like this again?
00:25:54.000 --> 00:25:55.359
Like how we started the episode?
00:25:55.440 --> 00:25:56.880
Do you think this could ever happen again?
00:25:57.119 --> 00:26:00.160
Hopefully not, but we still see some reliance on interest rates.
00:26:00.319 --> 00:26:08.559
Um, so if they they fall, you know, if they're interested in combo fall as well, and that might put them into a position where they don't want to be in.
00:26:08.720 --> 00:26:14.720
Um and that's the only thing I I hope they they think about, you know, and I I'm sure they they are thinking about that.
00:26:14.880 --> 00:26:19.839
I'm sure they've learned from their mistakes in the past, and I'm sure they're not gonna put all X into one basket.
00:26:20.000 --> 00:26:21.759
Time will tell, but I'm bullish.
00:26:21.920 --> 00:26:22.640
I'm positive.
00:26:22.720 --> 00:26:24.319
I I think Monzo will succeed.
00:26:24.480 --> 00:26:25.680
I think it's a great product.
00:26:25.920 --> 00:26:27.759
Um love the way the app is organized.
00:26:27.839 --> 00:26:28.559
I hope they will.
00:26:28.720 --> 00:26:32.799
I hope they'll they'll succeed, and I hope they'll they'll conquer Revolute essentially.
00:26:32.880 --> 00:26:34.559
No, it conquer conquer swing word.
00:26:35.279 --> 00:26:36.960
Um you know what I mean, right?
00:26:37.119 --> 00:26:37.519
Beat them.
00:26:37.920 --> 00:26:40.240
Essentially reach their position.
00:26:40.640 --> 00:26:41.119
Exactly.
00:26:41.359 --> 00:26:43.839
Yeah, I know I really, I really hope they would.
00:26:44.160 --> 00:26:44.559
I'm with you.
00:26:44.720 --> 00:26:45.599
And I don't hate Revolut.
00:26:45.839 --> 00:26:46.079
I'm with you.
00:26:46.240 --> 00:26:49.680
Don't want to get sidetracked here, but I I mean me neither.
00:26:50.079 --> 00:26:51.039
It's important nuance.
00:26:51.119 --> 00:26:51.599
No, no, it's important.
00:26:51.920 --> 00:26:54.960
We're gonna talk about this because it's about competition for Revolute.
00:26:55.119 --> 00:26:57.440
I think Revolut need more competition.
00:26:57.680 --> 00:26:57.920
They do.
00:26:58.240 --> 00:27:00.640
Why do we think they're devaluing the product?
00:27:00.799 --> 00:27:03.359
Why do they think they're making it more expensive?
00:27:03.519 --> 00:27:05.440
Because they have they have pricing power.
00:27:05.759 --> 00:27:06.079
They do.
00:27:06.799 --> 00:27:07.839
There's just not enough competition.
00:27:07.920 --> 00:27:10.160
It's a monopoly, it's becoming a monopoly.
00:27:10.319 --> 00:27:11.839
They are becoming a monopoly.
00:27:12.079 --> 00:27:18.240
Which is weird because there's so you know, the banking market is just so saturated, but there aren't many Revolutes.
00:27:18.319 --> 00:27:25.519
There are lots of legacy providers, but if there's one provider that can get on to the same sort of level, they're they're offering a similar product, right?
00:27:25.680 --> 00:27:26.640
Monzo to Revolute.
00:27:26.799 --> 00:27:27.680
It's very similar.
00:27:27.839 --> 00:27:34.559
You know, Monzo launch mobile plans around the time Revolut launched mobile plans, both have subscription plans that are growing.
00:27:34.720 --> 00:27:36.640
Monzo added YouTube Lite recently.
00:27:36.799 --> 00:27:41.920
Revolute increased their subscription prices, Monzo also increased their subscription prices.
00:27:42.160 --> 00:27:45.200
I don't know if that's a result of better competition.
00:27:45.839 --> 00:27:47.519
But yeah, I think you're right, Jan.
00:27:47.599 --> 00:27:48.480
This is important.
00:27:48.640 --> 00:27:50.079
It's worth mentioning, isn't it?
00:27:50.240 --> 00:27:51.279
Yeah, absolutely right.
00:27:53.039 --> 00:27:59.599
Um, very exciting topic this week, and uh we've only stated our opinion, so I'm really curious on yours opinion as well.
00:27:59.680 --> 00:28:11.599
Um write them into the comments, let us know uh what you think about Monzo, what you think about their past expansion, their you know, current expansion, um, and also the fact whether you think that Monzo can conquer Europe or not.
00:28:11.759 --> 00:28:14.559
I'm I'm really curious to to see what all you guys think about it.
00:28:14.720 --> 00:28:15.759
See you in the next episode.
00:28:15.920 --> 00:28:16.799
Thanks, everyone.
00:28:16.960 --> 00:28:17.359
Goodbye.
00:28:17.599 --> 00:28:18.240
Thank you, everybody.
