Listening to Tom Blomfield on Secret Leaders¹ the other night, one of the key themes coming through was how he regretted not figuring out how the company would monetise earlier. A bank is not your normal tech start-up — the regulators won’t tolerate year after year of VC-subsidised losses when ordinary people’s financial lives are so deeply tied up in the company. What happens if the business fails and millions of people’s mortgage payments don’t go through? You just can’t have as something as serious as that back-stopped against capricious, animal-spirit VC money.
But its ok now, right — Monzo have a revenue model: Plus at £5 per month, Premium at £15. These packages are a blend of additional software features, some expansion of ‘hard’ allowances (e.g cash limits abroad) and a trailer full of freebies (airport lounge access, free insurance, discounts at Patch plants, interest on savings). Oh and a shiny metal card, mustn’t forget that.
With 100,000 customers now paying for one or other of the packages², it seems like Monzo are onto something. There has never been a culture of paying for personal banking in the U.K., so it is especially impressive to have convinced 6-figure numbers of people to do so, in under two years.
And yet, and yet, I can’t help but feel wholly and entirely underwhelmed by it.
Monzo was supposed to disrupt the banking industry, not just make it shinier. Is this digital veneer, lipstick on a pig to use that hackneyed phrase, or is this a re-invention of an old industry for the 21st century? If you want to see real disruption look at Deliveroo, founded two years earlier, which is re-wiring the fabric of the restaurant business itself with the shift towards dark kitchens, and has spawned entire spin-off start-ups in adjacent industries (Dija and Getir are new 10-minute grocery delivery services).
The product offer from Monzo, ultimately, is generic. The idea of bundling freebies as part of a premium package is not original, and nor is it defensible or healthy for the bottom line. Banks have bundled insurance, lounge access and these sorts of things for years in premium packages. And as for discounts at Patch Plants, well presumably you can get these discounts elsewhere if you know where to look. The problem with these offers is that they are fungible and non-constrained in supply, so if you can get them through Monzo you can get them somewhere else. This doesn’t add up to defensible value for Monzo.
The software features are interesting in theory: custom categories, virtual cards, advanced round-ups, auto-exports. The Plus (£5) package carries all the bonus features, and they are clearly not seen as enough to support the price point alone, being supported by a bonus interest rate, holographic card, and discounts at retailers. Monzo have exceptional product execution and design chops, so it makes sense for them to try to major on product features. But the problem is not so much user appeal but defensibility, or the lack of it. For several years now Barclays have copied Monzo’s roadmap very effectively. Even old RBS has categories and budgeting now.
Monzo in the old days always used to say ’skating where the puck has gone’ (meaning: the competitors will always be two steps behind in feature development), and this is valid, kind of, but it is a battle that gets harder every quarter. How many ‘features’ do people really need from their bank? The dynamic is towards diminishing returns, surely. And set against this is the huge investments all of the big banks have made into technical infrastructure over the past 5 years — this isn’t just banks’ in-house teams, they are are using outstanding engineering-led platforms like Though Machine. That’s not even to mention the other challengers, outstanding executors like Starling, Revolut, Monese. Its just naive, I think, to lead on features. The only consumer apps that make real money based on features alone are underpinned by powerful social network effects, apps like Discord ($7bn valuation) and Bumble ($13bn valuation). The pricing is based entirely on software feature upgrades, but the underlying value is in the network. Features in themselves are a commodity in the digital age.
So strip all this back and what are you left with? Metal cards basically. Metal cards, is that it? We’re going to back-stop a billion dollar bank, the darling of FinTech, on metal cards? They are popular yes, but then all the challenger banks have them now, and the incumbents won’t be far behind. Besides they are not really in-tune with Monzo’s brand, are they, playing to vanity and showiness. They smell of Revolut, those estate agents turned tech bros — which isn’t surprising because the idea came from Revolut.
Nothing in this laundry list of features and freebies is remotely defensible from a long-term strategic perspective. In the week that Starling, always the also-ran, came to have a higher valuation than Monzo ($1.9bn)³, it is more timely than ever to evaluate what the real game plan is here. Monzo is offering a product that lacks real, durable defensibility; in the long-run that is not the recipe for sustaining a billion dollar valuation. On top of this Monzo’s lack of strong positioning is gradually diluting it’s most valuable asset: its brand. Tom Blomfield said in the podcast he was most proud of the brand; and he should be, it was one of the most vital, distinctive and powerful brands to emerge in the U.K in recent years.
From a value-creation perspective, Monzo have somewhat boxed themselves in. Nearly every other bank cross-subsidises in some way. Monzo doesn’t want to do this with cross-selling, which is laudable and reasonable, but it also lacks the powerful business banking arm that Starling has developed (500k users to Monzo’s 70k)⁴, which can cross-subsidise loss-making retail banking. There is win for transparency, arguably, in not cross-subsidising but the effect is to place all the weight of value-generation on the retail customer.
Monzo is committed (or always used to be) to not letting the user become the product, in the manner of Facebook or Google (whereby the user’s data is in some way leveraged for the benefit of advertisers). Again this is laudable, but the the effect is that all of Monzo’s value depends on what customers are prepared to pay at the front door. The customer offer has to be really unique in some way to command any kind of a premium. But as we’ve seen it is not unique, and nor are any of the benefits defensible for any amount of time — every feature will get copied, every perk will get emulated. This is the reality of the game.
For my money Monzo needs to think ruthlessly about what its true strategic advantages and assets are: a once-in-a-generation brand; a vast user base of mostly Gen Z and Millennials (over 5m now); a tech and product powerhouse inspired by the very best of silicon valley culture; and outstandingly granular, rich, high-quality data. And they need to start addressing the shibboleth around what are allowable ways of a bank making money. The pay-on-the-door route is a losing battle unless they can pull out some real product magic.
I would start by questioning whether the assumption that connecting businesses and customers is somehow bad and off-limits if it involves even any hint of using users’ data. People know Google use all their data for advertising and yet almost everyone uses it almost every day. The question is how this is done, and how it is communicated. Monzo has already tiptoed into connecting businesses with users by offering discounts (e.g. Patch Plants, Hello Fresh, Fiit); there is much, much more road in this direction.