Monzo is a brand that is on the lips of all those who are dedicated to the banking world. Here we have discussed some new generation banks, or “neo-banks” such as Revolut or N26, but really the percussion of all this is Monzo.
If you do not hear the street talk of this bank as much as the others, it is because they have not left the United Kingdom at the moment. It’s a mistake? According to José Luis Antúnez, usability expert and firm defender of the role that Monzo is playing in the financial sector, clearly not: “I think Monzo is being more responsible than the other neo-banks trying to offer the best experience and service possible in an environment who knows. The other neo-banks have opted to grow in width and run the risk of sacrificing quality and burn many resources without guarantee of success. This conservative Monzo strategy I believe will give them a more solid base in the medium term. In addition, they are getting their attention capturing the attention of media and future users in the US and other European countries. ”
But before looking at Monzo’s strategy, and comparing it with that of other neo-banks and their traditional competitors, let’s see what they offer in the UK and why it’s on everyone’s lips.
Monzo, simple but well executed bank
Monzo offers in the United Kingdom a way to operate with banking that until the arrival of them did not exist: basically a bank that offers all its experience through its application.
What Monzo has is a very nice application to manage the bank account, a credit card with zero costs (even abroad) if certain limits and simple transfers are not exceeded. Recently they have added a personal loan service, with its usual philosophy of simplicity (no paperwork) and transparency (partial repayments can be made at any time or canceled).
Any traditional bank offers much more and therefore the differences are subtle and the success they are having is a bit complicated to explain. José Luis Antúnez is clear: “The neo-banks are covering a customer demand as basic as that of feeling well cared for and not mistreated. They have begun to do it through design, different free features that provide intelligence and great customer service”
It is the fastest and most profitable strategy to attract customers in this first phase of the fintech boom that we are living. Later on, they will begin to differentiate themselves with elements that are not as replicable as the design and will begin to create a platform for developers, a marketplace for financial services, etc. The future of neo-banks goes through these three keys: product, platform and marketplace. At the moment we are in the first phase which is to capture and retain.
The financial sector starts from a natural advantage, which is the implicit regulation that it has and that acts as a barrier to entry for other actors who want to do things differently. The EU has managed to make banking regulations more lax than the Spanish, allow the entry of all these new players in our financial sector. If we look at the fintechs that are doing very important numbers, most have the authorization under the English, German or Cypriot legislation. This opening of doors by the UK and other countries, have generated a very important growth of the sector and therefore, the risks of competition that had the traditional banks projected in the medium and long term, have already knocking on their doors. We can not lose sight of the entire financial crisis, the restructuring that has had to be carried out by all the national and European banks and how this crisis has put a stop to the realization of innovation projects and penetration in new markets. To talk about the future in technology is to play predictions and I do not consider myself an expert on the subject, much less.
Not everything that is said fintech really is: “You have to be a bit critical with the fintech sector itself. Not all companies that are called fintech are such, because in many cases, there is no technological disruption or a new differential on traditional banking with a revolutionary technological advance. Eliminate commissions and have a good communication App with your entity has nothing innovative for example and does not provide any relevant tech advance. Is that a fintech or is it simply an entity that “dresses up in fintech” as a marketing philosophy? Here if there is a substantive debate also not to lose sight of it. ”
Monzo has served as inspiration for many fintech
From this perfect, careful execution, focusing on the client, Monzo has served as inspiration to other fintech that are expanding and reaching our country, with very interesting novelties that traditional banking did not offer. I points a few:
These banks are covering a gap that the traditional financial sector has not yet known (or has not wanted) to cover. N26 has managed to open a bank account and have a card very quickly. Has anyone tried to do this operation with a traditional Spanish entity relatively quickly? BBVA, for example, has been among the first to achieve these openings, but with a rather cumbersome videoconference system and the like. Besides, on the subject of commissions and cards, N26 is very far from the rest. Revolut, for its part, has managed to articulate a global bank access to anyone in the current system. Paying with foreign currencies or operating with a credit card between different countries does not entail excessive transaction costs, as is the case with traditional banking. Transferwise and many more have also been added to this car.
Unique differentiations of Monzo
With Monzo is happening a very hopeful phenomenon and is that its users are fans. When have we seen someone fan of a bank? Fans demanding, usually professionals between 20-40 years, who are fed up with the bad practices of their parents’ banks. Monzo has created a culture and a way of communicating based on normality, design and transparency. They make you a participant in the present and future of the company. They have public roadmaps where you can see the next features and you can suggest new ones. They make investment rounds so you can invest and feel the bank as yours. If you are a large bank or have money, it is very easy to hire the best designers and developers to copy the Monzo App. What can not be copied is the culture and the way of doing things. Peter Drucker said that culture eats strategy for breakfast. The differential value of Monzo lies in its culture. A large bank, even if I wanted to, can not operate with that agility and transparency.
It is clear that Monzo is a phenomenon within the United Kingdom, with its more than one million customers. And that has crossed borders, since many in abroad manage to open account there providing an address of the United Kingdom. Or also because it has inspired other neo-banks. And also because it has pushed the traditional banking to put the batteries in the user experience.
What Monzo does not have
Monzo is not perfect. The biggest problem I see is that it only provides four services: bank account, transfers, credit cards and recently personal loans. Where are the mortgages, insurance, investment funds, pension plans, purchase-sale of shares, bank checks and other endless services offered by a traditional bank? It is clear that Monzo perfectly serves a person of 20 years, but perhaps not so much someone of 35.
They are in that first phase of growth in which they have to fall in love with a free and simple product that has the basic services such as making transfers, categorizing movements and some intelligent features such as creating savings objectives, etc. If they had a traditional range of services, they might not get the favor of young people. The time will come to add services. Especially through a marketplace in which insurance companies and even other banks offer their services to better conditions for the simple fact of being a Monzo customer.
The main financial activity of a bank should not be the services associated with means of payment and transactional, but the purchase and sale of money as such. For now, the fintechs are making timid advances on that point, but it is not significant to this day. Repaying deposits or carrying out large-scale financing operations is not yet a fintech market. This does not mean that it may be in the future, but we can not lose sight of the regulatory conditions that exist at a European level for those entities that do perform remunerated monetary activity. In the short term, what we are going to see is an integration of many fintechs within the large traditional entities, at the same time that these entities are going to reinvent themselves in a lot of concepts to implement these processes and systems more adapted to the 21st century. Currently, we have fintechs that already operate in consumer finance, in investment in both funds and pension plans, we have new insurers with very specific products, securities agencies .
Monzo, a bank that inspires
In short, Monzo is a bank that inspires, that offers a few very well structured services, through a well-worked application that works very well and very focused on customer service.
At the moment it is getting a very loyal customer base, and in the future it will be necessary to see if it is able to be the main bank of these clients as they grow older, either from a marketplace of financial services that they still do not have (and some of its competitors) or with its own services.
But what about your competitors? And how does Monzo earn money?
The competitors are very strong
Really everything that we have commented and the experts have pointed us is true. Monzo is doing things very well, with a memorable experience, with fans instead of clients … but the rest of the market is not quiet.
In Europe there are at least two neo-banks that are making a lot of noise, even more than Monzo for its international expansion: Revolut from the United Kingdom and N26 from Germany.
Both offer services very similar to Monzo: credit card, bank accounts, very careful application, all easy and comfortable. There really are no big differences between what each one offers. All have gone through the stage in which they were a simple gateway to an account of another bank and now have a banking license directly.
Revolut has three services that Monzo does not yet have, such as the premium account, which allows more withdrawals of money and additional insurance, currency exchange and purchase of cryptocurrencies. N26 also offers premium services, for free money withdrawals in currencies, insurance and improved customer service.
The goal of many neo-banks is to have a large number of customers to sell third-party services through the marketplace
Sincerely, Revolut is a much better option if you want to work with multiple currencies, because switching from one to another is very simple, with multiple accounts. N26 is very similar to Monzo, but the latter allows foreign currency withdrawals more advantageously, and does not charge for this “personalized customer service”. I think it’s a good idea that Monzo does not try to charge its customers for premium services, because what Revolut and N26 offer is very expensive. If a traditional bank tried to charge 17 euros a month for services as vague as N26 does, they would lose customers in an accelerated manner.
The Spanish neo-bank BNext is offering the holy grail of the sector, the famous marketplace that allows the contracting of third-party services. But it is still green in other things: for example it does not offer a complete banking service since it does not allow money transfers outside of BNext.
And do not forget that neo-banks also compete with traditional banks. There Monzo has a tough competition: banks that offer a much more complete catalog of services, with good customer service (maybe more bureaucratic, but with several lines of attention, both telephone, telematic and face to face in their offices) and better and better applications for the mobile. It is not necessary to discard them, perhaps they do not fall in love but they solve the problems of their clients.
Where does Monzo get money from?
The big question is the economic model of Monzo. And the answer is that they do not earn money. In fact, the more customers more losses. Currently, they lose about 33 million pounds per year, according to the latest published data. And that the more customers the more the cost of support per user decreases, but still to be profitable you have to have income.
Monzo does not consider itself profitable in the short term. Its main objective is to keep growing and convince customers to become their primary bank instead of a secondary one to have a credit card with good conditions. Even so, they have recently launched a personal loan service with which they can start earning income.
The long-term goal of many of these new neo-banks is to have a large number of customers to sell third-party services through the marketplace. Monzo is still far from this, and seeing that they have recently launched personal loans directly, without acting as intermediaries, they may not do so. If investors continue to give them capital to operate, they may implement banking services on their own and not depend on third parties that spoil their philosophy. Other neo-banks have a more short-term view and hence the expansions we are seeing, the premium services at exorbitant prices and the marketplace that they are already implementing.
Also published on Medium.