Monzo is “struggling” to avoid the same fate as Xinja, analyst warns

By Oliver Smith on Friday 22 January 2021

Digital Banking

Katherine Long claims Monzo is becoming an “increasingly expensive charitable cause for the UK market.”

Monzo is “struggling” to avoid the same fate as Xinja, analyst warns
Image source: TS Anil/Monzo.

Parallels can be drawn between the sudden demise of Australian neobank Xinja, and the struggles of UK digital bank Monzo, a banking analyst has claimed.

“The lack of focus on essential revenue-generating products, and the reluctance to incentivize customers to pursue mutually beneficial outcomes,” is the underlying cause of both bank’s woes, according to Katherine Long, a banking analyst at GlobalData.

Long’s research—Beyond the Hype: Insight into Digital Challenger—states that Xinja’s above-market deposit rates, while being unable to redeploy its capital as loans, is not dissimilar from Monzo.

“Xinja did not prioritize early on, trying to create a sustainable future with revenue-generating products, and it was too late when it finally dawned that it needed personal loans and wealth services instead,” she writes.

“For Monzo, the problems are only slightly different – though not much better... creating a leading current account product that generates practically no revenue, either from merchant or marketplace fees.”

Comparing cost bases

Monzo’s annual results for 2019, published last July, included losses reaching £113.8m on revenues of £67.2m, with the bank’s directors and auditors EY warning that the results had “material uncertainties, which may cast doubt over the Group’s ability to continue as a going concern.”

Unlike Xinja’s huge interest costs to its customers, most of Monzo’s operating costs come from hiring, marketing and product development.

In her report, Long claims Monzo is becoming an “increasingly expensive charitable cause for the UK market.”

The analyst posits that the UK bank has “woken up last year to this predicament” with the launch of its range of premium accounts and is “struggling hard to get out”.

Long concludes that Monzo’s premium accounts are not the right direction. Instead, the bank “should focus on unit economics, bringing out and making the most of revenue-generating products such as loans and wealth services.”

Indeed Monzo’s results last year indicated the bank was working on increasing its lending, with £143.9m lent out in 2019, up from £19.2m the previous year.

During July 2020, the bank also relaunched its premium banking offering, starting with Monzo Plus at £5/month and later in the year Monzo Premium at £15/month, however, the revenue impact of these won't be known until Monzo's 2021 accounts are published later this year.

Monzo has just reached 5m UK customers and earlier this week former CEO, chairman and co-founder Tom Blomfield announced his departure from the bank.

AltFi has approached Monzo for comment.

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