As the competition between challenger banks heat up, Monzo is expected to go public in 2022 to fuel its growth. Take a look at everything we know about Monzo’s potential IPO.
What do we know about the Monzo IPO plans?
Rumours of Monzo’s initial public offering (IPO) started swirling in July 2021, as both the CEO TS Anil and COO Sujata Bhatia said they were mulling over financing options. The Monzo is likely to happen in 2022 or 2023.
Although no listing plans are actually in motion, there’s been an uplift in fintech’s going public, so it’s not a surprise that Monzo is joining the fray. As a UK-based company, Monzo will likely list on the London Stock Exchange.
What does Monzo do?
Monzo is a UK challenger bank, founded in 2015 as one of Britain’s first completely digital banks. It was founded by Tom Blomfield, Jonas Huckestein, Jason Bates, Paul Rippon and Gary Dolman – who all met working at Starling Bank, one of Monzo’s biggest competitors.
Currently, Monzo holds a 39% share of UK digital banking users. The fintech firm’s offering is exclusively available on its mobile app, which has made it popular among the younger demographic. Accounts can be set up and verified within a matter of minutes, and users are sent the now-iconic coral Mastercard within a few days.
As well as hosting a current account, the Monzo app enables customers to set budgets, split expenses and create savings pots – both independently and with other users.
According to the company’s website, it has more than 5 million registered users – up from 1.3 million in 2019 – with over 100,000 new members joining each month. In fact, Monzo has grown so much that former CEO and board member Blomfield announced he was leaving the company because it’s no longer the ‘scrappy start up’ he joined.
How much is Monzo worth?
Monzo is worth $4.5 billion after the company’s valuation surged following a $500 million funding round in December 2021. This makes it Europe’s third most valuable neo-bank behind Revolut and N26.
Monzo actually broke the record for the world’s fastest crowdfunding raise in history back in 2016, with £1 million raised in 96 seconds (or £10,000/second).
With so much raised in private markets – the total sits at around £900 million – the firm will likely go public and issue new shares to avoid diluting current shareholders’ equity any further.
How does Monzo make money?
Monzo makes money through three main revenue streams: interchange from payments, banking services and interest revenue.
Interchange fees – charges on transactions made by consumers - make up the largest segment. Despite lockdown and travel restrictions, Monzo saw increased customer spending throughout FY 2021, which resulted in an increase in its net interchange income – from £29.4m in FY2020 to £37.4m. The company expects this to increase as lockdowns ease and users are free to spend more. The international fees Monzo charges are also expected to pick back up with travel restrictions being lifted.
Its new products Monzo Plus, Monzo Premium and Monzo Business generated 25% of the interchange revenue or £5 million – which is a good return given they were all launched in 2021. Between them, these offerings have grown the company’s client base by over 210,000 users.
Although its core app and basic accounts are free of charge, there is a monthly subscription fee for plus and business accounts of £5, and $15 for Monzo premium. In return, users get integrated benefits such as accounting tools, free international withdrawals and card payments made with Stripe.
Finally, under normal circumstances, any funds that Monzo holds with central banks earn the company interest. Currently, due to the low interest rates on offer thanks to Covid-19, Monzo's profits earned have decreased significantly – from £6.2 million in FY 2020, down to £2.4 million in 2021.
Is Monzo profitable?
Monzo is not currently profitable. According to its 2021 annual report, the company saw an increase in underlying losses by 1% - from £113.8 million in FY 2020 to £129.6 million in FY 2021.
The company’s CEO stated that their target is to reach consistent profitability in 2022. There will be no dividend for shareholders in the foreseeable future.
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What is Monzo's business model?
Monzo’s business model is based on reducing the admin of finances, and enabling users to spend, save and manage their money in one place. However, just 40% of Monzo customers use it as their main account, preferring to keep their traditional current accounts open too. According to its annual report, the company is focused on delivering new products and investing in its business to persuade consumers to make the full switch.
One of the main parts of the business plan is the relaunch of Monzo’s personal loans and borrowing products. Monzo states that its customer base has £18 billion worth of loans with other UK banks, so they’ll be undergoing an ambitious switcher campaign in the coming years.
The company has expanded into buy now pay later services too with its Monzo Flex, a card that enables users to split card payments into smaller instalments. This sees it compete with the likes of Klarna, which is also looking to IPO this year.
Most of Monzo’s growth is fuelled by organic channels – what the company calls ‘word of mouth’ in its reports. In fact, they estimate that each Monzo customer knows 28 friends that also bank with the app. Just 8% of new members join from paid channels.
Before Covid-19, Monzo was looking to expand into the US but this project was abandoned in October 2021 after failing to come to an agreement with regulatory authorities. While disappointing that two years were wasted, the company has resolved to work with existing US partners and further invest in the UK.
Monzo also states it’s focused on improving financial inclusion and is trying to serve consumers who don’t have access to traditional banking services in the UK.
Somewhat ironically then, it was announced in July 2021 that the neo-bank was being investigated by the FCA for locking hundreds of Monzo users out of their accounts. The potential anti-money laundering (AML) lawsuit the firm is facing as a consequence could result in criminal and civil liability.
Who are Monzo’s competitors?
Monzo’s largest competitors are other digital banks Revolut and Starling. In terms of profitability, Monzo lags behind the others, which managed to boost their income amid the pandemic while Monzo widened its losses.
And, where Monzo failed to expand into other markets, Revolut gained approval from the Monetary Authority of Singapore (MAS) to start allowing customers to trade gold and silver on its app with their spare change.
Starling is also expected to list in 2022.
Who owns Monzo?
Monzo is currently a privately-owned company. Its largest shareholders are a mix of the founders still in employment and early venture capitalists, including Passion Capital – who own just under 25% – Octahedron Capital, Kaiser Permanente Ventures and Vanderbilt University.
Most recently, Chinese tech giant Tencent took a minority stake in Monzo amid the firm’s December funding round. It’s reported Tencent invested $100 million of the $500 million raised.
Monzo’s management team
- TS Anil, CEO
- Sujata Bhatia, COO
- Iain Iaing, CRO
- Mike Hudack, CPO
- Jonas Templestein, CTO
- Carol Nelson, CEO US
- Stephanie Pagni, GC and Company Secretary
