Monzo’s plight was exacerbated by having to delay new products that were deemed unconducive to the circumstances of the pandemic and the bank has laid off 80 staff in the UK and furloughed another 295.Starling Bank’s payroll, on the other hand, is 147 employees larger than it was pre-lockdown.

However, this cannot all be laid at the door of Covid-19, given that Monzo’s losses rose from £47.1m to £113.8m in the 12-month period to February before the virus really took hold.

Better prepared

While Monzo and Starling have begun to offer new products and services, the latter’s have generally been more advanced, launching its lending offering a year before and its business banking all but two years earlier. This would point towards Starling’s balance sheet being rather more robust at the time of lockdown.

In a letter to investors, Anne Boden took the opportunity to make a slightly veiled jibe at her rival, evoking the words of Warren Buffet, “Only when the tide goes out, do you discover who has been swimming naked”.

Dutch digital challenger, bunq, also took the opportunity to dance on Monzo’s decline, with CEO Ali Niknam, drawing comparisons with his own bank’s fee-based business model.

“It’s not surprising to me that Monzo has finally realised that they need to pivot towards a more sustainable business model,” Niknam tells Finextra Research.

“From the beginning, bunq has worked off a subscription model which has allowed us to get through Covid-19 with no redundancies or other cost-cutting.”

Questions will be asked about the viability of digital challengers amidst a depressed economy. Investors may be less easy to appease with impressive reports of customer acquisitions and long-term projections for profitability. If Monzo isn’t safe, then who is?

As Niknam alludes to, this might require a reevaluation of the business model of the fintech startup, where there is necessity to point to some degree of tangible profitability here and now, in the form of subscription fees or tiered products.

The ongoing stumbling block for such banks is the extent to which their millions of customers are happy to close all their products at incumbents in favour of their Monzo, Starling or Revolut account.

This means that the average deposits that customers hold in their accounts remains modest, which in turn holds the banks’ lending activity in check.

Research by Accenture in March of this year that deposits in UK digital bank accounts average just £260 per customer.

Forget current accounts

One way to address this may be to forego trying to entice customers to move their current accounts to them and focus instead on offering products and services, such as savings and lending on more attractive terms than the incumbents.

New digital bank Monument, for example, is targeting customers with a net worth of between £250,000 and £5 million, offering savings and buy-to-let property loans.

“We have no plans to offer a current account as clients generally do not want to move from their existing bank and they are costly to provide,” chief operating officer, Steve Britain, tells Finextra Research.

Additionally, open banking should in theory mean that Monument would be able to attain full visibility of their actual and prospective customers’ data on disposable income, spending and so on.

Britain believes that this model sets Monument up for “profitable growth from the outset” compared to other challenger banks that have prioritised growth in customer base and seen their losses mount up.

Another point about Monument, which it has in common with numerous other new banks, is its focus on mass affluent clients.

The bank claims that this segment of the market amounts to some 3.5 million people in the UK, consisting of doctors, lawyers, accountants, entrepreneurs, investors and so on.

This may be an approach that challenger banks and other fintechs adopt in the years ahead, particularly if venture capitalists wish to keep them on a shorter leash and see profitability potential in relatively short order, given the depressed economic climate that we are likely to experience for some years to come.

With this in mind, the next class of mass-market digital challenger banks may follow Monument’s lead, deciding that the current account carries too little cost for not enough reward, and instead focus on other financial needs that will be in higher demand.