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Could Monzo suffer the same fate as doomed Australian challenger Xinja?

Could Monzo suffer the same fate as doomed Australian challenger Xinja?

Monzo will be the first major UK challenger to face the same fate as defunct Australian neo bank Xinja, unless it changes its approach towards a more sustainable future, says GlobalData banking analyst Ketherine Long.

Australian neobank Xinja pulled the plug on its banking operations in December, after failing to develop any revenue-generating products to offset its spiralling cost-base.

Long says that Monzo, having woken up last year to this predicament, is struggling hard to get out.

“For Monzo, the problems are only slightly different - though not much better. By creating a leading current account product that generates practically no revenue, either from merchant or marketplace fees, its business has become an increasingly expensive charitable cause for the UK market.," she says. "Moreover, while the bank has raised $717m of capital to help fund new products and cover a potentially lucrative US expansion, the result is annual losses of around £100m ($131m) that need to be dealt with now.”

Monzo’s response is to monetize with a range of premium accounts, combined with new restrictions on the free, basic version. However, with little appetite from UK consumers to pay for banking - and with Monzo not legally able to charge for accounts in the US - this direction seems misconceived, believes Long

Long adds: “While Monzo has done well to attract and engage with its customers, it threatens to throw that away by not concentrating on the essential. Instead of trying to sell what was once free, Monzo should focus on unit economics, bringing out and making the most of revenue-generating products such as loans and wealth services.

“The bank should also learn from the likes of Chime in the US, a company that has given low-income customers the tools to help them manage their money easier on conditions such as using their cards or receiving their monthly pay. Failure to learn from these examples will condemn Monzo to the same fate as Xinja.”

Comments: (3)

Melvin Haskins
Melvin Haskins - Haston International Limited - 22 January, 2021, 14:35Be the first to give this comment the thumbs up 0 likes

Presumably organisations and individuals invested in Monzo based upon a business plan which, by the look if it, is unachievable, by a long way. Do those investors have a case against those that approved the business plan and raised the money? Surely those financial institutions and accounting practices that approved the plan are as liable as those that came up with the idea and ran the company?

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 22 January, 2021, 16:27Be the first to give this comment the thumbs up 0 likes

Matt Levine's "Everything Is A Securities Fraud" paradigm is only applicable for investors in publicly listed stocks. Investors in private markets get enough warnings about the risks of investing in unlisted companies. I strongly doubt if they have a case against Monzo.

That said, I don't know if they even made a loss that they would want to claim back. There are many examples of startups whose early stage investors were rewarded handsomely but late stage investors made losses on their investments e.g. WeWork.

Dharmesh Mistry
Dharmesh Mistry - PropFinTech Investor - Reading 25 January, 2021, 10:561 like 1 like

I hope they do turn the corner, and their interview on techCrunch sounds much more positive:

"Monzo now has almost 5 million customers, up from 1.3 million in 2019. Monzo’s total weekly revenue is now 30% higher than pre-pandemic, helped no doubt by over 100,000 paid subscribers across Monzo Plus and Premium in the last five months (sources tell me the company surpassed £2 million in weekly revenue in December for the first time in its history).

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