As one of the most famous and successful digital banks in the UK, Monzo is operating multiple business models at the same time. For example, there is a matchmaking model that connects individuals and institutional service providers i.e. utilities and insurances; a second matchmaking model that charges bank interchange fees; a product model that provides a current account for users; and a multi-sided model where Monzo as a credit card issuer connects merchants and individuals.

We believe that the primary business model of Monzo its product business model – because its core products are current accounts and loans. First of all, the current account service is necessary for all other aspects of the business and their related business models . And secondly, we believe that the biggest part of future income will be generated from giving of loans and other forms of credit. We say this even though the bank interchange fee is the currently most profitable part of the business according to Monzo’s annual report.

Founded as Mondo in 2015 by Tom Blomfield, Jonas Huckestein, Jason Bates, Paul Rippon, and Gary Dolman, Monzo is a UK based financial services provider focused on creating a hub for their users’ to control any of their financial needs. The company has grown very rapidly, reaching a valuation of £1 Billion in October 2018 and achieving the “Unicorn” status before rising to a valuation of £2 Billion in June 2019. Monzo has attracted over 3 million customers in the UK and raised over £318 million over 14 funding rounds with the most recent Series F funding round raising £113 million in June 2019 (Crunchbase, 2019). The company currently operates mainly in the UK and are testing preliminary operation in the USA (Warren, 2019).

Monzo has risen to the fore-front of digital only challenger banks, with their competition taking the form of providers of similar services (Starling, Revolut, etc) as well as the incumbent high-street banks (e.g. HSBC, Santander, etc). High street banks generally provide additional services as add-ons and bundles where digital challengers operate a layer-player/middle-man model to provide additional products and services, as well as leverage technology to add value in terms of user experience.

Monzo serves one primary user groups for the product business model – individual account holders. Its User base comprises of over 3 million individual current account customers, and a small but growing number of SME companies as business account users (Monzo Bank Limited, 2019). . Monzo users tend to be younger, tech savvy customers that don’t need the services provided by physical bank branches.

The other worth mentioning user group is providers i.e. utility companies, and insurance companies providing their products to Monzo’s users. They represent a very small portion of revenue.

Learn more about the Product Business Model

A dyadic transactional relationship where your good or service can be designed and delivered without prior interactions with the customer.

Engagement  — Value Creation Proposition
Monzo create value for account users by being an innovative, easy-to-use banking app that avoids typical difficulties faced by incumbent’s legacy systems. It also provides a community hub for idea generation, transparency and customer contact, and has recently started providing money management advice in the form of a blog. Further value is achieved by connecting the users to the providers of the products that can save money with comparisons and suggestions based on their account activity.

Value is created for their “Providers” by providing access to financially savvy customers looking to use products being provided such as savings accounts and utilities (e.g. Electricity/gas) and making switching easy to accomplish via the in-app marketplace. This is a new way of connecting to a large pool of customers via their banking provider, a service not traditionally offered by incumbent high street banks, with Monzo currently serving 50% of the market share of challenger bank customers.

Cross-network effects can be found on either side, where an increased number of user-customers provides further value to providers, and an increased choice of providers provides users with additional choice and competition. Same side effects on the user side are positive, with more users making the product better through the community, but an increased number on the provider side increases competition and makes it less attractive.

Delivery — Value Chain
How Monzo works for individual account holders.

Monzo, fundamentally, provides a current account, overdraft and loan products to their customers, on a mobile-only app. Their team consist of customer service teams and software specialists that manage the server-side operations to assess and onboard their customers, while maintaining adequate risk controls imposed by regulators. They also maintain partnerships with key providers such as card production and processing organisations (Andreasyan, 2018). In addition to Monzo’s financial products users can engage with the providers to save money through the in-app offerings without ever having to leave the app.

Monetisation — Value Capture
Monzo does not charge its users for having and using an account but has additional charges for special services (e.g. a £5 fee for delivering a card abroad and a 3% fee for using a card abroad). They receive banking fees from overdrafts (£0.50/day) and interest on loans provided (total £2.5m) and generate revenue through an arbitrage model on savings accounts held at other providers, where users receive 1% interest on funds held in savings accounts managed by Monzo who in turn receive the 1.15% provided by the third party providers, as well as interest on their customers’ funds held at the central bank as per regulatory requirements (totalling £4.9m).

Monzo generates revenue on the provider side through partnership commission (£85,000) where they receive a fee from utility providers for Monzo customers switching their electricity/gas provider through the Monzo app marketplace.

Monzo also receives an interchange fee (total £10.5m) from merchants and other banks when their users use their cards for purchases and withdrawals. This interchange fee currently provides the largest share of their revenue generated up to Feb 2019 and contributed to their recent achievement of making the cost of running an account positive through averaging the costs of account operations and revenue.

Digital Technology
Monzo has a preference for openness as both its strategy for the firm and technology choices. By open technology, we mean that Monzo’s wide usage of open-source software and making some of its software open source. In addition, Monzo’s emphaisis on technology modularity i.e. using 1400 and increase number of micro-services to manage the whole banking service enable Monzo to adapt its business model quickly according to shifting customer demands. Because it enables better user participation as well as internal adaptation. Although Monzo is not empahsising on the usage of AI, Big data or machine learning, we believe that Monzo’s technology infrastructure enables its possibility to become a multi-sided business model.



Company Website: www.Monzo.com

Andreasyan, T. (2018). UK challenger banks: who’s who (and what’s their tech). [online] FinTech Futures. Available at: https://www.fintechfutures.com/2018/05/uk-challenger-banks-whos-who-and-whats-their-tech/ [Accessed 19 Nov. 2019].

Crunchbase. (2019). Monzo. [online] Available at: https://www.crunchbase.com/organization/monzo [Accessed 19 Nov. 2019].

Monzo Bank Limited (2019). Monzo Bank Limited Annual Report and Group Financial Statements. [online] Available at: https://monzo.com/static/docs/annual-report-2019.pdf [Accessed 19 Nov. 2019].

News.bbc.co.uk. (2008). BBC NEWS | Business | Current account debate in numbers. [online] Available at: http://news.bbc.co.uk/1/hi/business/7509375.stm [Accessed 19 Nov. 2019].

Warren, T. (2019). Monzo launches its ‘bank of the future’ in the US. [online] The Verge. Available at: https://www.theverge.com/2019/6/13/18677298/monzo-bank-us-launch-date-availability [Accessed 19 Nov. 2019].

Disclaimer — Written by Sherif Sallam and revised by Tong Guan under the direction of Prof Charles Baden-Fuller, Cass Business School. This case is designed to illustrate a business model category. It leverages public sources and is written to further management understanding, and it is not meant to suggest individuals made either correct or incorrect decisions. The information contained here should not be used for investment advice and is simply indicates the individual’s understanding of the company’s business models as of February 2020. © 2020