What a product manager (and not only) can learn from Monzo’s 2019 Annual Report

Monzo, a challenger bank, has recently published its 2019 Annual Report covering the period February 2018 to February 2019. With 2+ million customers loving Monzo’s product I think one has something to learn from the digital bank’s experience.

Having read alternative views on the report I want to start with Monzo’s values and approach to building the community rather than the amazing pace of growth that Monzo shows.

1. Monzo is committed to engage with its customers and wider audience to make banking accessible for everyone.

I am truly amazed by real efforts the digital bank took to build and support the community around its brand. Many companies speak about values and mission but not every business actually implements them. Monzo takes its mission seriously and the report gives a few examples of that dedication with 40 events hosted around UK, 16K+ followers on Making Monzo Twitter account giving a grasp of how the bank works behind the scenes, successful #YearInMonzo campaign and #NoBarriersToBanking, a program for financial inclusion. But what fascinates me most is the forum that Monzo runs to solicit customers’ feedback on new features. That is customer discovery in action!

2. Monzo launched a great deal of new products and product features and took advantage of partnerships to offer more solutions to manage money.

It was a fruitful year for Monzo: the bank launched joint accounts, quick bill splitting, analysis of scheduled Direct Debits and standing orders, requesting or sending money to ‘Nearby Friends’. What is interesting is that all those features came from a ‘Big List’, a number of features that Monzo’s customers deemed essential for their everyday account (again the power of community!).

Many more of the product offerings came from Monzo’s partners, e.g. saving pots with Investec, money transfers with TransferWise, switching energy providers with Octopus Energy and OVO. Monzo is likely to add even more partnerships in the future including mortgage switching, insurance and ‘keeping track of all their borrowing in Monzo’ that sounds like credit products aggregation.

3. Monzo grew its consumer lending to £19.2m in 2019.. but with total Expected Credit Loss £3.1m.

Monzo lent £19.2m to customers mostly offering overdrafts but also issuing unsecured loans to a small portion of customers. Yet losses seem to be quite high.

Certainly, Monzo is aware of the importance of keeping credit risk under control and will continue monitoring credit portfolio’s behaviour and adapt its policies accordingly. More importantly, the bank will collect historical data that with time will allow to build internal credit scorecards to better predict probability of default (currently Monzo uses the data from an external Credit Bureau).

Personally, I am quite excited to learn what Monzo envisions for consumer lending. Whereas we have seen a lot of disruption in everyday banking (i.e. current accounts, cards), one can hardly name an outstanding credit value proposition from challenger banks. Hence, Monzo could be the one to make credit work for everyone that could grow the bank’s per-customer contribution margins as well.

4. Monzo is adding 200,000 customers a month and managed to reach a per-customer profitability but.. still making losses at a company-level.

Looking at Monzo’s fast growing and committed to the brand customer base and great product offerings one starts wondering when and how the bank turns profitable. With £47.2m in losses it has a long way to go. To be fair Monzo reported that average annual incremental revenue per customer became slightly positive (+£4) vs a loss of £65 per customer a year ago.

We can speculate on potential strategies to turn over the Monzo’s business model but I hope that Monzo’s team is ready to come up with some ideas.

5. Speaking of Monzo’s team the digital bank added 413 people to its headcount and strengthened its top management.

The growth rate with which Monzo adds new employees is amazing but the digital bank works hard to preserve the innovative and collaborative environment inside its three offices (London, Cardiff, Vegas). Monzo also offers an opportunity to work remotely — 263 out of 713 Monzonauts (a cute name for a Monzo’s employee) are distributed around the world. It looks like the bank’s approach to people’s management gives results with 0,97% voluntary leaver’s rate and 4.5 rating on Glassdoor (with TransferWise being ahead but beating Revolut, N26, and Klarna).

Monzo is also committed to attract world class top management: last year it brought on board Tim Trailor, a former VP at Klarna, as a Chief Credit Officer, so hopefully we can expect more interesting developments in Monzo’s credit propositions.

A key takeaway is that Monzo managed to build a product that earned the love of 2+ million customers who are very devoted to the brand (NPS is consistently above 80). Monzo’s team has launched great product offerings and has some exciting projects on its roadmap for 2019. The digital bank has recently announced plans to launch in the US and if things go well there Monzo could reach ~4 million customers next year. Profitability seems to be the one piece still missing from Monzo’s successful story.

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