Business

This is what Monzo is planning next

TS Anil took over the challenger bank at a time of existential crisis. A year on, he’s got a plan to (finally) break even

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TS Anil describes his first year as chief executive of Monzo as a storm. Since he was appointed to lead the challenger bank in May 2020, he’s been running it remotely from his home office halfway across the world, all while the business went through an existential crisis.

“In hindsight, it all feels pretty daunting,” he says. Anil has recently moved back to London, but before then he was in Palo Alto, California, working from 3am to match UK time and reassure staff, whom he had never met, that he was in control.

It was a hard task. Shortly before he became CEO, Monzo made 231 people redundant, shuttered its Las Vegas office, and furloughed a further 295 people in the UK. Plummeting activity from its customers forced Anil to seek between £70 million and £80m in funding to see Monzo through the pandemic, causing its valuation to be slashed by 40 per cent. In the background, we now know that former CEO and founder Tom Blomfield, who had taken on the role of president, was trying to step away from the company completely due to mental health problems.

Anil was also in a unique situation: he didn’t really know anyone at the company he was in charge of, and thanks to the pandemic, there was no way to communicate with them aside from through video conferencing or Slack.“All that was happening, literally hour by hour, day by day, in the first few weeks,” he says. “But it was important to all of us that we put our best foot forward and just address whatever challenges were coming.”

In January 2020, Anil had joined Monzo to lead its expansion into the US. The plan was to leverage his experience working in traditional retail banking to plant a flag in a complicated market. At the time, Monzo was on a high: in June 2019, it was the UK’s second-most valuable fintech firm with a valuation of £2 billion, behind only OakNorth. (Both were eclipsed by Revolut’s £4.5bn valuation in February 2020.)

Anil’s first course of action was to spontaneously introduce himself to people at Monzo by inviting them to hang out with him on one-on-one video calls. He’d have an evening drink, they’d have a morning coffee. He’d meet with people when they’d put their kids to bed, or Slack people saying that he was free in between meetings to say hello. There was never any agenda. “You have to learn very quickly who to trust for what,” he says. “You need to work with so many executives and people across the organisation, so you’re just trying to figure out who to ask what, who's good at what, who is a leader.”

Anil used these informal chats to build a relationship with the people he didn’t know. “I needed to trust that if I was going to change direction on something, I needed the team to also trust me and trust the decision I was going to make,” he says. “The only way to do that is to get them to understand you, right?” He says that he tried to be himself, to be vulnerable and open to sharing, but also forthright and decisive.

Since he took over, Anil has hired an almost completely new executive C-suite, all with traditional banking backgrounds: general counsel Stephanie Pagni was recruited from Barclays, US CEO Carol Nelson from Cascade Bank, and COO Sujata Bhatia from American Express. He’s currently on the hunt for a new chief financial officer after Alwyn Jones quit last month to join cryptocurrency startup Luno.

Of the original five Monzo founders, only Jonas Templestein remains. And as the new guard is ushered in, the challenge will be to keep the culture of the bank, which propelled it from a niche startup to a five million-strong customer base in just over six years. Culture is the biggest thing Anil obsesses over. “In my first few days I had to figure out, ‘Okay, so now Tom's not here, what has left the building with him?’” he says.

Anil says this sense of company culture has raised some challenging questions. “Someone will challenge me and say, do you think that being profitable as a borrowing business is somehow counter to our mission?”

This is a telling question: Blomfield long struggled with an internal cultural pushback against charging customers, and that issue has clearly not gone away. “The problem with Monzo is that they had an idea of where to go, but it wasn't going to make any money at all. And now they're kind of stuck between whether to be virtuous or whether to be businesslike,” says Katherine Long, banking analyst at data analytics company GlobalData.

On this point Anil agrees. “The team had a mission statement without a plan to activate it sustainably, it was a bumper sticker,” he says. “We need to be profitable so we can actually deliver our mission at scale and deliver it sustainably.” The numbers make for grim reading, but Anil tries to downplay the £60m down round that slashed Monzo’s valuation by 40 per cent to £1.24bn. “We raised over £200m in three tranches. I think we’re widely believed to be undervalued at the tail end of that round. We're more focused on making sure that we got the right amount of capital in, and making sure that we have enough to build the stuff that we do.”

He insists that Monzo is on track to become profitable next year. He claims that in December, Monzo’s revenues were up 30 per cent on what they were in the pre-Covid peak, that 20 per cent of the company’s active weekly users are depositing their salaries into their accounts.

An IPO is very much on the cards as a potential option for Monzo, and could take place as soon as 2023, Anil says. The plan to expand to the US is very much still on with Monzo currently awaiting a licence.

So how will Monzo’s success be measured? Not through Monzo Premium account downloads, which by last count are growing, but are used by just 2.5 per cent of the company’s customers. Not by the 80,000 business accounts set up in the last year, either. Anil argues that it’s a combination of all of the new products, transaction-based revenues, lending-based revenues, and subscriptions that will push it over the edge.

Monzo has very few ways of generating revenue, and they're not very good, argues Long. “It has only done lending since 2019, personal loans and overdrafts a little bit before that. We'll see what their numbers are this year, but last year, they weren't very big.

“The problem is that Monzo doesn't do much lending,” Long explains. She argues that the bank doesn’t get much revenue from commission or interchange fees. With no credit card or mortgage offering, Long says she “fails to see how it's going to make that much money”. “It's not only that it struggles to make money, it's actually struggling to make enough money to even justify its growing costs.” She points to costs trebling from £60m in February 2019 to £151m in February 2020. “I've called it an increasingly expensive charitable cause, because that's basically what it is.” Long says she doesn’t see how Monzo can become profitable without a “radical change” to its business model.

A Monzo spokesperson said that the bank has a “very clear path to profitability and a high quality investor base which has shown continued confidence in Monzo and our business model.”

But you can divine Anil’s course of action by the things Monzo has done, rather than what he says. In October 2020, Monzo introduced a three per cent fee for withdrawals capped at £250 every 30 days for customers that use it as a spending card (the cap is £200 abroad). All its new products either have a price tag, or are built as an incentive to make people switch to Monzo as a main account.

In the race for profitability, Monzo appears to have lost to its rivals. Starling Bank became the front-runner, buoyed by its role as a government lender: it achieved profitability in October 2020. It’s also the only one of the challenger banks to have increased download numbers during the pandemic, according to figures gathered by The Financial Times. Revolut, which struggled with redundancies and salary freezes during the pandemic, claims to have continually broken even on a monthly basis since November 2020.

Sarah Kocianski, head of research at financial consultancy 11:FS, says that Monzo and Atom Bank, whose valuation was halved in a £40m funding round in March 2020, both suffered from a case of bad timing. “When they got that original valuation, we were at the absolute peak of a funding bubble,” she explains. When they needed a bridging loan it was “the worst time”. “Of course you'd see a reduction in valuation because of the market. Not to say that it isn't disappointing for Monzo and you know, it doesn't look great.”

Kocianski says she believes Monzo can be sustainable, but it depends on customer behaviour. “If you built a product two years ago, you knew those consumers, but those are not the same consumers right now. They're battle scarred, they're worn. They're very poor in some cases, or in other cases, they have more money, because they're not spending on other things,” she says. “I think the plan Anil has now is sound. Whether it will still be sound in six months, they can’t know that.”

Anil claims he doesn’t want to build a business that’s a flash in the pan. He thinks Monzo is stronger than ever. He cites a conversation he had with a Monzo investor, who said that companies that survive a “difficult, crazy year” often go on to have bumper years straight after. He hopes that the same future awaits Monzo. “We’re certainly not going to let a good crisis go to waste.”

Updated 28.04.21, 12:00 BST: Monzo made 165 people redundant in Las Vegas, while 120 people were at risk of redundancy in the UK head office. Of the latter group, 66 were made redundant following a consultation.

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This article was originally published by WIRED UK