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having their salary paid into it - that’s how they make money
I'm not quite sure what you mean. They don't do customer loans/mortgages, so don't have any way to make high interest income there.
I don't know much about capital requirements but aren't the majority of customer deposits paying tiny interest in goverment bonds?
They presumably also make a tiny margin on outsourcing customer savings pots to other providers, and on transaction fees.
But all of that would presumably be very small compared to £60 fees per customer p.a.
[Edit: expanded]
The big problem all these challenger banks have is that the whizzy functionality can be replicated by traditional banks, albeit far more slowly and expensively, and then they have no USP or way to make money. I don't think 'legacy banks' are very worried in the long term.
chez_jay-
Edit: beaten to it by @greeno...
Monzo have been doing loans for a little while now.
Looking at their annual report there's a big difference between people that pay salaries into Monzo vs those, and it's not just that Monzo can lend that money but also because people then buy most things with money from their Monzo account (and Monzo then make fees that way)
https://monzo.com/blog/2019/06/27/monzo-2019-annual-report
In 2018 they lost £15 per user
In 2019 they made £4 per user who didn't pay in their salary
And £30 per user who did pay in salarySo there's definitely an incentive to persuade people to put their salary into Monzo.
duncs
Yeah they have trouble getting people to use it as their main account and having their salary paid into it - that’s how they make money.
But I think making the basic offering as good as it can be would go further to helping that. Focus on being better than any other banking app.
I could be wrong. I just don’t see success in trying to get users onboard in the hope they then switch to a paid account.