Monzo / Mondo / Revolut banking

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.

Sorry I see that wasn't clear at all.

They make money out of what they call 'salaried' users. They identify someone who adds £1000 a month as a salaried user and it's those users that are profitable. Just found this quote - I don't think those numbers are quite right but I've read this a number of times in various articles:

Today Blomfield reported that average annual incremental revenue per customer is now +£4 and from salaried users (see caveats above) this sits at +£30, huzzah!

I guess they make interest from that money sitting with them but they also make money off each transaction someone makes - and it is these users therefore that generate the most income for them as they use their accounts as their primary account (so people like me).

They also do do loans, and yeah they make a margin off their saving pots with 3rd providers.

Ah I see. I should have realised they do do loans. Maybe they didn't at first.

Still £4 or even £30 per customer (per year?) seems a very small amount of money. But I guess their costs don't scale with number of customers (to the extent that they would with traditional banks) so the more customers they have, the more revenue/customer

I'd entirely missed the general cashback, thought it was only selected stores.

I wonder how long that will last.

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 salary

So there's definitely an incentive to persuade people to put their salary into Monzo.

Yeah per year - it's not a lot hence why they're still running a loss.

I've been saving a house deposit with them for ages in their savings pot, use them as main account, and have a joint account with them. So maybe they make £70 a year off me?? No idea. They just need to get as many people onboard as they can, and get them using it as their main account. Then look at other ways to increase profit. Which I guess is what they've been trying to do.

Been using Monzo for a year or so now and really like the app.

I still have my main account with HSBC where my salary is paid into and my bills come out of, but I transfer my monthly spending allowance to Monzo. I like the simplicity of the Monzo app; it tells me how much money I have left until I get paid next. The HSBC app can’t even do this as for some reason the developers didn’t consider users who are paid four weekly.

Capital requirements for UK banks are quite high (and European).

Their loans have had to be a limited roll out so far because they have to keep capital ratios within certain boundaries. Until they get a whole bunch more money in the coffers to safeguard deposits it's difficult to scale up the loans side which is where they can really start to generate profit.

I checked out Money Dashboard and am now mostly set up. This is much better than flipping back and forth to Evernote(s)...

Monzo are in trouble https://www.finextra.com/newsarticle/36317/monzo-covid19-casts-significant-doubt-on-ability-to-continue-operating

Difficult times for sure. Worth noting all banks have posted huge losses I think. NatWest 1.3 billion?

In case anyone else was wondering, it seems like Monzo is covered by FSCS guarantee which is nice

https://monzo.com/blog/2018/10/22/monzo-fscs-protection

Yes and actually if you have money on deposit with them at say Oaknorth is Oaknorth that hold the fscs guarantee for them so possibly more stable. (Or whoever the other deposit accounts are held at)

Yes. And Lloyds posted a 2.98bn provision yesterday for covid related bad debts

https://www.riskscreen.com/kyc360/news/warning-over-monzo-financial-crime-review/

My company are just on their way out of the back end of one of these reviews and the remediation. Suffice to say, material is right. It really could sink Monzo as they don't have cash reserves to throw resource at the problem and it can limit your ability to take on certain risk classes of customer.

Does anyone have any experience with starling bank for business banking? I'm with RBS and they want me to switch as part of the business banking switch.

I've never had a problem with RBS but in the 6 years I've been with them I've never needed anything, I freelance through my Ltd company and my banking needs are basically just somewhere for people to pay me and a card to buy equipment. Starling seems pretty much ideal for someone in my situation and everything online about them seems really positive, just thought I'd ask London's friendliest forum first before switching.

Challenger (and traditional) banks make money by getting a share of the ~2% in-store transaction processing fees, or the ~2.5% online transaction processing fees. It's not a small sum and is why they want to have your current (active) account and not just your savings account(s).

Cashback on spend deals could work in the UK (like in the US), but the margins are tighter over here. That is Curve's business model (or the many expense cards now on offer).

Monzo (and all banks) need consumer spending to go up to start getting that revenue stream again... it will probably take some time. UK consumers continue to spend less across all categories* right now (and the sentiment isn't changing).

(*) With the exception of 'groceries' as we're now eating at home more perhaps?

Starling are good, existing customers really like the brand/product. Revolut are better if you regularly need to send/exchange money internationally, although existing customers don't like the brand/product as much!

Tide and Coconut might be a good bet for you too (geared up towards sole traders).

Cheers, the only reason I'm considering Starling as you get paid £1500 to move. My options are Coop bank, clydesdale and Yorkshire bank and Starling. I discounted Coop as their banking doesn't sync with my accounting software . So the choice is between a 'traditional' bank and Starling and I quite like the fact that I'm not paying for a services I don't use with Starling.

£1500 to move

???!

My wife uses Starling for you her business banking, she loves it, simple to use, syncs with Zero customer service on the ball. So likes it so much so, she's is switching her main current account over from Barclays.

It's because of the failed RBS spin off required by the EU after the 2008 bailout, they now have to offload thousands of accounts to other banks and are incentivising the switch.

Nice, I'll give them a go.

Monzo, the UK-based challenger bank favoured by those who like to drink £6 Negronis at rooftop bars in South East London

Ouch.

Anyway, they and other journos seem to agree the problem is their failure to lend, which is in short what banks do with deposits, and how they make money.

Behind a paywall - I can't read.