Monzo boss plays down IPO rumours after jump in profits

Times

2 days ago

In 2015 Monzo, or Mondo as it was then called, was little more than a twinkle in the eye of its founder Tom Blomfield. Aged 30 at the time, Blomfield could boast just 500 holders of his 'hot coral pink' payment cards and the backing of a single venture capital firm, Passion Capital.
His claim at the time, 'We're trying to be the Facebook for banking', sounded ambitious if not downright deluded. But fast-forward ten years and Monzo has come a long way and on a spectacular growth trajectory not so dissimilar to Mark Zuckerberg's.
Results on Monday showed customers at the digital bank rising by 2.4 million to more than 12 million in the year to March. Revenues were up by 48 per cent to £1.2 billion. Deposits pushed through the £16 billion mark. Underlying profits grew eightfold to £114 million.
Even after including the one-off cost of a scheme to allow staff to cash in share options in December, pre-tax profits were still up a healthy fourfold to £60.5 million.
London-based Monzo claims to be Britain's seventh largest bank by customer numbers and the nation's biggest digital bank. It is also far more popular with customers than most of its incumbent branch-based rivals: the latest independent study by the Competition and Markets Authority scored it second for overall service quality, beating every other bank except Chase.
Blomfield is long gone, having left in 2021 to farm alpacas and launch other ventures, but his successor TS Anil hailed the latest results as the product of 'bringing the best in tech together with the best in banking'.
The standout growth engine last year was business banking, which grew its customer base by 49 per cent to 625,000 small business clients. One in six new business start-ups in the UK were now banking with Monzo, Anil said.
Monzo is much more than the banking app with clever tools that helped customers to budget and share bills, which in the early days became the coolest way of paying, for millennials and Gen Zs. It has expanded into personal loans, contents insurance and even pensions in a joint venture with BlackRock. It has launched in the United States and is preparing a foray into the European Union, via Ireland.
Not everything is going well. Like most other retail banks, Monzo reported a slimming in its net interest margin — the difference between deposit rates and lending rates — from 4.41 per cent to 4.09 per cent. Margins have been falling in the wake of base rate cuts.
But Anil played down the hit, saying Monzo's success was built on volume growth and that it had other income streams including subscription services such as Monzo Perks, where customers pay a £7-a-month fee in return for benefits including railcards and free sausage rolls at Greggs. About 900,000 Monzo customers pay for subscription services.
Another blemish in the latest results was the disclosure of possible failings in its anti-money laundering controls. An investigation by the Financial Conduct Authority was now 'at an advanced stage' and was 'likely to have a financial cost to Monzo', it disclosed.
A flotation now sounds some way off. 'Honestly, an IPO is not something we're focused on right now,' Anil said. 'We're oriented entirely around scaling the business and taking it to greater heights.'
Speculation that Monzo was heading for an imminent public listing had intensified after Morgan Stanley was used to introduce it to potential investors and it started recruiting to build an in-house investor relations team. Last month Emma Reynolds, the economic secretary to the Treasury, met Monzo executives to press the case for a London float.
Anil, however, played down the IPO option on Monday, while adding, 'We believe it [Monzo] would make a great public company one day.'
There is no urgency. Last year Monzo raised £500 million from institutional investors and is now capital-accretive. Its backers include Alphabet, the owner of Google, and Tencent, the Chinese video games and social media company. It also has a fan club of early users who bought shares through crowdfunding platforms. A secondary share sale in December, enabling staff to cash in share options, valued the company at £4.5 billion, it has said.
Putting that claim to the test through a flotation is, it seems, still some way off.
Rise of the Monzonauts
Monzo and its 2,500 employees, whom it dubs Monzonauts, have been on an epic journey over the past ten years. With an £18 billion balance sheet and a £4.5 billion valuation (by its own measure), the company is no longer a tiddler in any sense.
Through the offering of helpful and imaginative app-based budgeting and spending tools, it has won over millions of loyal customers. It has started to cross-sell them other services, whether mortgage-broking or pension-finding or contents insurance.
It has also managed to bulldoze its way into small business banking, catering not just to sole traders but in some cases to companies with dozens of staff, and grabbing market share from the incumbent banks.
It has already shown itself capable of persuading consumers to make it their main bank, into which at least half their salaries are paid. Primary account holders account for 33 per cent of the total and it is growing.
There are, however, three tests still to come before Monzo can be said to have fully come of age. The first is finding a home for all those deposits, most of which get parked at the Bank of England. Monzo needs to get more fully into the lending business, though its caution till now suits its capital-light model.
The second is exporting the formula overseas. Monzo is for now still tiny in the US and only just thinking about the EU, though it has established an office in Dublin. There's no guarantee the Monzo product will travel, though there is plenty of room for growth still in the UK, of course.
The third is the test of a full-blooded recession. The 2020/21 downturn was hugely softened by government support for households and business. Monzo's credit-scoring techniques, and the potential for a blowout in borrower defaults, have yet to be assessed.
In their first decade the Monzonauts have proved themselves creative and painstaking innovators but they have not yet been fully tested.