Monzo, one of a number of “challenger” banks in the U.K. aiming to re-invent the current account, continues to be on a roll, both in terms of user numbers and now a significant new funding round.
The London-based company has raised a further £71 million in a round led by Goodwater Capital, the consumer internet-focused Silicon Valley VC firm co-founded by ex-Kleiner Perkins general partner Chi-Hua Chien. It values the company at £280 million post-money.
Other new investors joining the round are payments company Stripe and Michael Moritz, who is investing personally through his charitable investment vehicles, including the Crankstart Foundation. Previous Monzo backers Passion Capital, Thrive Capital and Orange Digital Ventures have also all followed on. In addition, £1.5 million of this round has been reserved to allow existing crowdfunding investors to increase their investment.
In a call with Monzo co-founder and CEO Tom Blomfield, who had just landed on a small island in the Philippines for a much-deserved short break, he told me the injection of capital will be used to help the challenger bank get to “contribution margin positive.” This means that each Monzo customer will generate more revenue than they cost to service, with the aim being for this to happen sometime in the first half of 2018.
Right now, Monzo is losing a significant amount of money per customer, and in varying degrees, depending on if they are on the challenger bank’s pre-paid card product or its more cost-effective current account. The latter has significantly lower costs due to less reliance on third-party providers for various parts of its banking and payments rails. “Pre-paid is just a very difficult business to create something sustainable, but it is a great way to start,” says Blomfield.
Specifically, pre-paid users are costing the startup about £50 to £60 per year, whilst the latest current account figures sit at more like £25. Recent charges brought in to cap foreign ATM fees should bring that down to around £15 per customer per year. “We’ll start to roll out some revenue-generating products in the next few weeks and months, particularly lending and third-party partnerships,” he says. “The next step after that is to become profitable as an enterprise in business… towards the end of 2018 or early 2019.”
With that in mind, Monzo says today’s new round will be used to bolster its hiring efforts, as the team continues to migrate customers to its fully fledged current account and build out its marketplace offering. Based in its London HQ, Monzo now has a staff of 210, more than double the 80 people employed at the time of the last round. User numbers are equally impressive: 470,000 people have a Monzo account and 20,000 users are already using the challenger bank’s current account.
However, it hasn’t all been plain sailing in recent months. Monzo recently experienced a brutal week of tech issues, mainly related to its reliance on a third-party card processor, which meant there were a number of quite long outages. “It shouldn’t happen,” says Blomfield emphatically, before underlining that its own in-house card processing technology, which powers its new current account, is already proving much more reliable. “We look forward to moving more customers onto the current account where we hope and believe it will be much, much better.”
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