How Monzo Bank Learned from Their Mistakes and Made a Huge Comeback

The rise of Monzo

This modern-day bank has been making some big waves in the world of finance. But as with any young company, there are always going to be bumps in the road.

Monzo bank was founded in 2015, the company has raised over $1.5 billion from investors, and it's now valued at $4.5 billion according to Dealroom. It was considered by many as the bank that focused on the gen-z , and whose aesthetic, tone and mission appeals to younger markets.

Tom Blomfield, the co-founder and CEO of Monzo bank, seemed to have cracked the code to make banking more accessible and less, well, stuffy. But that’s no surprise the former GoCardless co-founder, a hugely successful company in it’s own right, had a track record and was considered by many as visionary in the world financial services.

Under his leadership, Monzo became one of the most successful challenger banks in the UK, and its innovative mobile app has helped to redefine what a bank can be, reaching up to 5 million customers showing the strength of it's brand and product.

But in his own words, one of the biggest challenges for Monzo has been scale.

They grew so quickly, serving millions of customers meaning they were constantly in the press, first, as the darling of UK banking.

But the spotlight that brings, and a huge scale of his growth brought its own challenges in terms of making sure that they can maintain the high level of customer service that people expect from them, their infrastructure, and data security.

Then in 2020, monzo was struggling to keep its head above water. It had failed to become profitable. The bank, which was once considered a rising star in the banking world, and praised for its innovative approach to banking, was in trouble.

What went wrong?

There are a few factors that likely contributed to monzo's struggles in 2020. First, the pandemic hit the bank hard. This led to a sharp decline in revenue, and monzo was unable to make up for this loss through its digital channels. Like many small businesses, monzo was forced to furlough staff. This put a strain on the company's finances.

Second, the challenger bank had been growing so quickly that it failed to keep up with demand. This led to long customer service wait times and frustrated customers.

In July 2021, the UK's financial watchdog has said it is investigating digital bank Monzo over potential breaches of anti-money laundering. In December 2021, thousands of Brits were unable to access their money as Monzo Bank had a meltdown, leaving customers shut out of their accounts and unable to make or receive any payments.

Finally, monzo has been facing intense competition from other neobanks. Revolut and Starling Bank have both been growing rapidly, and they have been eating into monzo's market share.

But, Monzo made decisions to try and offset the losses when it came to its product offerings. For example, the launch of its premium account, which charged customers a monthly fee of £15, was met with criticism from the press, which outlined the high cost of the product.

Monzo's attempts to break into new markets such as small business banking and lending have not been as successful as first thought, and the bank has had to pull back from these ventures, causing delays to their expansion plans.

As an example, Monzo withdrew their banking license in the US and in a statement, a spokesperson for Monzo said: “While this isn’t the outcome we initially set out to achieve, this allows us to build and scale our early-stage product offer in the US through existing partners and invest further in the UK.”

“We have big ambitions for Monzo US. There are many routes to market we’re exploring that have been successful for other market entrants who are now major players.”

The CEO departs Monzo

To add salt to Monzo’s wounds, Tom Blomfield, the founder of Monzo bank, announced that he was stepping down from his role as CEO. While the reasons for his departure are not entirely clear at the time, what we now know is that they were down to mental health reasons and some have speculated that it may have something to do with the challenges of running a startup. (Well, that's no surprise!)

In an interview with The Guardian, Blomfield said that "the demands of being a CEO are very different to being a founder," and that he was "looking forward to taking a step back. It is clear though that Tom Blomfield has made a significant impact on the world of banking and his track record speaks for itself.

The Monzo comeback

In May 2020 TS Anil was appointed as CEO, to make comeback. 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, all done during a pandemic.

Plummeting activity from its customers forced Anil to seek between £70 million and £80m in funding, causing its valuation to be slashed by 40 per cent.

But the comeback did begin. Back in December Monzo confirmed that Coatue and the Abu Dhabi Growth Fund had become investors. In January 2022, Chinese technology company Tencent Holdings, announced that it has succeeded in snapping up a stake in Monzo, the British-based digital bank valued it at $4.5bn (£3.7bn) having subscribed to shares as part of a $100m (£74m) top-up to Monzo’s latest funding round.

Tencent is a Chinese multinational entertainment conglomerate and holdings company, and it is the largest gaming company in the world. Its social application WeChat had 1.225 billion monthly active users in 2020. WeChat Pay has 825 million users.

The company has previously backed European banking start-ups such as Germany’s N26. It also holds stakes in major US tech companies, including Tesla and Snap. Its Hong Kong-listed shares have a market capitalisation equivalent to more than £400bn (£296bn).

This latest top-up in funding takes the total amount raised in Monzo’s latest round to £444m.

And in February 2022 they did finally get their product to the US market where their website claims to have moved out of beta to public launch to millions of customers.

TS Anil, Monzo’s chief executive, said of the December round: “This investment means we’ll grow further and faster as we continue on our journey to reinvent banking, and become the one app that sits at the center of our customers’ financial lives.” and TS Anil is considered by many as a highly respected financial services and payments leader with over 25 years of retail banking experience.

So for now, it looks like Monzo has got past it’s sticky phase yet only time will tell whether Monzo can make a comeback. It so far looks that way, with Monzo recently hitting profitability for the first time and reporting strong growth numbers. That can only be good for the future of banking.