Charting Monzo's journey from coral millennial accessory to 'grown up' bank

Monzo is growing up with metal card and premium services

In its short lifespan, fintech upstart Monzo has become a firm favourite among young city-dwellers, but now it's turning its attention to an older, more affluent audience. In short, the bank is ready to grow up.

Visit any major city in the UK and you'll likely catch see a flash of Monzo’s shockingly-bright coral card emerging from a millennial's wallet or purse. Counting 81% of its customers as 39 and under, with more than half (58%) of its 2 million customers earning over £30,000 a year, the challenger bank is mainly used by young urbanites.

After debuting its premium service, Monzo Plus, back in April - a launch its chief exec admits it "fluffed" - it's now gearing itself up for the release its long-awaited metal card.

Along with card customisation options, Monzo Plus offers users a personalised link that lets people request money directly as well invites to Monzo events and "swag". Premium subscribers can also take advantage of travel insurance add-ons and increased cash withdrawal limits.

It's a launch that could help Monzo draw in a more affluent clientele with disposable income and, in turn, balance its own books.

“It’s kind of Monzo for grownups, isn’t it?” says Ian Henderson, chief exec of specialist fintech agency AML Group. “It needs richer customers who are going to use more banking services. Most people don’t use Monzo as their primary bank account that they pay their salary into."

Over the past year, investment has poured in for the branchless bank.

In June, it was reported it had doubled its value to £2bn, following a fresh round of investor funding, making it the second most valuable fintech startup in the UK, behind OakNorth, a small business lender.

Its burgeoning user base has also got up to speed, doubling to reach the 2 million mark in October October. Averaging 35,000 new customers per week, Monzo's chief exec Tom Blomfield reckons it won’t be long until that figure could hit 3 million.

It's also been upping its marketing investment. In May, it launched its first major ad campaign and on the first day its TV ads ran 10,000 customers signed up.

"This is the first year we've done significant amounts of paid marketing," said Meri Williams, chief technical officer at Monzo on upping its marketing game. "We've always had this really interesting social effect where we're recognisable."

Yet, while business is most certainly booming, the digital tech's route to the top does have some bumps to overcome along the way, least of all mounting losses of £47.2m; up 54% year-on-year.

As it ventures on the road to profitability, the business will need to expand its clientele beyond the young millennials who are taking advantage of its £500 overdraft limit. It will also need to gear itself up for expansion by assuaging trepidation among consumers who are nervous about pivoting away from big, traditional banks.

Four years young

Monzo was originally founded in 2015 as 'Mondo', a business which offered a prepaid cash card as a plastic alternative to carrying cash around – however the original name was lost due to copyright issues.

Initially, what set Monzo apart from traditional banking was its superior tech.

"All fintech's benefit from the fact they are digital-first," explains Joel Biswas, partner at creative shop Coley Porter Bell. "Via the Monzo app, everything can be done on a mobile and it takes mere minutes - an attractive proposition that cuts out the time it takes to run to your local bank branch."

The convenience of easy transactions between friends and an air of exclusivity have worked in the startup's favour. “The two things it did right was to give itself brand notoriety by using an invite-only customer acquisition scheme and to give the brand an eye-catching look,” adds Biswas.

When Monzo received its full banking licence in April 2017, it rolled out current accounts very slowly to "provide the best possible experience" for customers". Only 20,000 current accounts were given to existing customers within the first three months.

The distinctive, slick look and exclusive-style membership proved to be a certain cache that attracted people to the hip bank.

“Things like hot coral colours and stylings - they’re all talking points. You can make an Instagram post, you can share an unboxing video, you can tell your friends about it. It’s brilliant marketing” AML's Henderson observes.

In a similar vein, Monzo's premium service looks set to work to the same effect. The range of offerings is only made available for exclusive customers, therefore inciting intrigue, while a metal card is a talking point.

So, how will Monzo convince the older generation to switch?

Monzo launched its plus subscription back in May - a more exclusive offering for fans to get even more out of the brightly fin-tech.

Available in bundles ranging from £4.95 to £12 a month, the Plus option is being touted as ‘your invite to the easy life’. It offers added benefits like worldwide travel and home insurance, discounts and exclusive products.

Tom Roberts, Tribal Worldwide London's chief exec, cautions while the offer might be alluring, the next stage of Monzo's journey could prove trickier than it anticipates.

“Although it has great strength in its brand, as other digital-first disruptors have found out the hard way, the next phase of disruption can be just around the corner unless you’re constantly innovating and evolving," he says.

When it launched the premium service in May, chief exec Blomfield admitted it had "fluffed the messaging" in telling the story of Pus. "I think we learned a lot on that one," he told the Telegraph.

Learning from its mistakes is a practice Monzo has maintained throughout its early innings.

"The way its developed the brand and its service is more like a web development process than building a bank," explains AML's Henderson. "From the outside, it might look like its being indecisive, but it wants to get it right. It's a rolling program rather than a big 'ta dah' moment."

On the website, the fintech tells it's customers 'we’re building Monzo Plus with you, and so we’ll be adding lots more over the next few months to make it even better.'

This test and learn approach is typical of Monzo, who rely on their community feedback as part of an iterative process.

Are the metal cards a fad?

As an extension of its premium subscription, Monzo is now testing out a £7.50 charge per month for its metal card, which will be on top of the minimum £6 for the Plus subscription. So far, it has created design prototypes of the metal cards, which will allow Monzo customers to add a touch of personalization and panache to their debit card collection.

"Arguably, it's not a new concept," contends Biswas. "25 years ago, pulling out your American Express platinum card was a status signal.” An attention-getting device, Biswas believe that launching a cool metal card is the next stop in Monzo’s exclusive proposition area.

Not everyone is convinced, however.

"Metal cards are a 100% (dysfunctional) fad in a category starved of meaningful innovation," observes Neil Robinson, co-founder at the creative studio, Chapter.

"Not to say they don't look great, but if Apple's card is anything to go by, the form factor is as useful as the Touch Bar."

Will the challenger bank ever takeover from traditional banking?

Roberts feels Monzo isn’t just fighting to stay ahead of its immediate rivals like Revolut and Atom, but also the ‘next big thing.’ “It’s a challenge, but also a huge opportunity to continue its phenomenal growth,” he adds.

In the past year, Monzo has been adding to its roster of services, things that were for a long time, only offered by traditional banks.

In August, Monzo announced that it would now be offering loans that start at a competitive 3.7%. However, there is a cost of convenience, as Monzo’s minimum rate when borrowing £500 is 6%, which is almost double that of standard.

Another difference from traditional banking is that Monzo doesn’t pay interest on its standard accounts, meaning its customer lose out a bob or two.

Monzo has also made business accounts a reality, whereby companies can set up a full UK bank account in minutes.

“A big part of Monzo’s, and all of fintech's appeal is the perception that they are not like traditional banks," explains Tom Pinnock, strategy director at Leagas Delaney.

However, Pinnock contends that this is a fragile perception and one that needs to be protected as they look to grow. The startup needs to also ensure it's digital-first approach continues to bolster it, rather than hinder.

Last month, Monzo was forced to reveal that almost half a million customer's accounts could have been affected by a security glitch and advised its customers to reset their pins. For the first time, it seemed the banks’ superior tech capabilities had failed it.

“Given its recent data breach, where unauthorised staff had access to banking information, it may find users staying with the legacy high street banks all of which are innovating fast to catch-up with the start-up fintechs,” argued Roberts.

Whether Monzo will become a real challenger to traditional banking is yet to be seen, although Biswas thinks its more likely that fin-tech’s will be acquired by the big banks.

“I don’t think any of them will stand alone and ever achieve the scale of traditional banking,” he finishes. “It’s very much an acquisition game, which is no bad thing.”

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