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Digital bank Monzo reported its first annual profit since launching nearly a decade ago, as the London-based fintech benefited from higher interest rates and growth in transaction fees and underwriting.
Neobanka, founded in 2015, reported a pre-tax profit of £15.4m for the year to the end of March, compared with a loss of £116.3m a year earlier. Revenue more than doubled to £880m in the period as the fintech’s net interest income – the difference between what banks pay for deposits and what they earn on loans – rose 167 per cent to £438m thanks to higher interest rates.
Monzo’s revenue was also boosted by transaction fees, with net transaction income rising by £60.9m to £167m, despite customers spending less abroad due to the cost of living crisis. Revenue from its subscription plans including Monzo Plus, Monzo Premium and Monzo Business rose to £27.4m from £19.5m the previous year.
“We are a rare company that has achieved scale, growth and profitability, and we have . . . the right amount of capital to take advantage of the opportunity in front of us,” said TS CEO Anil.
Monzo said its loan book grew by 84 per cent to £1.4 billion, including overdrafts, unsecured personal loans and Monzo Flex, its buy now, pay later credit card used by 500,000 customers.
But on top of that increase, the neobank increased its provisions for expected loan losses to £176.9m, from £101.2m, as more of its customers struggled to repay and fell into arrears. The bank said it expects loan loss provisions to continue to grow.
“Global unrest, inflation and interest rates remain high. All of these factors increase the financial pressure on our customers’ disposable income and the risk that they will be unable to repay us, which may result in lower transaction yields and higher [expected credit losses]” said CFO James Davies.
Anil insisted that Monzo, which lends less than 15 percent of its balance sheet, has been “incredibly disciplined with our lending.” Neobanka said it had “taken steps to update our credit underwriting in light of the loss experience” and would continue to “review credit criteria, our risk appetite and how our models work”.
The company, which is preparing its second attempt at a US launch, also announced plans to enter the European market by first entering Ireland, where it said it would open an office in the coming months.
It comes after Monzo secured a £489.5m funding round earlier this year led by investment fund Alphabet CapitalG, giving it a valuation of more than £4bn.
Monzo also said it has started opening accounts for “politically exposed persons” — public officials who are at higher risk of bribery and corruption. It comes after Chancellor Jeremy Hunt said last year that he had been refused an account with the neobank.
The fintech, which has struggled to grow its anti-financial crime capabilities as fast as its customer base, said it was informed in November that Britain’s top financial regulator was no longer assessing criminal liability related to money laundering compliance, even when a civil investigation is underway.
Monzo’s deposit balances grew by 88 per cent to £11.2 billion, with average revenue per user for personal customers rising to £145 from £112 the previous year. The increase comes as Britain’s neobanks come under pressure to attract more of their customers’ money to access funding to lend in bulk.
“It’s flattering to me that we’re compared to the big banks that have been around a lot longer,” Anil said. “It shows that we are a big player and we are building a company for the ages. . . with a huge runway ahead of us.’
This story has been amended since it was first published to clarify the status of the investigation by the UK financial regulator