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Digital bank Monzo has reported its first annual profit since launching nearly a decade ago, as the London-based fintech benefited from higher interest rates and rising transaction and subscription fees.
Neobanka, founded in 2015, reported a pre-tax profit of £15.4m in the year to the end of March, down from a loss of £116.3m a year earlier. Income more than doubled in the period to £880m, as fintech 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 rates high interest.
Monzo’s income 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, up from £19.5m last year.
“We are a rare company that has delivered scale, growth and profitability and we have . . . the right amount of capital to pursue the opportunity before us,” said chief executive TS Anil.
Monzo said its loan book had grown 84 per cent to £1.4bn, including overdrafts, unsecured personal loans and Monzo Flex, the buy-now, pay-later credit card used by 500,000 customers.
However, alongside this rise, neobank increased its provisions for expected loan losses to £176.9m, from £101.2m as more of its customers struggled to make repayments and fell into arrears. The bank said it expected loan loss provisions to continue to rise.
“Global turmoil, inflation and interest rates remain high. All of these factors increase the financial pressure on our customers’ disposable income and the risk that they are unable to pay us, which could result in lower transaction income and higher [expected credit losses]”, said chief financial officer James Davies.
Anil insisted that Monzo, which lends out less than 15 percent of its balance sheet, was “extremely disciplined with our lending.” Neobank said it had “taken steps to update our credit underwriting in light of loss experiences” and would continue to “review credit criteria, our risk appetite and how our models are performing”.
The company, which is preparing its second attempt to launch in the US, 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 this year secured a £489.5m funding round led by Alphabet’s investment fund CapitalG, giving it a valuation of more than £4bn.
Monzo also said it had begun opening accounts for “politically exposed persons” — public officials seen as at higher risk of bribery and corruption. It comes after Chancellor Jeremy Hunt last year said he had been refused a neobank account.
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 the UK’s main financial regulator was no longer assessing criminal liability in relation to its compliance with money laundering regulations, although a civil investigation is ongoing.
Monzo’s deposit balance grew 88 per cent to £11.2bn, with average revenue per user for personal customers rising to £145, from £112 last year. The rise comes as UK neobanks are under pressure to withdraw more of their customers’ money in order to access funds to lend at scale.
“To me it’s flattering to be compared to the big banks that have been around for a lot longer,” Anil said. “It shows that we are a player here at scale and we are building a company for the ages. . . with a great track ahead of us.”
This story has been amended since initial publication to clarify the status of an investigation by the UK’s financial regulator