For many years, UK consumers have complained about traditional banks. These incumbents, per Figure A, continuously score negative or near negative customer satisfaction scores (“NPS”). They’re known for charging excessive fees, having outdated in-person branch banking and providing lackluster digital services.
Figure A–Net Promoter Score
Monzo is a digital-only bank that was founded in 2015. Unlike incumbents, it doesn’t have any physical branches – and instead invests resources to improving its technology. With Monzo, customers can open an account within minutes, get instant payment notifications, automatically save into ‘savings pots’ and easily split bills with friends. Take a look at Monzo’s first-ever TV ad:
Figure B–Monzo Ad
Monzo has caused a splash in the UK banking sector. It now has >3M UK customers, meaning 1 in every 20 adults in the UK now banks with Monzo. A significant portion of these customers have been acquired from incumbent banks – per Figure C: RBS, Natwest, Santander and Barclays all experienced customer contraction in Q4 of 2019, while Monzo grew significantly.
Figure C–Account Switching
Creating Value: Use of Technology
Monzo identified customer pain points with traditional branch banking and sought to address them with technology. One pain-point is account opening – where traditional banks cause significant frustration with processes sometimes taking weeks and multiple branch visits. Monzo designed a fully digital process for account opening. Customers download the Monzo app, upload a copy of their ID and then take a selfie-video saying “My name is….”. For these checks, Monzo has partnered with Jumio, which uses artificial intelligence algorithms to detect fraud from the ID copy and selfie-videos. As a result, a Monzo account can be opened within minutes.
In contrast to the incumbent banks, Monzo emphasizes openness with its customers. It has an active online community forum, with >50,000 participants. Monzo uses the forums to keep customers up-to-date with new developments and to allow customers to socialize. Separately, the forum is also used to collect feedback on new feature ideas – asking customers to ‘vote’ for their favorite ideas (see Figure D). A great example of this transparency was Monzo’s recent US launch: they made their product development roadmap public (see here for Trello board), asking customers for feedback on what features they want to see first.
Figure D–Community Forum, Feedback Section
Monzo has also invested heavily in customer service technology to ensure it delivers a superior experience. They built ‘Monzo Chat’ a bespoke software that allows customers to instantly chat in-app with a representative 24 hours a day, 7 days a week. To support this, Monzo created a Las Vegas office to ensure it could provide out-of-hours support to the UK. This digital customer service is a major driver of Monzo’s higher NPS.
Lower Cost Base
Given its digital-only model, Monzo has a significantly leaner operation vs. traditional banks. Traditional banks’ branch networks account for c.30% of their cost base, with an additional 20% for IT – a large proportion of which is spent on legacy IT systems (see Figure E). Given Monzo has no branches and is not burdened with legacy IT, they can use this cost advantage to further invest in their technology.
Figure E–Traditional Bank Cost Structure
Incumbent Reponse: Imitation, the Ultimate Form of Flattery
Incumbents have struggled to combat Monzo’s rise. Many have tried to invest in their own technology, but their size has meant the speed of progress has been slow. Even today, nearly 50% of UK consumers say that they’re dissatisfied with the digital services of their current bank. In an effort to remain cost competitive, incumbents have closed one-third of UK banking branches since 2015, equating to 3,303 closures.
Some incumbents have also tried to imitate Monzo’s model. RBS reportedly considered an acquisition of Monzo in 2017, but scoffed at the price tag. Between then and now, RBS has spent £100m to build its own digital-only bank, Bó, which only launched in November 2019 after 2 years of preparation. However, by all accounts, it’s not going very well: 3 months after Bó’s launch, Mark Bailie, the Project Lead, left the business.
Monzo is a clear winner over UK incumbents. It has disrupted the traditional branch banking model and used technology to offer a vastly superior experience to customers. I believe that incumbents aren’t well-positioned to catch-up anytime soon, so Monzo is here to stay. As mentioned, Monzo has recently launched in the US – if I were a US incumbent, I’d be very worried.
 Customer Guru. “Track Segmented Customer Satisfaction”. Retrieved from: https://customer.guru/
 Monzo Website. “3,000,000 people are now using Monzo!”. 16 September 2019. Retrieved from: https://monzo.com/blog/2019/09/16/three-million
 Pay.uk. Current Account Switch Service Dashboard. Retrieved from: https://www.wearepay.uk/wp-content/uploads/2020/01/20200123-Current-Account-Switch-Service-Q4-Dashboard-2019.pdf
 Jumio. “Jumio, Monzo Partnership Grows to New Heights”. 2 May 2019. Retrieved from: https://www.jumio.com/about/press-releases/jumio-monzo-partnership-grows/
 Monzo. “Monzo Community Forum – Feedback & Ideas”. Retrieved from: https://community.monzo.com/c/feedback/35
 Monzo. “Introducing Monzo Chat”. 2 November 2018. Retrieved from: https://monzo.com/blog/2018/11/02/monzo-chat
 Mohan, Devie. “5 Reasons Why Consolidation of Fintech Ecosystem May Be Inevitable”. 11 July 2017. Retrieved from: https://thefinancialbrand.com/66307/fintech-digital-banking-consolidation-trends/
 Tesfaye, Mekebeb. “Banks that fail to deliver high-quality digital experiences risk significant customer attrition”. 11 April 2019. Retrieved from: https://www.businessinsider.com/uk-bank-customers-say-digital-services-key-to-loyalty-2019-4
 Gemmell, Katherine. “More than a third of bank branches axed in past four years”. 27 September 2019. Retrieved from: https://www.ft.com/content/c1164d2e-e11c-11e9-b112-9624ec9edc59
 Megaw, Nicholas. “Head of RBS’s digital lender Bó to step down”. 21 January 2020. Retrieved from: https://www.ft.com/content/ed00b3d4-3c57-11ea-a01a-bae547046735