- Monzo reported net operating income of £214.5 million ($266.1 million) in the year ending February 2023, almost doubling its results from the previous year.
- One of the UK’s best-known digital banks, Monzo managed to break even in the first two months of the year.
- The increase in income was driven by a surge in lending activity, with net interest income up 382% to £164.2m.
Mastercard debit card from UK digital bank Monzo.
Monzo
Monzo on Wednesday said it had reached profitability for the first time this year, a major milestone for one of the UK’s best-known digital banks.
In its annual report for the year ending February 2023, Monzo reported net operating income of £214.5 million ($266.1 million), almost double the year-on-year figure of £114 million.
However, losses at the bank totaled a substantial £116.3m — although this was slightly lower than the £119m net loss reported by Monzo in 2022.
Still, the company managed to break even in the first two months of the year.
In its annual report, chief financial officer James Davis said Monzo “is now a diversified and stabilizing revenue business from a large and growing base of personal and business customers.”
“Profitability has always been a choice as we balance continuing to invest in growth with profitability,” Monzo CEO TS Anil said in an interview with CNBC. “We could have chosen to be profitable a few quarters ago.”
Monzo is not the first digital bank to reach profitability. Starling Bank reached this milestone for the first time in 2021. Fellow fintech Allica Bank reached monthly profitability last year.
Monzo’s move into the black was largely due to a significant increase in revenue from newer revenues such as loans and subscriptions. Paid accounts now total 350,000.
Monzo declined to share a figure on how much profit it currently makes. The firm said it was on track to reach full-year profitability by the end of 2024.
Monzo’s strong revenue performance was driven by a great year for its lending business. It came amid pain for UK consumers struggling with a severe cost-of-living crisis as inflation rises.
Total lending reached £759.7m, almost tripling year-on-year, while net interest income jumped 382% to £164.2m. This has come as the use of overdrafts, unsecured personal loans and the buy-now-pay-later Monzo Flex service has soared.
Yet credit losses also rose sharply as the bank set aside a mountain of funds to deal with a sharp rise in expected defaults. Loan losses swelled to £101.2m, a more than sevenfold increase from £14m in 2022.
This comes as consumers increasingly turn to unsecured credit, such as credit cards and personal loans, to offset the impact of rising living costs. Research by consulting firm PwC shows UK household debt topped £2 trillion for the first time in January.
Monzo’s boss disputed that the cost-of-living crisis had contributed to the revenue performance.
“The cost of living crisis was painful for everyone, but it really highlighted the ways in which the Monzo product is incredibly powerful,” Anil told CNBC.
He added that the rising cost of living is impacting how people use Monzo’s products, with increased use of its savings and budgeting tools.
Meanwhile, Monzo said it continues to work with the Financial Conduct Authority regulator on an ongoing investigation into the company’s alleged breaches of anti-money laundering laws.
“We expect it will take time to resolve,” Monzo said. “This could have a negative impact on our financial position, but we won’t know when or what the outcome will be for some time.”
The fintech sector has come under increasing scrutiny since it rose to prominence following the 2020 Covid outbreak.
Big digital banks, from Revolut to N26, are getting increased attention from regulators. Revolut will reportedly reject its application for a banking license from the Bank of England, according to the Telegraph.
A number of tech chiefs have expressed doubts about the UK’s bid to become a global tech power amid notable setbacks, including the decision by Cambridge-based chip design firm Arm to list in New York rather than London.
Revolut chief executive Nick Storonsky said earlier this month that his firm faced “extreme red tape” in its attempt to apply for a UK banking license and said it would never list in the country. Meanwhile, Monzo co-founder Tom Blomfield left London for San Francisco, citing a “much more accepting” environment for tech founders.
“From our point of view, it’s a country where we got a license, it’s our home market; we clearly learned that this is where we can build a business at scale,” said Monzo’s Anil. “It doesn’t stop us, I don’t think so at all.”
Monzo now has 7.4 million UK customers, making it the UK’s seventh largest bank by customer base. Total customer deposits now stand at £6 billion.