Digital bank Monzo has reported its first annual profit since launching almost a decade ago, as the London-based fintech benefited from higher interest rates and growth in transaction fees and subscriptions.
The neobank, founded in 2015, reported pre-tax profits of £15.4 million in the year to the end of March, compared with a loss of £116.3 million the year before. Revenues more than doubled to £880m in the period, while the fintech’s net interest income – the difference between what banks pay in deposits and what they earn on loans – rose 167 per cent to £438m thanks to higher interest rates .
Monzo’s sales were also boosted by transaction fees, with net transaction revenue rising by £60.9 million to £167 million, despite customers spending less abroad due to the cost of living. Revenue from its subscription plans, including Monzo Plus, Monzo Premium and Monzo Business, grew to £27.4 million, up from £19.5 million the previous year.
“We are a rare company that has achieved scale, growth and profitability, and we have done just that. . . the right amount of capital to seize the opportunity before us,” said Managing Director TS Anil.
Monzo said its lending portfolio had grown by 84 percent to £1.4 billion, made up of overdrafts, unsecured personal loans and Monzo Flex, the ‘buy now, pay later’ credit card used by 500,000 customers.
However, alongside this increase, the neobank increased its provisions for expected credit losses from £101.2m to £176.9m as more of its customers struggled to make repayments 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 not be able to repay us, which could result in lower transaction revenues and higher [expected credit losses]” said Chief Financial Officer James Davies.
Anil emphasized that Monzo, which lends less than 15 percent of its balance sheet, was “incredibly disciplined with our lending.” The neobank said it had “taken steps to update our credit underwriting in light of loss experiences” and would continue to review “the lending criteria, our risk appetite and the way our models perform.”
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 secured a £489.5m funding round this year led by Alphabet’s investment fund CapitalG, which gave it a valuation of more than £4bn.
Monzo also said it had started opening accounts for “politically exposed persons” – government officials who are at greater risk of bribery and corruption. This comes after Chancellor Jeremy Hunt said last year he had been refused an account with the neobank.
The fintech, which has struggled to grow its anti-financial crime capabilities as quickly as its customer base, said it was told in November that Britain’s top financial regulator was no longer assessing criminal liability related to the compliance with money laundering regulations. the civil investigation is still ongoing.
Monzo’s deposits rose 88 percent to £11.2 billion, with average revenue per user for personal customers rising to £145, up from £112 the year before. The rise comes as UK neobanks come under pressure to attract a greater share of customer money in order to access funding to lend at scale.
“I find it flattering that we are compared to large banks that have been around much longer,” says Anil. “It shows that we are a major player here and that we are building a business for all ages. . . with a huge runway in front of us.”
This story has been updated since it was first published to clarify the status of an investigation by the UK financial regulator