The Mastercard debit card from UK digital bank Monzo.
Menzo
Monzo said on Wednesday it was profitable for the first time this year, a major milestone for one of Britain’s best-known digital banks.
In its annual report to February 2023, Monzo posted net operating income of 214.5 million pounds ($266.1 million), almost double the 114 million pounds it earned a year earlier.
Still, the bank’s losses amounted to £116.3 million – although that was slightly lower than the £119 million net loss Monzo reported in 2022.
Still, the company was profitable in the first two months of the year.
In its annual report, Chief Financial Officer James Davies said Monzo “is now a business with diversified and stable revenues from a large and growing customer base of individuals and businesses.”
“Profitability is always an option as we balance continued investment in growth with profitability,” Monzo CEO TS Anil told CNBC in an interview. “We could have chosen to be profitable a few quarters ago.”
Monzo is not the first digital bank to turn a profit. Starling Bank will reach this milestone for the first time in 2021. Fintech fellow Allica Bank Reach monthly profitability last year.
Monzo’s earnings were largely attributable to a surge in revenue from new revenue items such as loans and subscriptions. Paid accounts now total 350,000.
Monzo declined to say how much profit it is currently making. The company said it is on track to be profitable for the full year by the end of 2024.
loan growth
Monzo’s strong revenue performance was helped by a bumper year for its lending business. This comes against a backdrop of pain for British consumers, who are grappling with a dire cost-of-living crisis as inflation soars.
Gross loans nearly tripled year-on-year to £759.7m, while net interest income soared 382% to £164.2m. This is due to the significant growth in usage of overdrafts, unsecured personal loans and Monzo Flex.
However, credit losses also rose sharply as the bank set aside large amounts of capital to deal with a sharp rise in expected default rates. Credit losses surged to £101.2m, a more than sevenfold increase from £14m in 2022.
That comes as consumers increasingly turn to unsecured credit such as credit cards and personal loans to offset rising living costs. UK household debt topped 2 trillion pounds for the first time in January, according to research by consultancy PwC.
Monzo’s boss has questioned the cost of living crisis contributing to its earnings performance.
“The cost of living crisis is painful for everyone, but it really highlights the way that Monzo’s product is very strong,” Anil told CNBC.
The rising cost of living has affected how people use Monzo products, with usage of its piggy bank and budgeting tool also on the rise, he added.
In the meantime, Monzo said it would continue to work with the Financial Conduct Authority regulator on its ongoing investigation into the company’s alleged breaches of anti-money laundering laws.
“We expect this will take time to resolve,” Monzo said. “This could have a negative impact on our financial position, but we don’t know when and what that outcome will be.”
UK ‘didn’t stop us’
The fintech industry has come under increased scrutiny as it has gained prominence following the Covid outbreak in 2020.
From Revolut to N26, major digital banks are under intense scrutiny from regulators.Revolut’s banking license application will reportedly be rejected by the Bank of England telegraph.
Many tech bosses are skeptical of Britain’s efforts to become a global technology power after apparent setbacks, including Cambridge-based chip designer Arm’s decision to list in New York rather than London.
Revolut Chief Executive Nik Storonsky said earlier this month that his company encountered “extreme bureaucracy” in applying for a banking license in the UK and said he would never list in the country. Meanwhile, Monzo co-founder Tom Blomfield left London for San Francisco, citing a “more accepting” environment for tech founders.
“From our point of view, this is the country where we are licensed, this is our home market; we clearly know this is where we can build a business of scale,” says Monzo’s Anil. “It’s not holding us back, I don’t think so at all.”
Monzo currently has 7.4 million customers in the UK, making it the seventh largest bank in the UK by number of customers. Total customer deposits currently stand at £6 billion.