Digital bank Monzo reports first annual profit

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 growth in transaction fees and subscriptions.

The neobank, founded in 2015, reported a £15.4mn pre-tax profit in the year to the end of March, up from a £116.3mn loss the year before. Revenue more than doubled in the period to £880mn, as the fintech’s net interest income — the difference between what banks pay on deposits and what they earn from loans — rose 167 per cent to £438mn thanks to higher interest rates.

Monzo’s revenue was also boosted by transaction fees, with net transaction income growing by £60.9mn to £167mn 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 grew to £27.4mn, up from £19.5mn the previous year.

“We’re a rare company that has delivered scale, growth and profitability and we have . . . the right amount of capital to go after the opportunity ahead of us,” said chief executive TS Anil.

Monzo said its loan book had grown 84 per cent to £1.4bn, comprising overdrafts, unsecured personal loans and Monzo Flex, its buy now, pay later credit card used by 500,000 customers.

However alongside that increase, the neobank raised its provisions for expected credit losses to £176.9mn, up from £101.2mn as more of its customers struggled to make repayments and fell into arrears. The bank said it expected the provisions for credit losses to continue to grow.

“Global unrest, inflation and interest rates remain high. All of these factors increase the financial pressure on our customers’ disposable incomes and the risk they’re unable to repay us, which could result in lower transaction revenues and higher [expected credit losses],” said chief financial officer James Davies.

Anil insisted that Monzo, which lends less than 15 per cent 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 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 £489.5mn funding round led by Alphabet’s investment fund CapitalG that gave it a valuation of more than £4bn.

Monzo also said it had started to open accounts for “politically exposed persons” — public officials seen at higher risk of bribery and corruption. This comes after chancellor Jeremy Hunt last year said he had been refused an account at the neobank.

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 top financial regulator was no longer assessing criminal liability relating to its compliance with money laundering regulations, though a civil probe is ongoing.

Monzo’s deposit balances rose 88 per cent to £11.2bn, with average revenue per user for personal customers rising to £145, from £112 the previous year. The increase comes as UK neobanks come under pressure to attract a higher chunk of customers’ money in order to access funding to lend at scale.

“It’s flattering to me that we get compared to big banks that have been around for much longer,” said Anil. “It establishes that we’re a player here at scale and we’re building a company for the ages . . . with a huge runway ahead of us.”

This story has been amended since initial publication to clarify the status of a probe by the UK financial regulator