Monzo increases bad loan provisions after buy now, pay later push

Monzo has increased its provisions against bad loans from £14mn to £101mn after the UK digital bank concentrated its focus on consumer lending and expanded further into buy now, pay later last year.

The UK fintech said on Wednesday that its revenue had more than doubled to £355.6mn over the year to the end of February, driven by higher interest rates on its deposits and its lending book tripling to £759.7mn.

However, the bank made a pre-tax loss of £116mn in the same period in part due to the rapid increase in lending forcing it to expand its provisions for potential bad loans.

Lending to customers using Monzo Flex, the buy now, pay later service which the bank first launched in September 2021, increased sixfold to £169.3mn, representing more than a fifth of its overall book, compared with 10 per cent in the previous year.

“Obviously with a loan book growing as more customers take those products from us, expected credit losses grow alongside that,” said chief executive TS Anil. “The book has behaved incredibly well through the last year. Our goal with the lending business is to really build it for the long term.”

Anil said the bank did make an unspecified profit in March and still expected to hit annual profitability next year.

Staff costs rose, increasing by 35 per cent to £175.3mn as the company added 553 staff to reach a headcount of 2,432 by the end of February.

Monzo was last valued at $4.5bn in December 2021 when it raised $500mn in a funding round led by Abu Dhabi Growth Fund. The price tag puts it ahead of fellow digital bank Starling, valued at $2.5bn, but significantly behind the $33bn that UK fintech Revolut secured in 2022.

Since then, the tide has turned against fast growing, cash hungry companies. Klarna, once Europe’s most valuable private fintech, had its valuation slashed from $46bn in June 2021 to less than $7bn last July.

Starling’s chief executive Anne Boden, who announced last week that she would be stepping down as chief executive at the bank she founded in 2014, said the market for initial public offerings was closed and that the bank would wait for the macroeconomic environment to settle before attempting to float.

Anil said Monzo did not have plans for an IPO at present and that it was focused on building the business. He said the next product it was likely to launch would be an investment platform for retail investors looking to trade stocks — an increasingly crowded space, with players including Revolut, Freetrade and Nutmeg, integrated with JPMorgan’s Chase UK.

Anil also said that as the bank was now profitable it was not currently looking at more investment, but said it would wait to raise more money “at the right time” if it saw a need.

Monzo also disclosed on Wednesday that the Financial Conduct Authority’s investigation into potential breaches of rules around anti-money laundering and financial crime systems between October 2018 and June 2022 was continuing.

The bank said it “continue[d] to co-operate with the FCA in their investigation”.