If Monzo and Revolut’s annual results have shown one thing this week, it is the importance for these, and other challenger banks, to develop more lucrative revenue streams.
At Revolut, revenue is up but losses have tripled.
At Monzo, similarly, revenue is up and customers have nearly doubled their deposits with the bank. Yet, still, losses have doubled to £115m.
Clearly, the problem, faced by all challengers, was how to generate more income. The solution? Its paid-for account, Monzo Plus, was pulled out of early retirement and sent into the fray.
It is an optimistic move because, for the most part, the challenger banks have always struggled to change consumer behaviour and entice the public to pay for banking services.
What is Monzo Plus?
Monzo Plus is a paid-for account which was closed last September after just five months. This July, though, it was resurrected. This time there’s no talk of water bottles and merchandise but rather a focus on the benefits.
These include 1% interest on balances up to £2000, a holographic card, discounts with partner brands, one free deposit per month and £400 of free ATM withdrawals abroad per 30 days.
Last September Monzo was apologising and refunding money to customers. Now, ten months later, it reckons these, and a few other features of a Plus account, will convince them to pay £5 a month.
Revolut and Monese bid for travellers
This relaunch of Monzo Plus will pitch the bank directly against Revolut, the challenger synonymous with the drive to get customers to pay for banking.
Its Premium and Metal accounts cost £6.99 and £12.99 per month. Both are aimed at the travelling customer offering £400 and £800 of withdrawals from ATMs overseas each month, respectively.
Each also offers pre-booked access to airport lounges, overseas medical and travel delay insurance with metal adding 0.1% cashback on spending as well as the eponymous metal debit card.
It is a similar story at Monese with its Classic and Premium options at £5.95 and £14.95 respectively. Classic offers up to £9000 per month of spending abroad for free, while Premium removes this cap. Classic offers overseas transfers free between Monese users with a 0.5% charge for non-Monese customers. Premium offers free overseas transfers.
Will people pay for travel features?
The sweet spot for both these banks is people who travel regularly and so want access to travel lounges as well as a generous allowance for ATM withdrawals overseas.
The rather obvious problem here is the COVID-19 global pandemic. Attempting to lure in new customers with travel deals seems a harder sale as international travel plans are being largely put on the back burner.
It is worth noting that even a year ago, pre-COVID, just 5% of Revolut’s customers were estimated, by GlobalWebIndex, to be paying for a monthly fee for an account.
Is a paid-for account viable?
It may come as little surprise to hear, then, that Starling has not yet launched a paid-for account. Instead, at the end of June, the bank confirmed it is concentrating on lending. It is the only challenger to be registered for CBILS and Bounce Back loans aimed to help large and small businesses survive the COVID lockdown.
The bank, which makes a major point of listing ‘no fees’ as the top reason for banking with it, is also concentrating on everyday business and personal loans, as well as agreed overdrafts.
Likewise, Tandem and Atom are also concentrating on savings accounts and loans rather than trying to entice customers to subscribe to a current account with extra features.
It will be interesting to see next year, on the release of Monzo’s next annual figures, if the Plus account manages to last more than five months this time. Most revealing will be what proportion of customers are choosing to pay £5 a month for a different card and a selection of extra features.
The history on convincing UK banking customers to subscribe to a service has yet to gain much traction in a country where free banking has been taken for granted for generations.
(This article was first published in the FinTech Times, August 12, 2020)