Monzo needs to focus on what is essential to avoid the same fate as Xinja

Monzo will be the first major UK challenger to face the same fate as Xinja, which was recently forced out of the banking space, unless it changes its approach towards a more sustainable future, says GlobalData, a leading data and analytics company.

Katherine Long, Banking Analyst at GlobalData, comments: “It is easy to see in hindsight why Xinja failed in banking as any bank offering above-market deposit rates while not being able to deploy them back as loans was going to have problems. However, these are just symptoms of something bigger. Research from GlobalData’s report, ‘Beyond the Hype: Insight into Digital Challenger’, has shown that behind all of these problems was an underlying cause: the lack of focus on essential revenue-generating products, and the reluctance to incentivize customers to pursue mutually beneficial outcomes.

“Even recently, Xinja still had big plans for the kind of features it wanted to offer, including using data to personalize the banking experience. However, as interesting as a personalized feature sounds, it is a ‘nice to have’ – and not essential. Xinja did not prioritize early on, trying to create a sustainable future with revenue-generating products, and it was too late when it finally dawned that it needed personal loans and wealth services instead. However, Xinja is not the only bank to make this mistake, with several challengers also currently in this situation. Monzo, having woken up last year to this predicament, is struggling hard to get out.

“For Monzo, the problems are only slightly different – though not much better. By creating a leading current account product that generates practically no revenue, either from merchant or marketplace fees, its business has become an increasingly expensive charitable cause for the UK market. Moreover, while the bank has raised $717m of capital to help fund new products and cover a potentially lucrative US expansion, the result is annual losses of around £100m ($131m) that need to be dealt with now.”

Monzo’s response is to monetize with a range of premium accounts, combined with new restrictions on the free, basic version. However, with little appetite from UK consumers to pay for banking – and with Monzo not legally able to charge for accounts in the US – this direction seems misconceived.

Long adds: “While Monzo has done well to attract and engage with its customers, it threatens to throw that away by not concentrating on the essential. Instead of trying to sell what was once free, Monzo should focus on unit economics, bringing out and making the most of revenue-generating products such as loans and wealth services.

“The bank should also learn from the likes of Chime in the US, a company that has given low-income customers the tools to help them manage their money easier on conditions such as using their cards or receiving their monthly pay. Failure to learn from these examples will condemn Monzo to the same fate as Xinja.”

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