Mondo Bizzarro: Monzo has £750m knocked off its £2bn price tag

June 2, 2020

2 min read

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What's going on here?

Leading UK digital bank Monzo has its valuation reduced 40% in its latest fundraising round.

What does this mean?

The mobile-only, challenger bank (smaller, recently-launched banks aiming to challenge the dominance of the long-established banking giants) with 3.6m customers, boasts the title of the most switched-to current account.  Its high customer satisfaction is unchallenged;  however it has seen transaction fees nosedive since lockdown.  Monzo has furloughed staff and its CEO sacrificed his annual salary. 

Its fundraising aim was reduced to £70-80m (from £130m) in its “Series G” fundraising round, with its valuation sitting at £1.25bn, down from £2bn last June.  Scheduled to be finalised in the next few weeks, the round aims to see Monzo into Q32021, when it projects moving closer to profitability.  Most funding will be provided by existing investors, rather than new ones, including US venture capital groups and one UK-based group. 

What's the big picture effect?

It’s clear Monzo is able to challenge traditional incumbents as well as its digital peers.  German digital bank N26 pulled out of the UK market after struggling to compete with Monzo – as did Bó, RBS’s own challenge to Monzo (see our article here).  A 40% reduction is an unsurprising result which doesn’t necessarily reflect unique challenges.  A growing number of tech start-ups, including its publicly listed peers in the FTSE 350 Banks index, have suffered 40% reduced valuations, adjusting in recent weeks in line with COVID-19 markets.   

This downward pressure, together with existing concerns about organic growth – “challenger bank fatigue” – left investors weary of “fintech unicorns” (privately owned start-ups with £1bn valuations).  Monzo’s £2bn price tag was described as overly optimistic.  Slow growth in lockdown has made venture capitalists (VCs) even more cautious to invest in loss-making businesses like Monzo, which has been propped up by tech investors.  The pressure is on Monzo to prove self-sustaining growth, whose data on average balances, activation and dormancy rates will face intense scrutiny.  

Additionally, institutional investors are increasingly shifting their attention away from the business-to-customer (B2C) tech Monzo offers in favour of banking-as-a-service (BaaS) technology.  BaaS tech favours collaboration with legacy banks, offering instead to integrate their digital banking services into larger, legacy banks’ own products. Have B2C digital banks been overvalued? Are we seeing the early signs of a fintech bubble? The future of tech innovation certainly lies in digital banks offering BaaS, with access to much wider customer bases and far larger revenue streams.  Yet down rounds aren’t a reliable indicator of a company’s future.  Monzo still plans to expand into the US within 2 years and has recently launched its business accounts, aimed at sole traders and SMEs.  One of its features, Tax Pots, allows a percentage of incoming payments to be put aside for future tax bills.  The simple but powerful tool has received excellent feedback from Monzo’s business customers. This valuation drop does not spell the end of the road for Monzo:  it’s just an adjustment to the markets of COVID-19. 

Report written by Sophie Belcher

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