The Challenger is Challenged: Monzo to Lay off 120 Employees

June 28, 2020

2 min read

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What's going on here?

The online app-based challenger bank Monzo has announced plans to cut up to 8% of its workforce, or 120 employees, due to the economic downturn caused by the coronavirus crisis.

What does this mean?

Monzo is a mobile-only bank launched in 2015 to challenge the dominance of the UK’s established banking firms. It was seen by investors as a unicorn (a privately-owned technology start-up valued at over £1bn). As such, at the end of 2019, Monzo was in a strong position: a customer base of 4.2m, a valuation of over £2bn and plans to hire 500 extra staff in 2020.

But as with most companies, the economic downturn caused by the coronavirus has presented new challenges. 2020 has been a difficult time for Monzo, with the company seeing its valuation plummet by 40% just as it undertook its latest fundraising round (see our article here). Monzo has also furloughed around 300 staff under the UK government’s job retention scheme and senior executives will not take a salary for 12 months. Yet, it seems these measures have not been enough, and 120 staff will be made redundant to cut costs.

What's the big picture effect?

In recent years, fintech unicorns (once rare mythical creatures) seem to have dominated the investment world. Venture capitalists have utilised the low-interest rates since the 2008 financial crash to fund ‘The Next Big Thing’. Since 2009, the value of these deals has risen by 651%, resulting in huge fundraising for these startups and enormous valuations.  These valuations are often overblown with the companies making huge losses. When dissected by the public market, face reality and a huge correction (financial re-evaluation). WeWork’s IPO is the best example of such a market correction, (see our article here) and highlights the problem facing many unicorns. They are a company often under the control of a reckless founder chasing market dominance with next to no strategy using huge amounts of capital and worrying about losses later. 

Monzo is therefore not alone and this is a problem which faces most start-ups. Revolut, one of Monzo’s digital banking rivals, is also looking to cut costs for similar reasons. Some analysts are predicting that the coronavirus crisis will bring conventional economics back to the market, meaning valuations will be completed to prevent funding gaps and not drive growth. But investors have a long-term strategy. The recent financial setbacks for Monzo does not mean the end. This is a small adjustment to the new reality presented by coronavirus. 

Founded to challenge established norms,  Monzo certainly has a strategy and a growing customer base from which it can draw support. If it can prioritise overcoming the short-term economic challenges caused by the coronavirus its future looks bright.

Report written by Michael Johnson

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