Monzo have just published their annual report and inside are some very serious issues.
Monzo have made a record loss - a record they update on an annual basis.
And even worse than that is the fact that their revenues are not growing.
Monzo's lending business contracted over the last 12 months rather than expand.
And Monzo's paid products have contributed £2 million in gross profit to the P&L - that's incredibly low for a company that spent $200 million on costs.
The only revenue stream that is growing is interchange, but it is growing slower than the costs are rising.
Monzo's Directors acknowledge the issue and have said that there is a significant risk to Monzo's ability to continue operating.
But the Auditors have made a much stronger statement.
The auditors have stated that "a material uncertainty exists that may cast significant doubt on the group’s ability to continue as a going concern for a period of twelve months."
The future for Monzo looks bleak based on this report. I really hope they can change their direction, but it certainly isn't looking promising.
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Monzo have made a record loss - a record they update on an annual basis.
And even worse than that is the fact that their revenues are not growing.
Monzo's lending business contracted over the last 12 months rather than expand.
And Monzo's paid products have contributed £2 million in gross profit to the P&L - that's incredibly low for a company that spent $200 million on costs.
The only revenue stream that is growing is interchange, but it is growing slower than the costs are rising.
Monzo's Directors acknowledge the issue and have said that there is a significant risk to Monzo's ability to continue operating.
But the Auditors have made a much stronger statement.
The auditors have stated that "a material uncertainty exists that may cast significant doubt on the group’s ability to continue as a going concern for a period of twelve months."
The future for Monzo looks bleak based on this report. I really hope they can change their direction, but it certainly isn't looking promising.
💵 GREAT INVESTING APPS I USE
GET A FREE SHARE WORTH UP TO $150 WITH STAKE (UK, Australia, NZ)
https://hellostake.pxf.io/qnA3xq
You will get a free share if you sign up using this link and deposit a minimum of £50.
GET A FREE SHARE WORTH UP TO £200 WITH FREETRADE (UK ONLY)
https://magic.freetrade.io/join/sasha-yanshin
You need to sign up and make any deposit to get the free share.
SIGN UP FOR ETORO (Global)
https://med.etoro.com/B15358_A95689_TClick_SSasha.aspx
67% of retail investor accounts lose money when trading CFDs with this provider. Your capital is at risk. Other fees may apply.
👍 SUBSCRIBE TO MY CHANNEL
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DISCLAIMER: Some of these links may be affiliate links. If you purchase a product or service using one of these links, I will receive a small commission from the seller. There will be no additional charge for you.
DISCLAIMER: I am not a financial advisor and this is not a financial advice channel. All information is provided strictly for educational purposes. It does not take into account anybody's specific circumstances or situation. If you are making investment or other financial management decisions and require advice, please consult a suitably qualified licensed professional.
Hey guys, it's sasha monzo have just published their annual report and they are in real serious trouble. Monzo is a popular challenger bank in the uk that has grown incredibly fast in recent years, but financially things are really not looking good. As i'm recording this video. I haven't seen anybody else report on this and i don't think monzo have made any public announcements.
I am on a press distribution list. However, i looked up module report on google and went to their website and just changed 2020 to 2021 and hey presto. It was all there i am guessing. This will be announced pretty soon.
I am showing you the numbers in this report, but first, let's look at their public statements. These are important. According to the website, everything has been great. Look.
Their website says that the growth has been phenomenal. In their words, they have five million over five million customers, which is awesome, and the deposits have increased by more than a factor of two there's a load of other stats. If you scroll down the number of pots created and spend on cards, etc, etc, but there's no mention of whether the bank is making a profit, hmm interesting. Luckily, at the bottom there is a little button to download the actual report.
So here is what it says in the report. I read through the whole thing: it is pretty long um, so there's a load of mumbo jumbo in it feel free to go and look at it if you want to yourself, but i'm going to jump straight to the most critical parts. First, let's look at monzo's p, l monzo made 62.2 million pounds in operating income in the last financial year to february 2021 and they spend 192.2 million pounds on costs, which means the bank lost 130 million pounds. That is huge.
Their loss is more than twice the total revenue. Their costs are more than three times their revenue. This is really not particularly good. The revenues have actually increased from last year, so that is good and i'm going to cover that in just a second, because it's not as good as it might seem, but so have the cost.
The costs have also gone up. The costs in fact, have gone up by over 40 million pounds by more than the revenues have. The company is spending money like no tomorrow, and the losses are really beginning to add up and here's a really important bit look at their interest. Income line they've actually made less in interest income in the last financial year than they did in the previous one in 2020..
That is really really bad, because this is where their money should be coming from. In fact, their total income across the whole business of 62.2 million pounds is only about 12 pounds per customer. That's income, not profit. That is incredibly low and lending is how financial companies, such as banks, make their money, and unfortunately, it looks like monzo haven't figured out how to actually do lending profitably, because in the last year their revenue from lending has actually dropped.
So they are not doing as much, and certainly the performance is not there. Now they have a few months ago changed their loans to look more like the typical high street bank in terms of structure and pricing, and i am sure that there's been a lot of pausing of people's loans during the past year etc. But still, despite all this, it is not looking good, but they are pricing loans under seven thousand pounds at twenty two point: two percent apr and loans over seven thousand pounds at seven point: two percent: those are pretty expensive terms and i'm not convinced that this will Be the solution that helps them turn a profit. In fact, their own auditors are really not convinced. Last year the auditors raised some concerns that i covered at the time this year. It is much much worse. Let me tell you how much worse it is here is what the monzo directors themselves say about their views on this. On page 99 of the report, i'm gon na quote our directors have assessed our ability to continue as a growing concern and are satisfied that we have the resources to continue for the foreseeable future.
But there is a risk. We won't be able to execute our business plan which could impact your ability to generate a profit or raise enough capital to meet future regulatory capital requirements. Because of these obstacles, the directors recognize there continue to be material uncertainties which may challenge our ability to continue as a going concern, but the directors do remain confident in our ability to achieve our business plan and raise capital if necessary. For those reasons, we've continued to prepare the financial statements on a going concerned basis see the director's report for more detail, so the directors legally have to disclose that they think there are issues they are playing it down, though they are saying that they are material uncertainties Which may challenge monza's ability to continue to operate, but they reckon that they can continue raising money from investors to fund the business.
So it's not that big a deal, and they have done very well with funding for sure they have been raising huge amounts of money. In recent funding rounds and recently revolute had a huge funding round, so there's plenty of money flowing into fintech. Anyway, let's look at what the auditors had to say because their report is in here as well. By the way, those auditors got paid 2.4 million pounds for doing the audit.
It's it's in the report. That's four percent of the total annual revenue for monzo, that's pretty expensive right anyway. So here's what the auditors say on page 77., we draw attention to the basis of preparation in note one in the financial statements which indicates that the ability of the group to continue as a growing concern is subject to material uncertainty. I'm quoting here the group is expected to continue to be loss making over 12 months from the date addition to the financial statements and will not be able to meet its regulatory capital requirements without raising additional capital as undertaken in prior years. This is critical. They have to raise funds just to be able to operate and meet their basic financial requirements. Let's continue reading, as stated in note 1. These conditions indicate that a material uncertainty exists that may cast significant doubt on the group's ability to continue as a going concern for a period of 12 months from when the financial statements are authorized for issue.
Our opinion is not modified in respect to this matter, so the auditors are saying that they think there is a material uncertainty which may cast significant doubt on the group's ability to continue as a going concern for a period of 12 months. The audiences are saying that they think there is a significant risk that monzo will fail, not just fail at any moment, but in the next 12 months in monsoo's own annual report. The auditors actually said the exact same thing last year and that's what i think the media gon na pick up on the saying nothing's changed, but there are two really crucial differences which i notice, which i think the others might not. Last year's report did not have the 12 months, including in this included in the statement.
The auditor said that they have concerns and the wording was the same except for that bit at the end about the 12 months. It did not state a time frame this year. They have said their concerns are for the next year. This is extremely serious, and the second point is that last year the statement was made, and that was that then they moved on to the other part of the auditor's statement this year.
The auditors then spent a whole page after this statement explaining why they agreed that they chose to agree with the directors that the business is a going concern. There's a lot of stuff in here, which basically sounds like the auditors are just trying to protect themselves. If monso does go insolvent, they're saying we think there's a huge risk, but we do agree with the directors that the business is still viable by agreeing that the business is going, concern they're saying that they still think it is solvent. But then they have a whole page of reasons.
Why, based on what the directors have told them, and at the end of all that, they then say our responsibilities and the responsibilities. The directors with respect to going concern are described in the relevant sections of this report. However, because not all future events, conditions can be predicted. This statement is not a guarantee as to the group's ability to continue as a going concern.
So basically they are saying: okay, we'll say you're a solvent just because you're paying us a load of money because we agree with you. You know nothing to do with the money, but don't come blaming us if it turns out that monzo is actually not solvent. We've put it all down on paper here, not our fault, it's difficult to see where monster can actually make a profit they're. Looking in the numbers, their lending business is clearly not working. It's not been working for a few years now and there are issues based on the numbers uh with their ability to actually make proper profit from that they're. Putting on a brave face and they're saying that their bank accounts, the paid bank accounts are doing really. Well. That's where they're gon na be making a lot of money and on the website.
If you look on the big html thing, they say that their annual run rate and revenue grew to 105 million pounds by december 2020. So they're saying that you know the revenue is growing and eventually it's going to be all good and dandy. But here are the questions that i don't see an answer to here. The run rate of 105 million pounds is still 100 million short of just breaking.
Even for the business so that, even if that was the run rate for the whole year, that would still be an extremely poor result and given the annual report runs to the end of february, why did they choose specifically to exclude january and february on that graph? Why does it cut off in december, given this as an annual report that runs to the end of february, and it is published only in july, what stopped them from being able to publish those two last numbers? Why did it happen that monza don't want to show what happened in january and february for those numbers? The graph also doesn't have any scale, it's impossible to tell whether it's even real numbers or just a graphic again very, very odd, to include it and show it like that, because it kind of sounds like they don't want to be telling you what is actually happening In that graph, and if we look on page 102 of the report out of the 42 million pounds in revenue that came from fees and commission, which is the big growth story in this report, out of that, only 11.4 million came from banking services income. The paid products, i presume because 40 million came from interchange, which is the fees paid by customers using their cards and shops and the rest came from partnerships, basically selling customers, third-party products by other people and getting paid the commission for it. But look the cost of the banking services is 9.3 million pounds, so all of these paid products that they make such a big deal out of only made two million pounds for them last year before the operational cost. That's just in essentially gross profit.
That's about one percent of the total cost of operating the bank, one percent on their front page they're, probably displaying that 25 percent of the revenue is from these new products. That's all dandy, it all sounds good, but unfortunately, revenue and profit are entirely different things and the numbers are showing a much more bleak story. So the only thing that is really growing for monzo at the moment is interchange customers using their cars in shops and a small fraction of those transactions going to monzo as a fee, and at the moment interchange is earning them 37 million pounds a year in gross Profit before taking account the rest of the bank operating costs, but that's with over 5 million customers already. So how much further can it realistically grow and presumably, if more, customers join and existing customers maybe even spend more the operating cost? The cost of running the business will also increase, but monzo have to increase that interchange by 350 percent just to break even and that's quite unlikely to happen anytime soon. Certainly, the interchange is not growing at that sort of rate over the last 12 months and the likelihood is going to take them years before it reaches those sort of levels. If everything goes well, so the likelihood is that monza will go and collect more funding soon. They're going to have to raise more funds in order to make it through it looks like there is plenty of investor money floating around. The question is whether those investors want to continue investing in the bank that are showing no signs of trying to make any money and given monzo have already had a huge number of funding rounds.
How much equity is there to go around and to spread and how much do existing shareholders want to dilute to go and raise funds? Some people think that monza might do an ipo. There's been a few articles about it recently, but that has trouble all over it. Imagine a company going public when their own auditors are saying that there is a significant risk that that company might fail in the next 12 months. We'll have to see what happens, but it certainly is not looking good for monzo.
They need to figure out how to make revenue and lending is the most likely way out for them. That's how most language services companies make money, that's how banks make money, but they don't seem to actually know how to grow. That side of the business they're. Certainly not showing it over the last couple of years.
I really really sincerely hope that monzo do figure it out. We need new thinking. We need new challenge banks like monzo to disrupt the high street banks. They are doing really good stuff on the marketing front.
They're doing really good stuff on some of the product side of things, but disruption has to be commercially viable and at the moment monzo just does not look at all commercially viable.
What the hell are they spending all that money on they don’t have any physical locations the most expensive thing they would have to pay for is the customer support staff but even that shouldn’t gross over £2m for a huge team on 20k /y server costs can’t be that much either
hi there i’ve just started using monzo and am confused. it says I have £20 in my current account yet £200 of £500 left to spend. what does this mean, can you help ?
They have the best of app as compared to all virtual and traditional banks but About 4 months ago , they notified me that my account was going to be closed because I have breached some kind of shit . Meanwhile I was using my account for my PAYE and also using for transportation fares and groceries. So I was soo pissed .
It was then I realised that what you said sometime Earlier in your videos that Monzo was getting into deep shit some time to come .
Mate, do you still recommend subscribe Monzo premium for its phone insurance?
They should include a crypto platform just like Revolut. It will change everything
Ah dam!!! I wanted to set up account specifically for crypto because high street banks are flakey when it comes to Crypto.
Monzo has almost 5 million loyal customers so I'm thinking of signing up to them! Monzo will keep getting more popular and I hope they will be safe. I've spoken to somebody about monzo and they are very happy with it so keep thinking positive things on this bank!
It will have a very bright future!
They decide to suspend my account without any reason, and said that they can't tell me why!
Do you think Monzo customers should get out whilst they can or do you think it'll be okay?
I don't like this video because you have done such a good job explaining then problems. I am a MASSIVE monzo fan. I want them to succeed as using the app has help myself and my family understand banking better. Most of my friends and family are using minzo and we are all over 35.
Good video will done. I will be investing to support it.
Is my money in monzo safe? I have quite the savings and would hate to lose them. Thanks
Love Monzo, wish they'd either offer a credit card, or JP Morgan buy them and rebrand to Chase instead or starting from scratch.
7% and 22% ?!!! – zero interest rates – am I a joke to you Monzo??
Thanks for the heads up! Is Starling bank doing better than Monzo? I signed up to that one too, and will probably move away from Monzo given their finances.
I wish you the best with your channel. I enjoyed watching the video, but in this case I believe the analysis was a bit reactionary and I don’t think the model you’re applying fits this business.
I think the most you can say is that they overstretched for the purpose of ambitious growth. Their COC is actually amazing for the industry. To extrapolate to the notion that they don’t know how to or can’t monetise their business on the basis that they haven’t is a stretch. I can see why the business felt a need to scale (at risk) when the regulatory landscape tends to favour bigger banks after a certain point.
Try comparing Monzo to a similarly sized bank (customer count), TSB, for cost per account — I think this is Monzo’s intrinsic advantage.
It would be unreasonable to expect them to be remotely this profitable if it were either a tech company or a bank, so I don’t understand why you’re holding it to this arbitrary standard. Are there similar businesses from past we can use as case studies (I appreciate that regulations to benefit startup banks have changed things)?
User experience is top notch. But to be honest, if other banks offered similar features I might stick with them.
Just to point out the "Monzo is in trouble". Why would you want to make profit at all? If you do so, you pay taxes and you lose cashflow. Why is it bad to raise funds when it is nearly at 0% interest? I am confident they are not in trouble, borrowing cheap and lending/investing elsewhere. Food for thought.
Lots of comments saying how good Monzo are. Thats because they are not acting like a Bank. If it were , it would try to make Money. It would charge more & then people would stop liking it so much. Its been a Social experiment & will be bought for £1 by lloyds banking group within 18 months
Hey! I love my monzo account and love how ya can get all the pots. If monzo is to fail, is there a bank u would recommend Instead? Thanks!!
I had a Monzo account until they removed unlimited foreign fee-free withdrawals, couldn't see the point after that – Starling on the other hand..
One thing you haven't mentioned is that Monzo is fully FSCS protected. In other words, even if the bank did have to close, there is no risk to customers unless they have deposits over £85,000. Whilst there are certainly things Monzo need to worry about as a business, there is no reason for customers to worry about banking with them.
Yes they refuse to offer overdrafts and loans to me jus like every other bank yet over 3-4years every month £1800 minimum gets deposited yet I’m not eligible for an overdraft or a loan but pass credit checks with other banks strange and messed up
This is pure scare mongery and irresponsible of you not to mention that monzo's customer's money is protected by FSCS up to £85,000 even if Monzo was to go bust. All your article is doing is adding fuel to the fire and causing some people to take action and remove their money and custom from monzo thus exacerbating the problem further.
Briiliant research and insight!-thanks! How's Starling doing in comparison?
People like their app and features. I think they should charge for all their accounts. Maybe £2 a month for a basic current account.
All auditors have been asked to to perform due diligence on their audit reports for companies for 2020 and beyond. The outbreak of Covid19 means that all companies have the potential to be threatened by the pandemic. This has meant that there are additional criteria and checks in place to ensure the stat accounts includes additional information to potential investors about this.
It might be worth checking several other stat accounts for 2020 to see if the wording includes 12 months as opposed to just a going concern.
DO – NOT – SIGNUP – FOR A MONZO ACCOUNT!
I am a UK citizen with a perfect credit score, six figures in savings, NEVER had debts, etc. After wasting a bunch of time applying for and account with Monzo, and them taking, and storing on their servers, video identification of me including a copy of my passport. I finally get a popup message saying "we can't offer you a Monzo account. We're afraid we cant go into more detail". Really!…they are just going to take all my personal info and say bye with no reason?
Thanks for the honest review … Am really wanting to join Monzo for the crypto because Uk banks are giving not interest because of their platform. I cannot find anything else in the Uk working with crypto (except paypal!) … any ideas where to buy and sell plse crypto ?? plse reply here. Thanks for a great video (only just found you) subbed
Sasha "the guy who reads all the fine print so we don't have to" Yanshin
As someone that doesn't understand the technicalities of a bank that could go out of business, Is our money safe? I love the monzo app and user experience but I have been thinking about giving Starling a go? Does it hold up on the user experience front?