Hey guys it's sasha, and today i will be telling you exactly why and how styling bank has beaten monzo now starting bank was the original challenger bank in the uk launching in january 2014 to offer a modern alternative to the outdated high street banks. The very next year in 2015, tom blomfield, jason bates and a whole group of other early starting employees left the company to start up their own challenger bank rumors suggest that they wanted a bigger slice of the pie than amboden who founded starling, wanted to give them. Now monzo, which is the company that was created, quickly, became incredibly popular in the uk, sticking it to the high street banks with their free banking and cards that require sunglasses before you pull them out of your wallet. The easy to use app and good branding made monzo the card of choice for young people and monzo has very quickly grown to over five million customers, far ahead of any other challenger bank, including sterling.

But then things took a turn. Monzo began struggling to make their business profitable and have had to rely on constant, never-ending, very frequent funding rounds just to support the business and make their ends meet. In the last two annual reports. Their own auditors said that the bank has a material risk of going under, and the big problem is that the bank seems to continue not focusing on actually making a profit.

The losses are increasing substantially every year, and the last report that came out just a few weeks ago is not showing any signs of a turnaround. Starling seems to have done the exact opposite, though the business has started. Turning a profit and the future looks quite bright. So let me tell you exactly how starling has beaten monzo in this race and why the fortunes of these two of the biggest uk challenger banks are so different.

First, let's talk about the actual product, because this is where stalin and monzo took very different approaches. Monzo focused on features that were funky and got people talking. They focused on the marketing end of the feature spectrum, if you like sterling, seemed to focus on features that made people want to use it as an actual bank account. So monzo was actively promoting features like splitting bills or making it very easy to pay your friends when you're in a night out things like that and those are nice features, don't get me wrong, but those features are nice when you're going out for a meal with Your friends, it's easy to go and split the price of their meal with your mates, and it was decisions like this that created actually a lot of problems for monzo.

They got a lot of customers, but those customers weren't using it as a bank account. A lot of them were using it as an irregular spending card. Styling, on the other hand, focused on features like free and easy cash deposits through the post office, making it easy to deposit checks and enable different kinds of payment types. Instead, all of these are things that are not as cool or glamorous, but that really make a big difference to people who would consider making starling their main bank account, and i am not saying that this is some kind of one-way street.

Monzo also did offer some great features of their own too. Their pots feature, for example, is great and lots of monzo customers. Absolutely love it for very good reasons. Other banks have still not managed to build something that is as good, and that includes styling, but on balance that meant that average balances on monzo accounts continued to be very low because people were using it for different purposes and as a result, it was difficult for Monster to actually begin earning revenue or to offer additional products to their customers, who didn't really see them in the same light as other banks.

And that brings me to the next important point, which is focus sterling set out with a mission to become the uk bank. Of choice for people who value a great product with great features that just works and doesn't require you to go to a bank branch for no particular reason which seems to happen with most of the legacy banks. Monzo seem to jump from one idea to another and for me, don't have a consistent long-term strategy. At least they don't appear to have one.

First, we're focusing on prepaid cards. The people you used to go on holiday with then we're using prepaid cards to go out to dinner with then we're trying to launch in the us. Then we're closing down our attempt to launch in the us and then we're selling random savings accounts, not by us but by other companies, so that they pay us. Some commission, then we're launching paid versions of our products.

Then soon after we are closing down those paid products, when they completely fail, then a few months later we relaunch these same paid products. Then, a year later, we find out that we're not making any money from those paid products. There's just so much different stuff going on different teams seem to be pulling in different directions and it doesn't come across from the outside as being coherent. I think if monza took their obviously very good tech and pushed towards doing a smaller number of things right, it would have worked a whole lot better.

Now. Another major area where monzo have really failed, in my opinion, is on business banking and this failure has been much bigger than anyone expected over the last two years. First, monzo didn't really bother building out a business banking proposition for some time and when they did, it seemed to sort of come as a well. We kind of did it, but we don't really care.

It simply wasn't good enough for a long time. I'm speaking as a small business owner who had to make a choice repeatedly of which bank to work with and the free account doesn't even allow basic business features such as having more than one user or linking to accounting software like xero, which is pretty much compulsory For any business today, both of these features are free with a styling account, but monzo seem to have copied the high street bank model of charging a monthly fee for business accounts. Instead, i probably spend more than the five pounds a month, which is what it costs with starting by using that additional products and features that actually do cost money. Where i feel that it is appropriate for me to actually pay for those.

But they clearly understand the needs of small business and have a great account that does all of the basic things that a business needs to do for free, but last year monzo really dropped the ball, and this has been catastrophic, as the country was shutting down. The government announced a number of different business loans to support companies through the pandemic, ranging from small companies getting the bounce back loans all the way through to very large companies. Getting direct government support and stalin joined the big banks in offering these loans to their business customers, not only their business customers but other business customers too. The british government is underwriting 100 or 80 percent of the risk, depending on which product, so the real risk to the bank of the businesses not paying the money back is really low, and the government was also paying the interest for the first 12 months of those Loans directly to the banks, so if you are a bank, this is incredible.

You are guaranteed 12 months of payments with no chance of default during those 12 months, because it is the government that is paying you and if the business does then afterwards default, you still get all or most of the money back anyway. So starting bank went to town dish out a huge number of these loans and, over the last 12 months, the interest payments that the government has been making on those loans has actually technically made styling profitable. They made a big deal out of the fact that they were profitable, although they didn't actually explain the reason why they were profitable, which is what i just told you. You did have to look at the accounts to figure that one out, but anyway, monzo didn't bother doing it at all.

It required actually pulling a finger out and getting things done very quickly and presumably a whole load of difficult conversations and work with various government bodies and for some reason they chose not to do it. So they didn't do any business lending and they didn't get the government interest payments or the government guarantees and, as a result, their accounts for the last 12 months are showing a massive, gaping hole. Record losses no visible sign of how they're planning to get out of it and their own auditors are saying that they are in big trouble, but the mistakes for monzo didn't end there as stunning wasn't trying to do everything in the same time they appear to have Done a lot of the basics really well with monzo, we seem to be getting an ongoing load of issues. One day is the fca investigations that keep happening.

High numbers of accounts seem to be getting closed for no particular reason, and the number of complaints is disproportionately high and sometimes those numbers begin skyrocketing to ridiculous levels, and i think that the reason for this is not malicious. It is not because they are incompetent or anything like that. I just think it's because monso took their eye off the ball. Instead of teams focusing on making their anti-money laundering checks work as well as possible, they were busy setting up a cool office in las vegas.

Instead, and instead of figuring out how to properly scale customer support, monzo was busy figuring out how to cut out a debit card from a piece of metal. I just think they focused on the wrong things sure they seem to have been pretty busy. The ceo left after saying that he was burnt out, but it would have probably worked a whole lot better for them if they spend all of that effort and all of that attention on the right things, maybe a smaller number of the right things. Now.

Let's talk about the most important reason why styling has been monzo, and that is the commercial model now. This obviously includes a lot of the points that i made earlier. The focus business accounts and the business lending are all part of the commercial model difference, but this is a really important point, because stalin and monzo have completely different views on how a bank account should earn money and stylings seems to work while monsos just doesn't sterling's Model is to have a basic bank account that does everything that you wanted to do for free and when starting actually adds new features or improves existing ones that are fundamentally part of their basic account. They also offer those for free as well, then starting actually does charge customers for some extra things, things that you probably wouldn't do normally or you wouldn't expect to be a basic part of the account and those charges are very reasonable, which is why so many people Are very happy to be paying them and the amount they're earning from them is growing.

So, for example, you can get an additional personal account on top of the one that you can already get for free for whatever reason, if you just want to have two different accounts, but it'll cost you two pounds per month and you can send money abroad. If you want to which is not something that most people will be doing on any regular basis and it costs you a very reasonable 0.4 percent plus sometimes 30p depending on the country and that's actually a really good rate, it is not quite as cheap as some Of the market leaders like wise, but it is very good value and it is very easy to use, and so a lot of people find that that value exchange proposition is good enough for them. But basic things like depositing money into your bank account withdrawing money from your bank account or other basic account features, are all free and that's the key, because monzo have done the exact opposite. If you want to go and deposit cash into your bank account, you have to pay a fee.

If you want to withdraw too much cash abroad, you have to pay a fee there as well, despite all the marketing over the years about how monzo is completely free to use when you travel and then they have introduced plus and premium accounts, where some card limits And features are now hidden behind the paywall when they weren't before, and that, i think, is really not a good way to do business with bank customers and they tried to package a load of features into these paid accounts. A bit like how high street banks were doing it 20 years ago, which didn't turn out that well, but the truth is the majority of these are either pointless or pretty much worthless and the ones that aren't worthless aren't really worth that kind of money. In my opinion, and over the last year, mozart made 11.4 million pounds from fees from these paid cards. You can see them page 102 of their last annual report and it also cost them 9.3 million pounds to offer those products to pay for the features that they're giving them.

So they made a cool 2 million pounds in profit from those paid cards based on those two numbers before taking any of the extra costs, extra operational cost, servicing costs etc. For those products which seems pretty consequential when you've just lost 130 million in the same year. Overall, 2 versus 130, so there you have it two challenger banks that started in a very similar way, but it ended up going down very different paths. One is now thriving and i think is on the road to become a dominant player in the uk in the future, and the other is struggling to figure out how to come out off their nosedive.

I hope that both actually do do well. I hope that monzo picks up and figures it out, because i think that the business banking sector and the retail banking sector both need a major shakeup in the uk. I hope you guys found this useful. If you have, please don't forget to smash the like button for the youtube algorithm.

Thank you so much for watching. I really really appreciate it and, as always i'll see you guys later, you.