Like many millennials that live in London, I have a Monzo card. It’s hard to escape from the neon tangerine-colored piece of plastic. It has become so ubiquitous among a certain set in the capital of fintech that apart from being seen as a status symbol among hipsters, it’s so cool that it has become a chat line in London’s bars.
When Monzo debuted in 2015, it was a prepaid, contactless payment card coupled with an ingenious budgeting app. In essence, it took everything that was infuriating about banks—maddening customer service, transaction histories that take several days to update, clunky and inoperable apps—and subverted it in an elegant and user-friendly mobile experience that was a joy to use. The whole thing was also entirely free for the consumer.
Now that it has its UK banking charter, Monzo has become the fully-fledged “challenger bank” it always set out to be, backed with venture capital cash. In other words, its competition isn’t slick budgeting apps—but the likes of HSBC, NatWest, and Barclays. They’ve been encouraging users to “upgrade” to a fully-fledged current account (the UK’s version of a checking account) since December, and last week, announced it would be shutting down the pre-paid card program that some users were still using.
All startups go through growth phases and product changes, but something about Monzo’s progression is both disappointing and not surprising. It points to a larger trend in startup culture that consumers, if not investors, are getting wise to. Here are the five stages of realizing your favorite startup is too good to be true.
When I first got a Monzo, in early 2016, I was an evangelist. I told my friends. I tweeted about the whimsical copy and animated gifs. I wrote about it for Quartz. I wanted everyone to know how much I loved using Monzo.
I loved using it for foreign transaction fee-free travel, for effortlessly splitting costs with my boyfriend and housemate (because, of course, they both had it too), for the transaction history it generated both in the app and a monthly spreadsheet. In short, Monzo was the future, why weren’t you using it?
In my evangelizing for and writing about Monzo, I had to confront the very basic question that looms over every startup: Yes it’s cool, but how will it make money?
Like any bank, Monzo needs lots of users before they can expand their services to things that extract revenue from a large userbase. However, Monzo’s stated ambition was always to become the most user-friendly current account possible—and nix all the ancillary financial products that banks—legally or not—try to sell their consumers (which also, as it happens, make them money).
At the same time, there seemed to be a lot of overhead. Foreign transaction fees and international cash withdrawals were free with Monzo (in other words, subsidized by the company’s investors); they used a third-party payment processor to handle all those seamless in-app top ups (that adds up when you have close to half a million users); and their customer service was personalized, always available, and highly competent (in other words: not cheap).
The first crack was the change to overseas withdrawals, which Monzo—to their credit—handled with a transparent blog post and a reasonable, crowd-sourced solution. The solution still makes them more competitive than a major bank when it comes to using a bank card overseas, but an admission had been made: The primary feature that everyone loved Monzo for was not one that was conducive to running a financially viable long-term business. Uh oh.
After the foreign transaction fee moment, I still had faith in Monzo. But when I upgraded to the current account and saw that yet another marquee feature—the ability to send funds from my primary bank account to my Monzo account with just a few taps—was now being changed, reality began to set in. The app now encouraged me to carry out an old-fashioned bank transfer instead, rather than the top up feature, to avoid the costs that Monzo takes on. But wait, I thought seamless top-ups were the whole point of this app? In effect, I am now being asked to enter the HSBC banking app (which I despise) in order to use Monzo in the way I had grown accustomed to.
There are still things that Monzo is unequivocally great at: Their customer service is light years ahead of any bank, I can see my transactions and bank balance in real-time, and it allows me to get detailed breakdowns of my spending each month. Their customer service and corporate communications remain great. For those reasons, I will keep using it, for now.
But on a larger level as a consumer, the jig is up for me. Whether its VC-subsidized mattresses, meal delivery kits, or disruptive lunch delivery, releasing a too good to be true product, gaining a bunch of users, and then introducing a sensible business model (or going bust) a year or two later is getting old. Several Monzo users I know have told me they’re going to ditch the service before they’re forced out of using the pre-paid card. They simply don’t want another bank account, and in all fairness, that’s not what they initially signed up for.
Alas, I am not in the business of prognosticating the financial health of companies, and I’m sure Monzo has plans for its financial future beyond what they have said publicly. But in the wild west start-up era, my future loyalty lies with companies who have what all companies used to have: A viable business model from day one.