May 31, 2023

Monzo narrows losses slightly as lending book triples

The UK digital bank’s doubled revenues were offset by its increased hedging against loan defaults

Amy O'Brien

3 min read

UK digital bank Monzo more than doubled its revenues to £355.6m in the 12 months to the end of February, as it tripled its lending book and benefitted from a surge in interest rates.

However, the bank posted a pre-tax loss of £116m for the year — only a slim improvement on the £119m loss posted last year. 

Monzo’s CEO TS Anil said on Wednesday he still expects the bank to hit profitability next year. Monzo also said it made a profit in the first two months of 2023, but did not disclose the amount.


Lending swells

As customers grapple with inflation, Monzo’s lending volume has tripled since last year. The bank’s total lending volume reached £759.7m in the 12 months to February, and net interest income increased almost fivefold (382%) to £164.2m in the period.

These lending figures were pushed up by customers’ increased use of overdrafts, unsecured personal loans and its buy now pay later (BNPL) service Monzo Flex, which it launched in September 2021.

Monzo Flex accounted for over a fifth of its overall loan book, at £169.3m, up from 10% of the loan book a year earlier.

Although these lending products drove up revenues, Monzo’s overall results were diluted by the cash reserves — of £101.2m — it had to put aside to protect it from an anticipated increased risk of defaults on these loans.

These reserves, known as credit loss expenses, sharply increased, up £87.2m from £14m a year earlier. This sixfold increase in expected credit losses was significantly higher than Monzo’s tripled lending volume in the period — an imbalance that Monzo CEO TS Anil put down to the “dynamic of a growing loan book.”

“Actual losses and the forward looking credit losses don’t go in lockstep in the early days, but in a more steady book, you’d expect those to be more stable,” he told Sifted in an interview following the results.

“So in a few years, we expect them to go in lockstep.”

Anil added that lending is a “small but meaningful part of what we do”, and that he expects to increase credit provisions over time.

Monzo has not yet seen an increase in customers struggling to pay loans back due to the cost of living crisis.

Still on the hunt for a US CEO 

Despite its focus on reaching profitability in 2024, Monzo has also been vocal about its continued global growth ambitions — and in particular, its plans for a second attempt at entering the US.

In February, Monzo COO Sujata Bhatia told Sifted that the fintech was hiring for a US CEO to lead its stateside expansion — but Anil told Sifted on Wednesday that three months later, it’s still on the hunt for one. Monzo has, however, hired “a bunch of product managers” on the ground who are currently trying to work out what the bank’s product market fit will look like in the notoriously hard to crack US, Anil said.  

“Pretty happy” with fraud controls  

Monzo’s fresh set of results also reveal it has now hit 7.4m customers in the UK, making it the country’s seventh-largest bank — and putting it streaks ahead of its rivals Starling (3.6m) and Revolut (5.75m).

Fast-growing customer bases have made it increasingly difficult for these neobanks to keep financial crime and fraud under wraps, however. A recent Sifted analysis revealed that fraud complaints at Monzo and its peers have risen sharply over the last three years.

When asked about this, Anil told Sifted: “I feel pretty happy with the measures we have in place to protect our customers,” citing AI detection tools as one thing the digital bank has invested in to reduce fraud.

“But you don’t rest on your laurels, you keep raising the bar and building more sophisticated tools as well.”

Amy O'Brien

Amy O'Brien was a reporter at Sifted, covering fintech