In the last few days, there have been several reports in the UK and US media that the UK FinTech star Monzo could be having problems. The company’s loss has more than doubled from 2019 to 2020. In addition, the startup has announced that the procedures for the prevention of financial crime have to be reviewed the outcome of which could have a significant impact on its finances. Monzo is already starting to close business accounts as of September 1, 2020. Do we just see the beginning of the end of the FinTech Hype?
In the 2020 financial year ending 29 February 2020, Monzo announced that the number of private clients exploded from 1.6 million in 2019 to 3.9 million customers. Those customers spent £11 billion with Monzo in those 12 months, which helped quadruple the operating income from £9 million to £36 million with revenues more than tripling to £67.2 million (read the Annual Report here).
With the good news comes the bad. The startup also had to report an annual post-tax loss of £113.8 million ($149.5 million) up from the £47.1 million it lost last year. At the same time, the company has announced that growth has slumped dangerously due to the COVID-19 pandemic.
Bottom line, Monzo has bought its growth with massive financial investments. The customers are currently – and probably for the foreseeable future – not making a profit. The average customer produces a negative margin.
Similar to many businesses, we’re seeing a significant impact from COVID-19 and the resulting economic downturn. While I’m confident these are short-term, we’ve taken decisive measures to reduce the financial impact […] For a growing business, it also makes the fundraising environment more challenging. These indicate that the ability of the Group to continue as a going concern is subject to material uncertainties.
Monzo said the disruption resulting from Covid-19 Pandemics has led to “significant doubt” about its ability to continue “as a going concern.” It seems that Monzo’s business customers are the first victims of Monzo’s strategy adapted to the COVID 19 crisis.
Monzo has been one of the best-of-class FinTechs worldwide. Behind the start-up are the best investors and the company currently still has sufficient liquid funds. If Monzo falls or starts to brace for a hard landing, other FinTechs with less good general conditions will always fall. It currently looks as if the COVID-19 pandemic will herald the end of the FinTech hype.