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Monzo: Lessons for a start up

If you haven’t heard of Monzo, they’re a high profile fintech start up – a challenger bank – rising to consumer fame by offering a fee-free pre-paid card service.

Like most start ups in this category, they’ve experienced massive growth in a short time. At the beginning of July this year it hit 240,000 customers, they are projecting between 500,000 and 800,000 accounts by the end of the year, and their business model is as old as time:

  1. Begin as a loss leader: buy the market to build a massive customer base as an innovative new thing, pile ‘em high and sell ‘em cheap

  2. Bring new products online: grow the portfolio of products with profitable revenue streams

  3. Sell, sell, sell: trade on your unique and different brand to convert customers to these new products.

Their current pre-paid card service is awesome. It’s linked to an app on your phone, your spending is categorised for you, you can withdraw cash abroad with no fees, you can spend abroad with no fees, and the exchange rates are good.

But as they get stuck in to part 2. of their strategy (20,000 current accounts by September, and converting every single customer through withdrawal of the pre-paid card) they are at risk from something which could derail everything: Customer Experience.


The Monzo Experience 

My personal experience of Monzo started out great. The card is easy to get, the app is stable and super functional, the benefits of being fee-free are superb. But I started to notice a trend that others did too: Their 3rd party payment processing supplier began failing, becoming more frequent with spikes in March, early July and now.

In the last week I’ve had six separate notifications of issues ranging from ‘card processing taking longer than normal’, to the more critical ‘take another card because payments are failing’.

Monzo CEO Tom Blomfield wrote yesterday to apologise for the series of outages, but signalled to customers that although the issue would continue to pervade, the in-house payment processing platform was working well for the beta current accounts.

A quick glance through the customer comments on Blomfield’s article shows a really mixed response. Some customers totally get it, they understand that the pre-paid card is temporary until the current account comes in to play. Others are furious, don’t want a current account, just want a fee-free experience that is stable enough to use unhindered.

So, what’s the lesson for my start up?

Manage your strategic risk carefully in the early period

The strategy underpinning Monzo is at threat here. If the goal is to convert a massive customer base in order to be profitable then allowing the third-party processor issues to continue for over 5 months runs the risk of (a) reducing that customer base through dissatisfaction (b) reduced conversion to new products because of loss of trust in some or all of the products (c) severe brand reputation damage that prevents new customers joining.

Start ups need to frequently check in with their strategy at the beginning and ensure the risk profile is understood. Don’t confuse your own level of acceptable entrepreneurial risk with that of your customers. You might think the service level is acceptable to your business model but your customers reference point is different.

Communicate with your customers – effectively and efficiently

Arguably Monzo have taken far too long to explain the situation here. They’ve done a reasonable job but in my view the mixed comments show they haven’t done a great job.

The customer base for these types of businesses are often understanding: You’re an entrepreneur, we’re growing with you, we don’t expect it to be plain sailing all the way and that’s what makes the product exciting.

But if they product is failing consistently then we fall below the threshold of acceptability. It’s no longer a trustworthy entrepreneurial product with the odd bug, it’s an unusable nuisance.

Monzo have cleverly used their in-house processing capability for reassurance that service will be better. However, the customer has no data or experience to measure this promise by, only the word of the CEO. And how long will customers put up with the current status quo of a poor third party payment processor?

Start ups need to bring the customers along on the journey but they also have to do this quickly. Part of the experience for customers is that they laugh and cry with you – so don’t let them feel like an outsider. Blomfield missed a trick in his latest comms by not pointing out that all customers will be on the new platform eventually. He didn’t provide the light at the end of the tunnel.


As Monzo manages the transformation of its business over the next 6 months I’m sure it will be a fascinating watch. And for all my entrepreneurial and start up followers, I expect there will be some great examples of how to mirror those successes and manage the speed-bumps.