What Is/Who Are Monzo?
Monzo is a UK-based, app-based “challenger” bank with over 2 million customers.
It was founded in 2015 and quickly gained popularity, particularly among millennial and Gen-Z’ers thanks to its “hot coral”-coloured cards, friendly and transparent communication style and convenient app features.
Monzo describes itself as aiming to:
“fix the problems across the industry, like the general lack of transparency, confusing terms and pricing, and business models seemingly designed to catch customers out”
Should You Get Monzo (Is Monzo Right For You?)
Aside from a more attractive-looking debit card, Monzo offers a host of convenient features within its banking app that enable customers to manage their personal finances in an intuitive way and at the touch of a button.
The app is particularly convenient for keen budgeters/ savers.
For example, the app has a budgeting feature that allows customers to track and control their spending, and see spend by category.
Monzo’s ‘pots’ are probably one of the highlights for savers, as they allow you to set money aside for specific goals (e.g. a house deposit) and earn interest on the funds.
It’s worth noting, though, that the actual savings rates offered on savings pots are not currently the most attractive in the market. Overdrafts are free up to £20, then a fixed charge is applied per day, no matter how far into their overdraft you go.
Another attractive feature is its fee-free foreign currency withdrawals of up to £200 every 30 days. The exchange rates applied are those offered by Mastercard (in contrast to Revolut, that uses interbank rates).
Additional features and products are available through the Monzo Plus account, which starts at £6 a month, for a 12 month period.
How Does Monzo Work?
To set up a Monzo account, you need to download the app and follow their quick sign-up process. For a regular account, only identity checks are required, however, if you’re applying for an overdraft or loan, a credit check will be carried out too. Once you’ve signed up, your card will arrive in the post a few days later, and you’re good to go! You can add money to your account by bank transfer, or by depositing cash (cost is £1) or cheque.
Is Monzo Legit? Are They Even A Real Bank?
Yes, Monzo is a real bank – it’s registered with the FCA and your deposits benefit from the £85,000 FSCS protection limit, as with other bank accounts in the UK. Monzo themselves boast the following safety credentials (see its blog post entitled Is Monzo Safe?):
- More than 4x better at preventing card fraud than the industry
- More than 3x better at preventing identity theft
- More than 10x better at preventing account takeover
How Does Monzo Make Money? What Are Their Fees & Charges?
Monzo earns money through fees, e.g. when customers go into their overdrafts or withdraw cash abroad above the fee-free limit.
They also earn commissions (via its marketplace model) when customers use the products it offers, such as savings accounts via OakNorth – on which Monzo earn a 0.2% commission.
Additionally, Monzo earns money on its more traditional banking activities, e.g. placing deposits at central banks and interest on loans.
What Else Does Monzo Do?
Monzo has had a busy year of adding features and benefits for its customers. In May, it added the ability for customers to switch energy providers within the app to Ovo Energy and Octopus Energy – both of which, while not the cheapest in the market, offer renewable energy and pride themselves on good customer service.
In April of this year, Monzo launched its Plus account – offered to early bird customers at £3/ month before it offered much more than ‘swag’ and events, now at £6/ month, with a minimum 12-month commitment. In exchange for the £72 annual fee, customers get:
- Cards in additional colours, “midnight sky” or “lagoon blue”
- Interest on balances of £4,000, at a rate of 1.5% AER – this goes some way toward making up for the annual charge
- Perks such as 10% off hotel.com bookings, 3 month free trial of Jack’s Flight Club
- A custom Monzo.me name that you can use to request or send money to friends
- Dedicated events
On top of the standard features, customers can pay extra for things like travel insurance or a higher withdrawal limit. Whether it’s worth it ultimately depends on the value placed on the above benefits, but on the face of it, it seems to be mostly worthwhile if you’re a frequent traveler and contemplating booking a holiday through Hotels.com in the next 12 months.
This month, Monzo launched a new feature that will allow customers to receive their pay or student loan installments one day before it normally shows up on their account – at 4pm the day before payday.
What Are People Saying About Monzo?
Monzo is often praised for its communication style and great usability, and often tops customer service and usability surveys, as conducted by the likes of Moneysavingexpert.com and Which?. Earlier this year, Monzo gained Which? Recommended Provider Status. In a further boost to their reputation, Monzo states that 15% of new current account openings in the UK are with Monzo.
What Are The Benefits Of Monzo?
- Ability to track and analyse spending in a very easy way
- One-stop-shop offering ever-increasing product range, now including savings accounts and loans
- “Pots” which allow you to set money aside for specific purposes and earn interest on the funds as you save
- UK banking license, which means your deposits are covered by the £85,000 guarantee
What Are The Drawbacks Of Monzo?
- Convenience comes at a price – you’re likely to get better savings rates elsewhere
- Travel money is not as cheap as competitors such as Revolut as users are charged Mastercard’s exchange rates instead of interbank rates
- While UK cash withdrawals are free, a 3% charge is applied to withdrawals above £200 on a rolling 30-day basis while abroad.
- £1 cost each time you want to add cash to your account.
Monzo has managed to create cool, desirable branding with its “hot coral” coloured cards, friendly tone of voice, transparency and community-building efforts (events, ability to interact with the team through social media, their blog etc).
This gives it an edge over its app-based competitors, which offer similar features.
It would be helpful for customers (but perhaps not sustainable) if Monzo were to match the market’s best savings rates, or at the very least remove the mark-up on savings products currently offered (e.g. OakNorth savings accounts offer better rates for customers going direct). This could happen as Monzo’s customer base grows in size and its bargaining power improves.