Monzo IPO on cards, the UK challenger bank targets profitability and expansion

Summary

  • Monzo plans to go public on the London Stock Exchange by 2023
  • The company witnessed a tumultuous 2020 that resulted in a number of layoffs and monetary losses
  • Monzo filed for its US banking license in April 2020 and aims to compete against leading native rival challenger banks

Founded in 2015 and once touted as the UK’s second-most valuable fintech firm, Monzo plans for an initial public offering (IPO) on the London Stock Exchange (LSE) by 2023, as the company focuses on expansion and growth in the US in the interim. The company’s potential listing news on the stock market comes after the conjecture that the payments brand Stripe has taken its initial steps to go public and after the debut of the fintech firm Wise Plc (LON: WISE) on the LSE on 7 July 2021.

Monzo, with a valuation of £2billion has developed into a key contender to become the leading challenger bank in Europe. It is a digital banking service that can be exclusively accessed on mobile devices. Monzo, the London-based fintech start-up plans to go public post a difficult year due to the pandemic.

Tom Blomfield cofounded Monzo after he stepped down as Starling Bank’s CTO. In June 2020, he became the president of Monzo. In January 2021, he exited the company due to the challenges put forth by the Covid-19 pandemic. This included the shutdown of Monzo’s Las Vegas office in April 2020, which resulted in the loss of 165 jobs, while the team in the UK were also faced with redundancies and layoffs through the summer of 2020. Poor customer activity forced Monzo to seek funding in order to endure the effects of the pandemic, resulting in its valuation declining considerably.

Also read: Poolbeg Pharma IPO: Open Orphan spin out raises £25 million on floatation

Way ahead

Post a tumultuous 2020, Monzo recently turned a new leaf and is currently focusing on profitability, expansion in the US market alongside its plans for an IPO. The company executives foresee a profitable future for the company by 2022. Monzo’s post-tax loss stood at £113.8 million for the year ended 29 February 2020, up from the previous year’s £47.2 million. More than double losses left Monzo lagging behind its challenger bank rivals Revolut and Starling Bank. On the other hand, while Starling and Monzo were some of the first neobanks to receive their licenses in the UK, Revolut only recently filed for a UK banking licence.

Also read: Revolut share: The fintech unicorn and its IPO plans

Expanding in the US

The huge concentration of native fintech companies makes it difficult for Europe-based challenger banks to make it big in the US. Nevertheless, European fintech companies such as N26, a German start-up, as well as Revolut are slowly gaining ground in the US, in terms of app downloads. This leaves Monzo with plenty of ground to cover. However, the company does not see saturation as a problem due to the sheer size of the US market.

Monzo filed for a US banking licence in April 2020, while other European challenger banks such as N26 collaborated with California-based Axos Bank for their US expansion in 2019. This could, however, be an issue in the near term, as US regulators abolish apps that have given themselves the status of digital banks without a formal banking licence.

To ‘crypto’ or not to ‘crypto’

While cryptocurrency is emerging as a buzzing field for fintech’s to explore, challenger banks such as Monzo are still sceptical about going all out in this field. For instance, Revolut reported gains worth £38.7 million in 2020 through its crypto trading service. The debate around crypto has spurred plenty of drama for Monzo and also led to CFO Alwyn Jones exit to join Luno, a cryptocurrency exchange firm.

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