Monzo, a British digital bank, has rolled out a feature called Investments which permits customers to invest from as little as £1 in certain funds that are handled by BlackRock. This is part of Monzo's endeavor to move into new areas of financial services, enabling them to create new income streams in order to reach profitability in the span of a year.
Monzo, the digital challenger bank valued at $4.5 billion, is set to begin its foray into the lucrative financial investment market on Tuesday with its new feature, Investments. This new product, which can be accessed with just £1, will enable customers to invest in a range of funds managed by BlackRock. CNBC had the opportunity to preview the product at Monzo's headquarters last week. This move places Monzo in competition with larger, established banks such as Chase, which provides online investment management through its subsidiary Nutmeg, as well as rival asset management firms, and younger startups such as Chip, Moneybox, and Plum--all of whom offer similar services. Earlier, Monzo had already allowed users to invest in interest-bearing savings pots. Now, with Investments, the company takes its inaugural steps into the world of investments. To apply, customers need to join a waitlist, after which they will be invited to create an investment pot. After that, they will be guided through screens informing them of the product and allowing them to pick from three funds provided by BlackRock, based on various risk levels.
The offer consists of three funds managed by BlackRock, each with varying levels of risk and reward potential. At the low end of the scale is the "Careful" fund, offering a low-risk and low-return experience; the "Balanced" fund provides a moderate-risk, moderate-reward solution; and finally, the "Adventurous" fund offers a higher-risk approach with much greater returns.
TS Anil, Monzo's co-founder and CEO, told CNBC in an interview prior to the release of Monzo Investments that the company was taking steps to address Brits' lack of knowledge when it comes to investing. Anil said: "There's many, many barriers customers have in getting started … and the aim of our product is to banish those barriers. One of the biggest barriers is the idea that investing isn't affordable so people can't get started. With Monzo Investments, you can start from £1. Another of these is that they feel overwhelmed as they don't have the knowledge they need to get started, so we've embedded the knowledge and tools to make good decisions. Another is that it doesn't feel personalised, so we're offering three simple options based on individual risk preferences to ensure it's tailored to them."
YouGov research, conducted via interviews with 2,035 adults in Britain, commissioned by Monzo revealed that 69% of the U.K. population are not sure where to go for an accessible and simple-to-use investing product. 60% of adults admitted to being more likely to invest if the minimum investment amount was low, and 24% of U.K. adults who invest reported "winging it".
The investments pots function will be housed in a new area of the Monzo home screen known as Savings & Investments. Over the coming weeks, the product will be rolled out to all customers who are eligible. However, if Monzo's data indicates a user is in a difficult economic state – such as behind with debt repayments – then the option to open investments will not be displayed at all. Furthermore, users are able to make changes, cancel or withdraw their investments at any time, meaning they can back out of a decision even after they have settled upon it. Since hitting the 7 million customer milestone 8 months ago, Monzo now has over 8 million users in the UK. With this, they are looking to move into different parts of financial services and create fresh income streams as they strive for full-year profitability. Remarkably, Monzo reported their first two months of profit in 2023, which was due to the increase in interest rates in the UK and a sharp rise in lending income.
Monzo declared that it would charge a uniform 0.59% rate every month for its customers' investments, comprising a 0.14% fund fee and a 0.45% fee for providing the platform. If a customer had £1,000 ($1,250) invested with them, that would equal to about 48 pence in fees paid monthly.
At a CNBC briefing last week, executives from Monzo spoke of their plans to offer customers a product that would let them manage their finances in an ecosystem including budgeting, spending, transferring money and borrowing. As opposed to a "super app" with lots of offerings related to banking and finance, Monzo wants to be a "financial control center" where people can go to manage their financial lives. A rival, Revolut, has made much of its goal to be a financial "super app" offering banking, trading, insurance, travel and other services. Among British neobanks, Monzo is a first mover in terms of offering investments - Starling Bank and Zopa don't yet have investment features - but Revolut, Freetrade and Wise are already providing tools for stock trading.
Anil, when asked if Monzo was late to the party, answered "I don't think we're late at all [...] We were 500 years late to banking - but with the current cost of living crisis we think that people have a greater need than ever to make sound investments. So, from that aspect, our product is timely." Peel Hunt's Gautam Pillai noted that the new investment feature could result in customers staying with the company for longer, as Monzo is unencumbered by "brownfield" (existing) opportunities, giving it unparalleled potential.
The possibility of Monzo launching an Initial Public Offering (IPO) has gained attention from investors, though Anil has remarked that the company sees an IPO as another point on their journey as a business rather than a goal for the near future.
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