London-based challenger bank Monzo has become one of the few profitable European unicorns after reporting its first-ever year in the black.
In the year ending March 31, Monzo posted a pretax profit of £15.4 million ($19.7 million), compared with a loss of £116.3 million over the same period the previous year.
Revenue more than doubled to £880 million from £355.6 million in the previous financial year. Higher interest rates over the last few years have boosted the company’s net interest income, and its loan book has risen by 84%.
The bank, which is a contender to go public, didn’t provide an update on its prospects for an IPO. Its VC backers include firms like General Catalyst, Accel and Thrive Capital.
Although revenue has increased, so too have Monzo’s expenses, which were up 51% for the full year. The company, which was founded in 2015, is also expecting credit losses to grow due to an increase in customers and the current cost-of-living crisis.
“Global economic uncertainty has resulted in volatile markets and a slowing UK economy that ended the calendar year in a recession,” CFO James Davies said. “While signs of improvement are appearing, global unrest, inflation and interest rates remain high. All of these factors increase the financial pressure on our customers’ disposable incomes and the risk they’re unable to repay us, which could result in lower transaction revenues and higher (expected credit losses).”
Monzo’s new-found profitability follows recent fundraising efforts. The company raised £340 million in a round led by CapitalG in March before securing another £150 million from investors including Hedosophia last month. Monzo’s valuation now stands at $5.2 billion, up from $4.5 billion in 2021.
Monzo isn’t the only challenger bank that has improved its finances. Last year, London-based rival Revolut announced its first-ever annual profit, while smaller peer Zopa Bank recorded its first full year of profitability for the year ending December 2023.
But profitability remains elusive for many of Europe’s €1 billion-plus startups. At the end of last year, only two out of 10 of the region’s most valuable VC-backed companies were known to be profitable: Revolut and mobile payments startup SumUp.
It is perhaps no coincidence that Europe’s fintech startups are prioritizing profitability given the state of funding for the sector in recent years. At its peak in 2021, VC funding for European fintech reached €44.4 billion, according to PitchBook data, before falling significantly with the onset of the VC downturn which saw investors turn away from a high-growth mindset toward profitability.
Last year saw €18.9 billion invested and 2024 started off slowly in terms of dealmaking. Q2 has so far been stronger thanks to a handful of larger deals including Monzo’s fundraise and consumer finance company Abound’s £800 million round in May.
Now profitable, Monzo is preparing for an international offensive including a second attempt at entering the US after withdrawing its application for a US banking license in 2021. The bank hired former Cash App product head Conor Walsh last year to head up its US expansion plans and partnered with Ohio-based Sutton Bank, which will hold all customer deposits.
Monzo will also be targeting the European market by way of Ireland, where it plans to open an office in the coming months.
“There’s a lot to be excited about from this year but there’s a lot to be mindful of in the year ahead,” Davies said. “With economic uncertainty, regulatory developments and expansion into new markets, it’s important we carefully manage our return on capital as well as making sure we stay focused on our liquidity position and controls.”
Monzo personal card
Featured image courtesy of Monzo
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