Monese as pioneer

Monese was the first mobile-only challenger bank. What is its future?

Background

Norris Koppel founded Monese in 2003. Like many successful founders, Koppel experienced a problem. Coming from Estonia, he found it painful to open a UK bank account. He started Monese to fix that problem.

The target customers of Monese are foreign nationals recently moved to the UK. Monese invests heavily in modern KYC (“know-your-customer”) processes to open bank accounts more quickly and with less customer paperwork.

Koppel incorporated Monese in late 2013, and registered with the FCA as a Small Electronic Money Insitution in summer 2014. As Koppel describes, Monese built many of its own core systems given its novel KYC requirements.

Financial Performance

Koppel runs a lean business. He made great strides in the first 12 months on a small budget. In mid 2015, Monese raised c. £1.3 million of investment from Coindesk founder Shakil Khan, Seedcamp, and an SmartCap, a investment fund from Estonia. At least a portion of those investments were made as convertible or loan notes, in addition to the earlier angel investments.

From a reported waiting list of 56k, Monese had 35k downloads as of April 2016, with an undisclosed number of account openings. Once an account has been opened, customers must transfer funds to the account. The first 30 days of banking activity is free, with an account fee of £4.95 per month thereafter. If Monese retains 20,000 paying customers, they earn annual base revenues of c. £1.2 million. In addition, Monese charges a minimum of £1.00 for each international transfer.

Monese targets foreign nationals coming to live in the UK, of whom there are between 500,000 and 700,000 each year. Capturing 10% of those immigrants each year, could give Monese 100,000 - 150,000 total customers in 2-3 years. That sort of customer base would provide £6-9 million of annual base revenue with at least 50% operating margins.

Monese has also teamed up with Contis Group to extend the service offering to the rest of the EU. Monese estimates the total target new customer base in the EU is 3.4 million per annum. Assuming similar 10% market share, Monese could engage upwards of a million customers across Europe, which would be a very attractive business if operating margins were healthy.

With 2014 operating costs under £100k, Monese shows strong cost control. The team of 26 today is based in London and Tallinn. Operating costs are likely £500-£750k per annum.

Branding and marketing

Monese have not yet splashed out broad, expensive marketing via television or billboards. They have more than 17k Twitter followers, which they acquired since launching on Twitter around the time of their incorporation in October 2013. Their Facebook page has c. 39k likes, and just over a thousand people follow Monese on LinkedIn.

Customer experience

Monese currently offers its services only through an Android app, with an iOS app in the pipeline. There is currently no web-based service. Although there are no branches, there is a customer service telephone number.

The Monese account opening is triggered via the app. On the app, you enter your name and address details, take a “selfie”, and a photo of your passport. You also choose a 5-digit pin to access the app. At this stage, you may find the app “freezes” despite the details successfully going through. If all goes well, a Monese card arrives in the post a few days later. You activate the card via the app (which may need to be restarted), and the app provides you with the 4-digit pin for your card. You fund your Monese current account using an electronic transfer to an IBAN or UK sort code and account number, or with cash at a PayPoint at your local newsagent. Although your newsagent may question whether PayPoint works for Monese, most deposits go through smoothly.

With your card activated and account funded, you use Monese like any debit card. The UI is simple and pleasant. You can quickly set up new payees and make one-off payments. Monese does not currently support standing orders or direct debits, which may make it impractical for many users with banking alternatives. Monese payments also do not clear on weekends and bank holidays.

Digital and innovation

As a mobile-only bank, Monese is committed to digital. Monese integrates APIS from its partners, and focuses its efforts on its USP - technology and process for otherwise difficult KYC. Monese has operated on a much smaller budget than many of its competitors like Mondo and Atom, and the app has few “bells & whistles”. Monese is still working on its iOS offering, does not provide a web interface, nor has it shared a developer API like Mondo.

Strategy, opportunities, and challenges

Monese was first to market. It has real accounts with sort codes and account numbers. It has a clear target customer, for whom it provides a clear service. It has a well-defined USP. It has the right partners, and most of the right infrastructure to expand beyond the UK. And it has achieved all of these things with great financial discipline.

But, can it dream bigger? Let’s say Monese engages a million itinerant customers. Those customers either move or settle. If they move outside Europe will Monese stay with them? If they settle, will Monese still be relevant for them? Monese risks being a temporary service for its customers before they move on to bigger banking providers. It risks missing lucrative opportunities to bank its customers as they become more settled and affluent. Less than five pounds per month from each customer can be a challenging business model to maintain.

Global payment partnerships retain Monese customers on the move. A full banking license, or a fully licensed European partner retain Monese customers settling down. A bigger (and well-spent) marketing budget attracts new customers quickly. The early success of Monese justifies another round of funding to facilitate any of those objectives.

Summary

Monese is a pioneer fintech business in many ways. It needs the ambition and agility to enjoy a step back from the frontier and into the comfort zone of dominant players.

Notes:

  1. See 2014 accounts.
  2. $1.8mm as reported.
  3. Based upon the annual return from October 2015, the shareholders were entities controlled by Koppel, Khan, Marcus Exall, and Abstracta, a Canadian software development firm, with developers from Estonia.
  4. Source BBC.
  5. Providing they can keep their customer churn rates low.
  6. Monese is FCA registered, which limits its activiities to the UK. Contis is FCA authorised which passports outside the UK.
  7. Assuming, inter alia 10 staff in London and 16 in Estonia.
  8. Many of whom they acquired through a mutual-follow strategy, as they follow 15k+.
  9. Monese does not hold a banking license, and is a prepaid debit card provider.
  10. Specifically its partnerships with Contis Financial and Currency Cloud.
  11. If the first month is free, and customers stay with Monese for just a few months, Monese revenues are lower, and onboarding overheads proportionally higher.