Monzo increases bad loans provisions after Buy Now, Pay Later push

Monzo increased its provision against bad loans after focusing on consumer lending, and expanding into buy now pay in the second half of last year.

The UK fintech company said that on Wednesday, its revenue more than doubled from £355.6mn to £759.7mn in the last year. This was due to higher interest rates for its deposits as well as its lending book tripling.

The bank, however, made a loss before tax of £116mn during the same period. This was partly due to the rapid growth in lending that forced it to increase its provisions for possible bad loans.

The bank’s lending to customers who use Monzoflex (the buy now and pay later service it launched in September 2021) has increased sixfold, to £169.3mn. This represents more than a quarter of its total book compared to 10% the year before.

Chief executive TS Ail said, “It is obvious that as the loan book grows and more customers buy our products, credit losses are expected to grow along with it.” The book has performed incredibly well over the past year. The goal of the lending business is long-term growth.

Anil stated that the bank made an unspecified profit during March, and they still expect to reach profitability in 2019.

The company’s staff costs increased by 35% to £175.3mn, as it added 553 employees to its 2,432 total by the end February.

Monzo last had a valuation of $4.5bn when it raised $500mn from Abu Dhabi Growth Fund in December 2021. Its price puts it above Starling, a digital bank valued at $2.5bn. However, the UK fintech Revolut, valued $33bn in 2022, is significantly ahead.

Since then, there has been a shift in the tide against cash-hungry, fast-growing companies. Klarna was once Europe’s largest private fintech company. Its valuation dropped from $46bn to $7bn by July last year.

Starling’s CEO Anne Boden announced last week she was stepping down from her position as the chief executive of the bank that she founded in 2014. She said that the market for Initial Public Offerings (IPOs) had closed and the bank would have to wait until the macroeconomic climate settled before it would attempt to flotation.

Anil stated that Monzo does not plan to launch an IPO and is instead focused on growing the business. Anil said that the next product Monzo would likely launch is an investment platform for investors who want to trade stocks. This market, which has become increasingly competitive, includes players such as Revolut and Freetrade, integrated with JPMorgan Chase UK, is becoming more crowded.

Anil said the bank would not be looking to invest more at this time, as it is now profitable. However, it will wait until the “right time” comes along before raising more money if needed.

Monzo announced on Wednesday that the Financial Conduct Authority investigation into potential violations of anti-money laundering systems and financial crime laws between October 2018 and 2022 is still ongoing.

The bank stated that it “continue[d] its co-operation with the FCA’s investigation”.