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Is your money safe with Monzo as its future hangs in the balance?

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Written by: Emma Lunn
05/08/2020
The challenger bank posted annual losses of £113.8m after its revenue was hit by the pandemic.

Monzo’s losses have doubled during coronavirus as revenues from bank card transaction fees fall.

The bank’s management have admitted there is a risk the company won’t be able to execute its business plan which could “adversely impact its ability to generate a profit or raise sufficient capital to meet future regulatory capital requirements.”

So is this something Monzo accountholders should worry about?

The Monzo story

Monzo launched its beta app in 2017 (after changing its name from Mondo) and gained a full banking licence in 2018.

More than four million people now have a Monzo account with figures from the Current Account Switch Service (CASS) showing it was the most-switched to account in Q4 2019.

The app-only bank launched a £5 a month premium account last month as an alternative to its free bank account. It also offers overdrafts, loans, savings accounts, and energy switching.

Monzo also started to offer business accounts last year.

More paid-for products could be on the way and enable Monzo to turn its losses around.

The figures

While Monzo has been a fintech success story so far, it’s been hit hard by the turmoil of the past few months.

The bank said its revenue streams had been “significantly impacted” by Covid-19.

Prior to lockdown, Monzo’s main source of revenue was through its transaction fees generated when a customer pays with their bank card. However, this revenue has significantly decreased as consumers reduced retail and leisure spend.

Monzo lent out a huge £143.9m in the past year, compared to £19.2m in the previous year, but it said it expects credit losses to climb to £20.3m, from £3.9m, due to Covid-19.

Monzo has had to close its US office and has also announced 100 redundancies in the UK.

Should Monzo accountholders be worried?

In the unlikely event that Monzo fails, customers’ money will be protected by the Financial Services Compensation Scheme (FSCS) up to £85,000 per person.

Up to £1m may be covered temporarily in certain circumstances such as if you received money from a house sale, redundancy payment or inheritance. This is known as “temporary high balance protection”.

But with Monzo typically most popular with younger people, it’s unlikely many are carrying a balance that big.

The recent problems with Wirecard, which saw tens of thousands of customers of Pockit, Fair FX, Dozens and Anna Money, show the importance of holding more than current account.

Having a back-up account with some spare cash in it can ensure you still have a working debit card should there be any issues with your main bank.

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