Monzo, the $4.5 billion digital challenger bank, has launched a feature that allows users to make investments – marking its first foray into the vast financial investment market.
The feature, called Investments, will allow Monzo customers to invest in a range of funds managed by asset management giant BlackRock. CNBC got a first look at the product at Monzo headquarters last week. The rollout is set to begin on Tuesday and will allow users to invest with as little as £1.
The move will bring Monzo into competition with large incumbent banks such as Chase, which offer online investment management through its Nutmeg subsidiary; asset management firms; and younger startup competitors like Chip, Moneybox and Plum.
Monzo already lets its customers put their money into interest-bearing savings pots. However, this is the first time the company has ventured into the world of investing.
The application process is pretty straightforward. Customers will be invited onto a waiting list to access the product. Eligible users who have joined the waiting list will then be invited to create an investment pot.
They are then taken to a series of screens where they can learn more about the product and choose from three funds that BlackRock has carefully selected based on different levels of risk.
Monzo Investments allows users to start investing from as little as £1.
The choice falls on three funds managed by BlackRock: Careful, Balanced and Adventurous. At the “cautious” end of the scale is a low-risk, low-return fund; the “balanced” fund has medium risk and high return; while the “adventurous” variant involves riskier allocations with much greater potential returns.
Lack of investment knowledge among the British
TS Anil, co-founder and CEO of Monzo, said the company had been working to introduce an investing feature to address Britons’ lack of knowledge about investing.
“There are many, many hurdles for customers to get started… and the goal of our product is to remove those hurdles,” Anil told CNBC in an interview ahead of the product launch. “One of the biggest barriers is the idea that investing isn’t affordable and therefore people can’t get started. With Monzo Investments you can start from as little as £1.”
“Another reason is that they feel overwhelmed because they lack the knowledge to get started. That’s why we integrated the knowledge and tools to make good decisions,” Anil added. “Another reason is that it doesn’t feel personalized. That’s why we offer three simple options based on individual risk preferences to ensure it’s tailored to them.”
According to YouGov research commissioned by Monzo, 69% of the UK population are unsure where they can find an accessible and easy-to-use investment product, while 60% of adults say they would be willing to invest if the minimum investment was low would be quantity is small. Meanwhile, 24% of UK adults who invest admitted they have “overspent” their money.
The figures are based on a sample of 2,035 adults in the UK. Fieldwork for the research was conducted between July 27 and 28.
YouGov research commissioned by Monzo shows that 69% of Brits don’t know who to turn to when investing.
The Investment Pots feature will appear in a new part of Monzo’s home screen called Savings and Investments. The product will be made available to all eligible customers in the coming weeks, Monzo said.
But if Monzo’s data shows that a customer is in financial difficulty – for example, if they are falling behind on debt repayments – the opportunity to open new investments will not be shown at all.
The feature also gives users the flexibility to change, cancel or withdraw their investments at any time, meaning they can withdraw their investment even if they have already decided to do so.
Monzo now has more than 8 million customers in the UK, a milestone the bank reached just eight months after reaching the 7 million user milestone.
The company aims to expand into new areas of financial services and develop new revenue streams to achieve full-year profitability. Monzo reported its first Two months of profitability in 2023, a milestone the bank achieved thanks to rising lending income thanks to higher interest rates in the UK
The feature shows users educational content about the nature of investing.
Monzo said it charges a flat fee of 0.59% on customers’ investments each month, made up of a 0.14% fund fee and a 0.45% platform fee for providing the service. For a customer investing £1,000 ($1,250) with Monzo, that would mean around 48p a month in fees they would have to pay.
Monzo executives said during a briefing with CNBC last week that they wanted to launch a product that gives people the ability to invest in an ecosystem of financial services, including budgeting, spending, money transfers and borrowing.
Monzo sees itself as a “financial control center” where bank customers manage their financial lives, rather than a “super app” that offers many different services in addition to banking and financial services.
One of the company’s biggest competitors, Revolut, has frequently reiterated its goal of becoming a financial super-app that includes banking, trading, insurance, travel and other services.
Monzo is something of a pioneer among licensed neobanks in the UK when it comes to offering investments. Competitors such as Starling Bank and Zopa do not yet offer investment features.
However, several fintech platforms, including Revolut and Freetrade, already offer users the opportunity to trade stocks. Wise also offers an investment management service.
Asked if Monzo was late to the party, Anil said: “I don’t think we’re late at all.”
“You could argue that we were 500 years late to banking,” he added. “As the country navigates a cost of living crisis over the past 24 months, we have heard from our customers that people want to make long-term decisions with their money more than ever, so the product is well-timed to reflect this perspective.
Gautam Pillai, head of fintech research at investment bank Peel Hunt, said Monzo’s new investment feature could increase customer loyalty.
“The opportunity that Monzo has is to take advantage of the greenfield opportunity. You don’t have to worry about the wasteland. They don’t really need them,” Pillai told CNBC.
Monzo is one of many British fintechs on investors’ radars as a potential candidate for an IPO next year.
Anil said the company sees an IPO as another milestone in its corporate journey and not a short-term goal, adding that the company has no immediate plans for an IPO.
https://www.cnbc.com/2023/09/12/britains-4point5-billion-digital-bank-monzo-debuts-investments-feature.html The $4.5 billion British digital bank Monzo is introducing an investment feature for the first time