Monzo, a British digital bank, has unveiled Investments, a feature that allows customers to invest using as low as £1. By using this feature, Monzo users can gain access to a selection of funds managed by BlackRock. The introduction of this service is the latest step forward for the company to diversify into new financial services and earn new income, moving it towards being profitable on an annual basis.
Monzo, the digital challenger bank valued at $4.5 billion, is introducing a new feature to its services called Investments, offering its customers the opportunity to invest in funds managed by asset management giant BlackRock. CNBC had the privilege to get a preview of the product last week. It is set to go live on Tuesday, and users will be able to invest as little as £1. This puts Monzo in direct competition with established banks such as Chase and its subsidiary Nutmeg, as well as with younger startups like Chip, Moneybox, and Plum. It should be noted that this is the first time Monzo is entering the investment market. Obtaining the service is relatively straightforward; customers need to join a waitlist where they will be invited to create an investment pot. Afterwards they will be directed to a series of screens to learn about the product and have the option of selecting one of the three funds provided by BlackRock based on different risk levels.
A decision must be made between three funds managed by BlackRock; Careful, Balanced and Adventurous. The Careful fund has a low-risk, low-return strategy; the Balanced fund offers medium risk and reward; whereas the Adventurous one involves higher-risk investments with a bigger possibility of high returns.
TS Anil, Monzo's co-founder and CEO, said the firm had sought to provide an investment option to address the lack of awareness amongst Brits on investing. In an interview with CNBC ahead of the product release, he said: "There are countless impediments to customers getting started … and the goal of our product is to remove them. One of the biggest is the perception that investing is unaffordable, so with Monzo Investments, you can start from £1. As well as this, they feel bewildered due to the lack of information needed to get going, so we've incorporated the expertise and tools to make wise decisions. Another issue is that it isn't individualised, so we're offering three straightforward options dependent on individual risk preferences to guarantee it's personalised for them."
A YouGov survey undertaken on behalf of Monzo found that 69% of UK citizens are uncertain of the place to turn for an uncomplicated and accessible investing product, while 60% of adults reported they would consider investing if the minimum amount is low. In addition, 24% of U.K. investors stated they were "winging it".
The survey was conducted with 2,035 adults in Britain, and fieldwork ran from July 27 to July 28.
The feature called 'Investment Pots' will be located on Monzo's new "Savings & Investments" page on the home screen. It will be available over the coming weeks for all eligible customers. However, if there is an indication of potential financial difficulty in a customer's data, they won't be able to open new investments. Additionally, users have the flexibility to amend, withdraw or cancel their investments at any time. With 8 million users in the U.K., Monzo is now looking for new sources of revenue to help them move towards full-year profitability. This was made possible in 2023 when the bank reported their first two months of profitability with increased interest rates in the U.K. causing an increase in lending income.
Monzo declared that a fee of 0.59% would be charged each month on customers' investments, made up of a 0.14% fund fee and a 0.45% platform fee for the provision of the service. If a customer's investment with Monzo was £1,000 ($1,250), this fee would come to approximately 48 pence monthly.
Executives at Monzo revealed during a briefing with CNBC last week that their aim is to launch a product which will provide people with the ability to invest within a range of financial services such as budgeting, spending, transferring money, and borrowing. Monzo perceives itself as a "financial control center" where banking customers can go in order to manage their finances, as opposed to a "super app" providing diverse services which are linked to banking and financial services. One of the firm's greatest competitors, Revolut, has set out to become a financial super app encompassing banking, trading, insurance, and other services. Monzo is amongst the first licensed neobanks in the U.K. to offer investment options. Companies such as Starling Bank and Zopa have not yet included investing features. A multitude of fintech platforms, including Revolut and Freetrade, already offer users the capability to trade stocks and Wise has its own investment management service.
When inquiring whether Monzo is lagging behind, Anil stated: "I don't think we're late at all. You could argue we were 500 years late to banking. However, we've heard from our customers over the past 24 months that now more than ever people want to make wise long-term decisions with their money, thus the product is well-timed from that viewpoint." Gautam Pillai, head of fintech research at Peel Hunt, an investment bank, commented that Monzo's new investing feature might lead to increased customer loyalty. "The opportunity that Monzo has is reaching those untouched. They don't need to worry about the established market. They don't actually need it," Pillai informed CNBC. Monzo is one of the numerous British fintechs being closely monitored by investors with the potential of being floated in the stock market in the upcoming year.
Anil explained that the company perceives an IPO as yet another milestone in their journey as a business rather than a goal in the immediate future, and that the company presently has no plans for a public offering. WATCH: Shift4 Payments CEO talks pressure on the payments sector and consumer resilience.
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