Britain’s $4.5 billion digital bank Monzo debuts investments feature

Monzo, the $4.5 billion digital challenger bank, launched a feature that lets users make investments —marking its first foray into the massive financial investment market.

The feature, called Investments, will allow Monzo’s customers to invest in a number of funds managed by asset management giant BlackRock. CNBC got an early look at the product in Monzo’s headquarters last week. It’s set to start rolling out Tuesday, and will allow users to invest with as little as £1.

The move will put Monzo into competition with large established banks like Chase, which offers online investment management through its Nutmeg subsidiary; asset management firms; and younger startup competitors such as Chip, Moneybox, and Plum.

Monzo already lets its customers put their money into interest-yielding savings pots. But this is the first time the company is making a move into the world of investing.

The application process is pretty straightforward. Customers will be invited to a waitlist to access the product. Eligible users who’ve joined the waitlist will then get invited to create an investment pot.

After that, they’ll be taken through to a set of screens where they learn about the product and get to choose from three funds handpicked by BlackRock based on different risk levels.

The choice is split between three funds managed by BlackRock: Careful, Balanced and Adventurous. At the “careful” end of the scale is a low-risk, low-return fund; the “balanced” fund has medium high risk and reward; while the “adventurous” one is about higher-risk allocations with much larger potential returns.

TS Anil, Monzo’s co-founder and CEO, said the company had worked to bring about an investment feature to tackle a lack of knowledge from Brits when it comes to investing.

“There’s many, many barriers customers have in getting started … and the aim of our product is to banish those barriers,” Anil told CNBC in an interview ahead of the product launch. “One of the biggest barriers is the idea that investing isn’t affordable so people can’t get started. With Monzo Investments, you can start from £1.”

“Another of these is that they feel overwhelmed as they don’t have the knowledge they need to get started, so we’ve embedded the knowledge and tools to make good decisions,” Anil added. “Another is that it doesn’t feel personalised, so we’re offering 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 U.K. population aren’t sure where to go for an accessible and simple-to-use investing product, while 60% of adults say they’d be inclined to invest if the minimum investment amount is low. Meanwhile, 24% of U.K. adults who invest admitted to “winging it.”

The figures are based on a sample of 2,035 adults in Britain. Fieldwork for the research was undertaken between July 27 and July 28.

The investments pots feature will appear in a new part of the home screen on Monzo called Savings & Investments. The product will be rolled out to all eligible customers over the coming weeks, Monzo said.

But if Monzo’s data shows a customer is in financial difficulty — for example, if they’re falling behind on debt repayments — the ability to open new investments won’t show up at all.

The feature also gives users flexibility to amend, cancel or withdraw their investments at any time, meaning they can pull out of their investment even if they’ve already decided on it.

Monzo now counts more than 8 million customers in the U.K., a milestone the bank hit only eight months after hitting the 7 million user milestone.

The company is looking to push into new parts of financial services and generate new revenue sources as it seeks to edge toward full-year profitability. Monzo reported its first two months of profitability in 2023, a milestone the bank won off the back of surging lending income, thanks to higher interest rates in the U.K.

Monzo said it would charge a flat 0.59% fee on customers’ investments each month, which comprises a 0.14% fund fee and a 0.45% platform fee to provide the service. For a customer with £1,000 ($1,250) invested with Monzo, that would translate to roughly 48 pence a month in fees they’d have to pay.

Executives at Monzo said during a briefing with CNBC last week that they wanted to launch a product that gives people the ability to invest within an ecosystem of financial services including budgeting, spending, transferring money, and borrowing.

Monzo sees itself as more of a “financial control center” where banking customers go to manage their financial lives, as opposed to a “super app” that offers lots of different services adjacent to banking and financial services.

One of the company’s biggest competitors, Revolut, has frequently touted its aim to become a financial super app encompassing banking, trading, insurance, travel and other services.

Monzo is something of a first mover among licensed neobanks in the U.K. when it comes to offering investments. Competitors like Starling Bank and Zopa don’t yet offer investing features.

Still, several fintech platforms, including Revolut and Freetrade, already offer users the ability to trade stocks. Wise also offers an investment management service.

When asked whether Monzo was late to the party, Anil said: “I don’t think we’re late at all.”

“You could argue we were 500 years late to banking,” he added. “As the country has navigated through a cost of living crisis in the last 24 months, we’ve heard from our customers that now more than ever people want to make good long-term decisions with their money, so the product is well timed from that perspective.”

Gautam Pillai, head of fintech research at the investment bank Peel Hunt, said Monzo’s new investments feature could increase customer “stickiness.”

“The opportunity that Monzo has is going after the greenfield opportunity. They don’t need to worry about the brownfield. They don’t really need it,” Pillai told CNBC.

Monzo is one of many British fintechs on investors’ radar as a potential candidate for an initial public offering in the year ahead.

Anil said the company sees an IPO as another milestone on is journey as a business rather than a target in the near term, adding that the company has no immediate plans for a public listing.