Unveiling Monzo’s Revolutionary Investment Feature: A Game Changer for Britain’s $4.5 Billion Digital Bank

Monzo, the $4.5 billion digital challenger bank, has announced the launch of a new investment feature, marking its entry into the financial investment market.

The feature, called Investments, will enable Monzo’s customers to invest in various funds managed by asset management giant BlackRock. CNBC had the opportunity to preview the product at Monzo’s headquarters last week. The feature is set to be rolled out on Tuesday, and will allow users to invest with as little as £1.

This move will position Monzo in direct competition with established banks like Chase, asset management firms, and other startup competitors such as Chip, Moneybox, and Plum.

While Monzo already offers interest-yielding savings pots, this marks the first time the company is venturing into the world of investing.

The application process is simple. Customers will be placed on a waitlist to access the product. Eligible users on the waitlist will then be invited to create an investment pot.

From there, they will be guided through a series of screens to learn about the product and choose from three funds carefully selected by BlackRock based on different risk levels.

The three fund options managed by BlackRock include Careful, Balanced, and Adventurous. The “careful” option offers low-risk, low-return investments, while the “balanced” fund provides medium-high risk and reward. The “adventurous” fund involves higher-risk allocations with the potential for larger returns.

Monzo’s co-founder and CEO, TS Anil, explained that the investment feature was introduced to address the lack of investing knowledge among the British population.

“Many customers face numerous barriers when it comes to starting their investment journey, and our aim is to eliminate those barriers,” Anil told CNBC in an interview prior to the product launch. “One of the biggest barriers is the perception that investing is unaffordable. With Monzo Investments, you can start with just £1.”

“Another barrier is the feeling of being overwhelmed due to a lack of knowledge. To overcome this, we have embedded educational content and tools to help users make informed decisions,” Anil added. “Lastly, personalization is important, so we offer three simple options tailored to individual risk preferences.”

According to research commissioned by Monzo, 69% of the UK population is unsure where to find an accessible and easy-to-use investment product. Additionally, 60% of adults stated that they would be more inclined to invest if the minimum investment amount was low. Interestingly, 24% of UK adults who invest admitted to “winging it.”

The research was conducted on a sample of 2,035 adults in Britain between July 27 and July 28.

The investment pots feature will be accessible through a new section called “Savings & Investments” on Monzo’s home screen. The feature will be gradually rolled out to eligible customers in the coming weeks, according to Monzo.

However, customers facing financial difficulties, such as falling behind on debt repayments, will not have access to the investment feature.

The feature also offers users the flexibility to modify, cancel, or withdraw their investments at any time, even after making their initial decision.

Monzo currently serves over 8 million customers in the UK, achieving this milestone just eight months after reaching the 7 million user mark.

The company is seeking to expand into new areas of financial services and generate additional revenue streams as it strives for full-year profitability. Monzo reported its first two months of profitability in 2023, driven by increased lending income due to higher interest rates in the UK.

Monzo will charge a fixed 0.59% fee on customers’ investments each month, comprising a 0.14% fund fee and a 0.45% platform fee for providing the service. For a customer with £1,000 ($1,250) invested with Monzo, this would amount to approximately 48 pence in monthly fees.

During a briefing with CNBC, Monzo executives expressed their desire to create a product that allows people to invest within a comprehensive ecosystem of financial services including budgeting, spending, money transfers, and borrowing.

Monzo sees itself as a “financial control center” where customers can manage their financial lives, rather than a “super app” that offers diverse services alongside banking and financial services.

Revolut, one of Monzo’s main competitors, has frequently emphasized its goal to become a financial super app that encompasses banking, trading, insurance, travel, and other services.

Among licensed neobanks in the UK, Monzo is one of the first to offer investment features, while competitors like Starling Bank and Zopa do not yet have such features available.

However, several fintech platforms, including Revolut and Freetrade, already enable users to trade stocks. Wise also offers an investment management service.

When asked if Monzo was late to the market, Anil responded, “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 investment bank Peel Hunt, believes that Monzo’s new investment feature could enhance customer loyalty.

“Monzo has the opportunity to tap into an untapped market. They don’t really have to worry about competition from existing players,” Pillai told CNBC.

Monzo is among the British fintech companies being closely watched as a potential candidate for an IPO in the upcoming year.

Anil stated that an IPO is seen as a milestone in the company’s journey, rather than an immediate target. He added that there are no immediate plans for a public listing.

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