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Monzo faces 'pivotal' year with future in doubt as losses mount

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Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·3-min read
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Monzo founder Tom Blomfield. Photo: Monzo
Monzo founder Tom Blomfield. Photo: Monzo

Startup bank Monzo faces a “pivotal” year as it races to become self-funding amid mounting losses.

The bank published its annual results late on Thursday, showing losses continue to grow and warning that there was “material” uncertainty about whether the bank will survive the current crisis.

“The impact of the COVID-19 pandemic poses a significant risk to the UK and global economy, and this year will be a challenging time for many businesses, including Monzo,” founder and president Tom Blomfield wrote in the accounts.

“Our focus right now is on becoming a sustainable company that’s here for the long haul... This year will be pivotal.”

READ MORE: Monzo faces steep valuation drop as pandemic bites

It came as Monzo announced a loss of £113.8m ($149.5m) for the 12 months to 29 February 2020, a huge jump on last year’s loss of £47.1m. Net income grew much faster than losses, however, jumping almost 300% to £35m.

The results do not cover the COVID-19 pandemic but Blomfield wrote: “We’ve seen organic customer growth slow as word-of-mouth drops, and we’ll see reductions in revenues and higher credit losses.”

The bulk of Monzo’s business comes from customers spending money on its iconic “hot coral” cards, either out and about or abroad. Both those revenue streams have dried up, while its nascent lending business is also facing a surge in bad debts. Monzo set aside £20.2m to cover an expected jump in loans and overdrafts going bad.

READ MORE: Monzo re-launches £5-a-month 'Plus' account

The startup bank, which was founded in 2015, saw its valuation drop 40% when it raised £113m earlier this year. Blomfield said the cash would “help to see us through the economic downturn and ensure Monzo can continue to grow.”

However, the bank warned that the crisis meant “the ability of the group to continue as a going concern is subject to material uncertainties.” Monzo said a sustained downturn in consumer spending or any difficulty securing new investment in future could threaten the viability of the business.

Monzo announced it was making 120 people redundant last month and the bank said it was “working hard to avoid further redundancies.”

READ MORE: Monzo to lay off 120 staff

“We’re confident that although we’ve had to make, and will continue to make, difficult decisions, such as announcing redundancies, we’ll come out stronger and deliver fantastic products and services to our customers,” management said in a statement.

Monzo recently announced the re-launch of its subscription-based premium product as part of efforts to bring in more cash and make the business self-sustaining.

Accounts show Monzo’s customer numbers rose by 2.3 million in the 12 months to the end of February, climbing to 3.9 million. Revenue rose by 40% to £67.2m and customer deposits increased by 200% to £1.3bn. The bank lent just over £140m.

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