Monzo and Revolut both released their annual reports over the past week. Monzo isn’t sure it will survive, Revolut is much more confident.
We’ve added in TransferWise to add some cross-border context to the conversation. Note, TransferWise powers Monzo’s money transfer product whereas Revolut has its own cross-border payments product.
Unit economics matter. Both Monzo and Revolut rely heavily on the 0.2% interchange charge when users use their debit cards which has been significantly hit by the pandemic.
- For Monzo, interchange accounts for 48.5% of total revenue, the balance primarily from interest income. It earned only £2m (3% of total revenue) from its cross-border payments relationship with TransferWise.
- Revolut diversifies its revenues primarily with its subscription product (24.3%) and crypto-trading (part of its other income at a 12.7% share) but interchange income still makes up 63% of its total revenue.
Neither bank earns any significant amount from lending. This is currently a source of much debate as to whether any new (digital) bank can survive without leveraging its deposit base through lending.
Both banks are also still sub-scale when it comes to reaching profitability and each customer currently costs money overall. By comparison, TransferWise, having now reached profitability earns more per customer but the net profit per customer is still relatively small.
Having recently raised $580m, Revolut has enough of a funding buffer to get through a lean 2020. TransferWise is not in question despite its growth slowing in recent years. Will Monzo be around in a year’s time? That’s a tougher question.