I thought I’d pick up a couple of points here. Please forgive the focus on Monzo in this reply, they happen to be the challenger that I know the most about & yes, I have drunk the Kool-Aid but I’ve also tried not to make delusional statements here..
The conversion path of a new customer is painful.
Monzo revealed this week that 74% of their users are weekly active users. I have a current account & the signup process is still incredibly straightforward. Starling’s is very slick too. Now that they have full banking licenses & FSCS protection, persuading users to move their salary over will be much easier.
The day that customer needs a mortgage or a loan, the advantage of the incumbents come into full force.
That is true at the moment but once users can sign up a mortgage, that doesn’t tie them to their bank forever, from one of several providers through the challenger’s marketplaces, wouldn’t that be more appealing?
Great customer service is hard to achieve at scale. The startups may deride the big banks, but as they scale they will feel the pain (and cost) just like the others.
This is a concern for me too. Monzo aims to be 40x more operationally efficient than the average retail bank by utilising technology.

They will be far better positioned to adopt new technology such as machine learning which they’re already leveraging successfully elsewhere in their business but that still seems like a big ask at this point.
All NeoBanks sell on easy onboarding, lower fees and a mobile-first experience and are IMO getting hard to tell apart.
I disagree, Starling & Monzo are almost identical in terms of their business model but their approach is radically different to the rest of the ‘challengers’.
As lack of monetization bites, how long before fees start creeping back in?
It looks like Monzo are going to introduce fair useage fees for ATM withdrawals soon but that will only cover the cost of those withdrawals. They forecast that they will be able to break even (before they start earning revenue from their marketplace), once they switch users from the prepaid cards to current accounts & they start providing loans.
Experienced operators will also tell you consumers with 5+ products are 10X more profitable than those with 3 or less.
The marketplace approach is a different approach to earning revenue than offering products & it has already been proven to be very successful for Apple’s app store.
In addition, the incumbents (take Santander as an example) have gotten close to par on the quality of their mobile and web offerings.
I’ve not seen a mobile app that comes anywhere near to the sophistication of the Monzo app’s design & functionality.
In particular, the one that manages to scale its balance sheet to become a full service lender / mortgage lender will probably be able to solve the retention issue.
This won’t be Monzo as they intend to keep their balance sheet small. For them, lending is simply a way to enable their business to remain sustainable in the short term, before they make their significant revenue from their marketplace.
My money is on N26 at this stage, but who knows.
N26 offer a good service & they’re a year ahead of Monzo in terms of their development, according to Monzo’s CEO. But I have a hard time seeing how N26 providing their selection of an (already commoditised) product, will appeal more to consumers than the freedom to choose from almost any product, from almost any provider & take advantage of all of the benefits that competition brings via Monzo’s marketplace.
