Who are Monzo’s competition?

A write-up of my own opinion on this question

I argue that the answer to the question “who are Monzo’s competition?” is not clear-cut and depends largely on how you define “competition”. Two interesting definitions I found are…

n. rivalry between two or more persons or groups for an object desired in common, usually resulting in a victor and a loser but not necessarily involving the destruction of the latter.

n. rivalry in which every seller tries to get what other sellers are seeking at the same time: sales, profit,and market share by offering the best practicable combination of price, quality, and service. Where the market information flows freely, competition plays a regulatory function in balancing demand and supply.

I have thought about this quite a lot since I joined the company and wanted to write up my findings. There are two apparently competing views, which I argue are not actually mutually exclusive. Here I will break down what I perceive to be some flaws in each of the viewpoints.

Other challenger banks are Monzo’s competition

Right at this very moment, I believe this statement to be the least true of the two viewpoints. In order to reach this conclusion I applied a few tests, namely:

  • assuming that Monzo would like to be the sole bank account of every customer, which bank accounts would we like people to close in order to move to Monzo? In other words, from whom are we trying to obtain customers?
  • to whom do Monzo’s core value propositions/USPs appeal the most?
  • if Monzo succeeds, who will fail?

There are tens of millions of UK current account customers, and only a fraction of these people hold accounts with “challenger banks”. Of the challenger banks, it is possible that Monzo has both the most customers and the most active customers by quite a margin. It would be the wrong strategy to focus our efforts on acquiring customers from other challenger banks because the gains (even in the best case) are tiny, and it would also be a distraction from our implicit goal of moving banking into the 21st century (a goal shared by other challengers). It is therefore easy to argue that other challenger banks are not our competition, and we should focus exclusively on being viable competition for legacy banks.

This argument is further supported when we consider the group of people to whom Monzo’s core value propositions appeal the most. The banking experience across challenger banks is comparable, but far better than any legacy banking experience out there. We exist to offer a material improvement to the status quo, and we would do well to remember this when considering the question of who our competition is.

If Monzo succeeds, I believe it will be at the expense of legacy banks, not other challenger banks. In other words, there is room for more than one challenger bank in much the same way that there is currently room for more than one legacy bank.

Legacy banks are Monzo’s competition

I believe this statement is currently the most true of the two viewpoints, but we should not take for granted that it will remain this way for a very long time. I applied a similar set of tests to reach this conclusion.

  • if we applied the above 3 tests in 10 years’ time, would the outcome be the same?
  • if competition takes place between similar entities, do we consider ourselves to be more similar to other challengers or legacy banks?
  • if Monzo were to fail, who would succeed?

If we applied the above three tests in 10 years’ time then I believe we would reach different conclusions. It is my view that in 2028, there will be several challenger banks with a large enough customer base that it will be worth competing with them to obtain customers. Since we will have reached our implicit goal of moving banking into the 21st century, it is likely that we will no longer consider legacy banks to be a threat to our future. Instead, we will compete with other challengers on features, customer service, marketplace offerings, business offerings — all in pursuit of our explicit goal of being the financial control centre for one billion customers worldwide.

We must consider that initially, Uber competed with the entrenched norm of flagging down a taxi in the street, or having to call up to book one. In my view, they achieved a 5-10x improvement on this norm. In the US, Lyft achieved a similar level of success. It would be farcical to suggest that Uber and Lyft were competing from the outset, but they definitely are now. This kind of situation is likely to occur in a banking context as well.

If we go back to the definitions at the top, there is a strong implication (particularly in the second definition) that competition takes place between similar entities seeking the same outcomes. It is reasonable to argue that we are not seeking the same outcome as legacy banks, but we are seeking a very similar outcome to fellow challengers. Thus, by this definition, it would not be invalid to suggest that challengers are more direct competition.

I honestly cannot see a future in which legacy banks are able to keep up with technology and retain customers. The corollary of this view is that, even if Monzo does not succeed, then one or more other challenger banks (which may or may not exist right now) will eventually do so. Given that Monzo wants to be in this set of successful challenger banks, it is important to ensure that we get things right and we should not allow ourselves to fall behind other challenger banks. In this regard, people might call other challengers our “competition”.

Wrapping up

I think that there are valid arguments to support both of these viewpoints, but Monzo and other challenger banks are not presently at the stage where they can be considered each others’ competition. Right now, I believe that Monzo, and all other challenger banks for that matter, are competing only with legacy banks.

As market share moves away from legacy banks, the situation is likely to change quite a lot. Competition between challenger banks will become more apparent and more important than the competition with legacy banks.

It’s worth finishing with a reminder that competition can be cordial, and it works squarely in favour of consumers.

Backend Engineer at Monzo Bank, building our user-facing product features. Views here are my own.