Business

Monzo secures $5bn valuation as it prepares return to US

London-based digital bank raises $430mn from investors including CapitalG and HongShan

The fundraising values Monzo more richly than the $4.5 billion price tag it secured in 2021

Akila Quinio and Stephen Morris
Tue Mar 5 2024 - 15:11

Monzo has secured a fresh round of funding that has boosted its valuation to $5 billion (€4.6 billion), as the London-based fintech prepares a second attempt to break into the US market.

The digital bank on Tuesday confirmed it had raised $430 million from new and existing investors in a fundraising led by Alphabet’s investment fund CapitalG. HongShan, the Chinese venture capital investor that split from Sequoia Capital last year, also contributed, alongside existing backers including Tencent and Passion Capital.

The fundraising values Monzo more richly than the $4.5 billion price tag it secured in 2021 from investors including Tencent, the Abu Dhabi Growth Fund, Coatue and Accel. The valuation bump comes as higher interest rates and weakening investor confidence have led many other high-profile start-ups to suffer significant down rounds in the past two years.

“Banking is still in the infancy of its transformation and we are seen as an outlier in pole position to win,” said chief executive TS Anil. “I think of this as a race to transform how customers interact with their money, to win at a global scale.”

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Those leading the round “are sophisticated global tech investors, very discerning”, he added. “Through much of last year, inbound interest was incredibly strong, so towards the end of the year we decided to crystallise it.”

Mr Anil said the capital would allow Monzo to crack the US market after a previous foray was curtailed when US regulators told the company it was unlikely to receive a banking licence, prompting it to retreat in 2021.

The fintech last year hired a new US chief executive and has announced plans to re-enter the US, this time via a banking partnership that would allow it to bypass a licence application.

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“We feel like we have earned the right to dream bigger and invest in the US as well,” Mr Anil said. “American banking is ripe for reinvention and the American customer needs a Monzo-like product, a financial control centre that helps them manage their money.”

Mr Anil also hinted at later plans to expand in European markets including Germany and France. “There are large, large revenue pools in banking, and customers are massively dissatisfied [in Europe],” he said. “I’ve always believed that some of the most exciting innovation happens at the intersection of those two things.”

The latest funding round marks a stark reversal in fortunes for the start-up, best known for its bright coral-pink bank cards. In 2020 and 2021, as earnings from card transactions plunged during the pandemic, its auditors warned of a “material uncertainty” over its ability to continue to operate as a going concern. At that time, the Financial Conduct Authority also opened an investigation into potential breaches of anti-money laundering laws.

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While Monzo made a pretax loss of £116 million (€136 million ) in 2023 – largely because of a surge in loan impairments stemming from the rapid growth of its buy now, pay later product – Mr Anil said he expected to turn a profit this year.

While the $5 billion valuation is far less than the $33 billion that UK rival Revolut achieved in 2021, Monzo has steadily worked through its issues and has a full banking licence. Revolut, by contrast, is still going through a protracted and distracting saga as it attempts to gain a licence from UK regulators.

Mr Anil said it was still “too early” to talk about the timing and location of a potential public listing. The issue is a fraught topic in the UK after many start-ups valued above £1 billion opted to list in the US, where market liquidity is greater and valuations often higher.

The chief executive, who took over from founder Tom Blomfield after he stepped down in 2020, said Monzo had been approached by smaller rivals hoping to be acquired.

“We are operating from a position of strength ... our organic strategy is working but we are open to M&A,” Mr Anil said. - Copyright The Financial Times Limited 2024

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