British app-bank Monzo counts cost of growing popularity

By Emma Rumney

LONDON (Reuters) - Digital bank Monzo, whose distinctive coral-coloured card has become a common feature in the wallets of young, tech savvy and mainly urban Britons, could hit 1 million users within months.

But the app-only bank, which has already reached 750,000 users and is valued at $336 million by its investors, needs them to do more than just sign up or encourage friends to join in order to "Monzo" one another funds and split restaurant bills.

To succeed in taking on Britain's big banks, Monzo needs customers to treat it as their main account, where they deposit their salary and pay their bills. At present only 1 in 5 of its users deposit their salary, with average balances of 1,400 pounds per month, its chief executive Tom Blomfield said.

And popularity comes at a cost for Monzo, whose annual losses had more than quadrupled to 33.1 million pounds ($44 million) by February - when its user base stood it had around 500,000 users, its annual report released on Monday shows.

Blomfield said Monzo, which launched in 2015, had made "real progress towards building a sustainable business" by cutting its costs from 65 pounds per account in September 2017 to 15 pounds per account this month. But net operating income, at 1.8 million pounds, fell far short of covering its overall costs,

Blomfield said the bank could hit the million user mark by September or October. To make money, it hopes to use their spending data to nudge its customers towards third party products or services and to take a commission every time it is successful.

It does this by tracking customer spending habits in order to understand, for instance, how moving to a different provider for services like energy can save them money.

But to do this, it needs its customers to pay for things like energy from their Monzo account. It had hoped that a switch from a pre-paid card - its beta product - to a fully-fledged current account by April this year, would encourage this.

However, Blomfield said 40 percent of its users were depositing at least 500 pounds per month, suggesting for those people Monzo is still a place to manage spending money rather than all of their finances.

($1 = 0.7599 pounds)

(Reporting by Emma Rumney; Editing by Alexander Smith)