This report will explore companies Monzo and Revolut, and will conduct a joint PESTEL analysis and individual SWOT analysis of both companies. These analyses will help to evaluate the external and internal environmental factors that could impact the companies in the future. Under the PESTLE analysis and each SWOT table, some more in-depth analysis of the identified external and internal factors will be conducted and explained. A comparison of the two companies, based on these analyses will then be presented, and a conclusion of some of the main take-away points will end the report.
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2.0 What is Monzo?
Monzo is a mobile-only, digital bank that is based in the United Kingdom (Carey, 2018). It was one of the first of several new app-based banks, known as ‘challenger banks’ in the UK (Carey, 2018). Originally, the company operated through a mobile application and a pre-paid debit card, but when UK banking licence restrictions were lifted in 2017, the company were able to offer a current account to consumers (Monzo, 2017). More than 750,000 people are now using the company’s current accounts and more than two billion pounds has been spent through Monzo so far (Monzo, 2019).
3.0 What is Revolut?
Revolut is a UK based financial technology company, offering various banking services, such as prepaid debit cards, cryptocurrency exchange and fee-free currency exchange (Dillet, 2015). With a standard account with Revolut, a consumer gets a free UK current account and a free euro IBAN account (Russon, 2019). Originally Revolut was not a bank and in December 2018 announced that it had been granted an EU banking licence (Russon, 2019). Currently, the company’s services are only available in Europe but Revolut has already reached 4.5 million customers, 1.6 million of which are in the UK (Russon, 2019).
4.0 PESTLE Analysis Table
|Political interference is a big risk in the banking industry (Moore, 2010). December elections could impact banking policies - new government could mean new legislation or regulations. Brexit could have big impacts for many sectors, including banking (Partington, 2019).||Economic losses from fraud in banking industry are very high (Crowe, 2019). UK economy could be drastically impacted by Brexit, e.g rapid increase in joblessness, impact on GDP and inflation (Partington and Weardon, 2019).||Engagement with mobile banks with UK consumer is on the rise (Fawthrop, 2019a). In the UK 71% of all banking interactions are online or digital, and this is set to increase further (Fawthrop, 2019b). Demand for digital banking amongst UK customers has grown substantially in 2018 (Mastercard, n.d).|
|Key barriers to adoption of banking technology is security and privacy concerns (Greaves, 2019). 85% people prefer not to talk to a robot when banking (Fawthrop, 2019c). Only 15% of people want institutions to invest in voice-banking services powered by AI (Fawthrop, 2019c).||Environmental crisis has led to more people wanting to lower their carbon footprint and be environmentally friendly. This means digital banks could be favoured as the need to drive to a branch is reduced, alongside less need for paper use, and in-branch energy usage (Townsend, 2018).||High probability for change in regulations in many industries, including banking, due to Brexit, and December election in the UK. Current intense scrutiny for digital banks due to allegations such as fraudulent accounting and toxic management culture (Finextra Research, 2019).|
4.1 Political Factors
The banking industry as a whole can be heavily impacted by political interference (Moore, 2010). According to one report, ‘Politicisation’ of banks resulting from takeovers and bailouts may pose a major threat to their financial health (Moore, 2010). Political instability caused by Brexit may also have a significant impact on the banking industry (Partington, 2019). Political instability can cause problems such as investors not wanting to commit to companies, negative impact on credit constraints and capital accumulation (Herrela and Ariss, 2013). In particular, in the UK December election results may impact Monzo and the banking industry as a whole as if a different party wins, this could mean new regulations or legislation could be implemented.
4.2 Economic Factors
Economic losses resulting from fraud are very high, with the global cost of economic fraud, when taken as a proportion of global GDP for 2017, being equal to £3.24 trillion (Crowe, 2019). This suggests that fraud could be a key issue for Monzo and Revolut, and something that the companies should try and prioritise and protect themselves against. The UK economy could be drastically impacted by Brexit, which could then have a knock-on effect on the banking industry. There is a lot of debate about what the impact of Brexit would be on the banking industry, with the governor of the Bank of England suggesting that the impact of a no-deal Brexit on the UK economy would be less severe than first thought, and estimating that GDP would drop by 5.5%. This is still a sizeable economic shock but less damaging (Partington and Wearden, 2019). However, other sources suggest that Brexit could be very damaging indeed, claiming the UK economy will be 3.5% smaller than if it had stayed in the EU (Islam, 2019), or could be plunged into a recession (Tolhurst, 2019). It is also claimed that joblessness would rapidly increase with a no-deal Brexit, increasing the UK’s unemployment rate to more than twice its current level, at about 7%. Inflation could also double to more than 5.5% (Partington and Weardon, 2019). The uncertainty associated with Brexit has already begun to drive up job losses across Britain as political turmoil holds back the economy (Partington, 2019). The number of people in work has dropped by the largest margin in four years, with companies putting hiring plans on hold, losing contracts and facing delays due to the uncertainty with Brexit (Partington, 2019). Ultimately though, the true impact of Brexit cannot be fully known until the negotiation process is over and it is decided what kind of deal, if any, has been struck. This means companies, like Monzo and Revolut need to be prepared to adapt to whatever the outcome may be.
4.3 Sociological Factors
Changing consumer expectations are fuelling the increase of digital banks in the UK, which could be a great opportunity for Monzo and Revolut (Fawthrop, 2019a). Alongside this, engagement with mobile banks with UK customers is on the rise, with digital channels being the most favoured method of personal finance (Fawthrop, 2019a). Furthermore, 71% of all banking interactions are online or digital compared to 6% happening in branch and 59% of UK consumers claim to have used mobile apps to access financial services (Fawthrop, 2019b). This suggests clear societal changes in the UK, with many more people choosing to do banking online, and less traditional in-store banking. Ultimately, demand for digital banking amongst UK customers has grown substantially in 2018, and research suggests an increasing gap of customer satisfaction levels between direct banks and branch-based banks, with direct banks coming out on top (Fawthrop, 2019a). A study commissioned by Mastercard found that convenience remains to be the biggest advantage of digital banking solutions, and additionally, Europeans demand security more than ever as their most important criteria for using digital banking solutions (Mastercard, n.d). Alongside this research, it was found that two-thirds of people expected the demand for digital banking solutions to increase in the future, and more than half of Europeans said they would consider switching to a digital bank (Mastercard, n.d). All of this evidence suggests that the outlook, in terms of consumer demand for banks like Monzo and Revolut, is generally very positive. It also suggests that Monzo and Revolut should potentially focus on reassuring consumers about the convenience and security strategies they have in place, to further inform and persuade consumers about the benefits of this type of bank.
4.4 Technological Factors
There has been a vast increase in the uptake of technology in the banking sector, but privacy and security are major concerns creating key barriers relating to the adoption of technology in this sector (Greaves, 2019). Issues with TSB online banking services locking their consumers out of accounts has also had a negative impact surrounding the use of digital banking services (Butterworth, 2018). This is likely to have impacted the reputation of digital banking and Monzo and Revolut will need to reassure consumers about these types of issues and explain strategies they have in place to avoid them. One study from ING Bank also found that consumers are still somewhat nervous about adopting new technologies, with two in three never using voice recognition or fingerprint access to log into their banking app (Greaves, 2019). This could be problematic for digital-only banks, as it suggests people might still prefer a more traditional approach, or, are not ready to use the most recent technology to access their banking services. It suggests that Monzo and Revolut should potentially wait until consumers are fully confident with the digital-only approach, before pushing other new technologies in their marketing, such as voice recognition. This will help to make sure the companies don't overwhelm consumers. Another study found also found that although a large majority of people agreed that the latest financial technologies should be available to them, there was a reluctance to adopt newer digital ways of managing money (Greaves, 2019). This is reflected in the fact that only 12% of Britons have fully switched to a digital-only bank and 47% of those who use services such as Monzo and Revolut, keep less than £1000 in them (Greaves, 2019). However, it is also suggested that over time, if new digital approaches are shown to be useful, reliable and socially accepted, the uptake of new banking technologies could be rapid (Greaves, 2019). Furthermore, it was found that 85% of people prefer not to talk to a robot when banking and only 15% want institutions to invest in voice-banking services powered by AI (Fawthrop, 2019c). This suggests there is still a demand for banks to have traditional aspects available, such as people to talk to over the phone or in-branch. This suggests Revolut should consider investing in telephone helplines, not just online chat customer service. It also suggests that both companies potentially shouldn’t look to invest in voice-banking services in the near future.
4.5 Environmental Factors
The environmental crisis has put more pressure on businesses and individuals to cut down their carbon footprint and invest in renewable sources of energy. Energy management, in particular, is being addressed by many banks globally, and many have already given consumers the option to go paperless for their statements and transactions. The use for paper is further reduced with digital-only banks, which can only be a positive factor with so much pressure on businesses to become more environmentally friendly. Additionally, the need to drive to a bank is also reduced with online banks, which means fewer carbon emissions. This should be a factor that Monzo and Revolut push in terms of marketing, as it is such an important and current problem that is very much at the forefront of many consumers’ minds. This is shown through research which found that 88% of consumers want businesses to help them be more environmentally friendly (Townsend, 2018).
4.6 Legal Factors
The risk of legislations and regulations being altered is potentially higher at the current time, due to the political instability in the UK, and potential impacts from the UK December elections. Ultimately, there is a high probability for change of regulations in all industries though, including banking, due to Brexit. New regulations could heavily impact how Monzo and Revolut would have to operate, and this could cause complicated legal issues that the companies would need to overcome. Various high growth startups in the digital banking sector have also recently been under intense scrutiny following allegations of issues such as AML deficiencies, fraudulent accounting and toxic management culture (Finextra Research, 2019). This means that Monzo and Revolut must make sure that they are complying strictly with all applicable laws, as it seems that they are also likely to come under intense scrutiny, due to the issues with similar companies. Additionally, Monzo was only able to offer current accounts after UK banking licence restrictions were lifted in 2017, therefore if these restrictions were put back in place it may leave the company with some big problems, and unhappy consumers.
5.0 Monzo SWOT Analysis Table
|Ease of use of app and options such as instant spending notifications and a clear and intelligent budgeting system for consumers to use (Fotis, 2019). Security options to help reassure consumers, such as freezing of card option (Janes, 2019). Energy switching system which is fairly unique and could help make Monzo stand out from other providers (Meadows, 2019). Monzo was ranked as one of the best ethical current accounts (Jones, 2018). Monzo consumers are covered by FSCS deposit protection, further reassuring consumers their money is safe (Bannister, 2019). Can use the app on an iPhone, iPad, iPod touch and Apple Watch (Janes, 2019)||Lack of human interaction, which was shown to be valued (Fawthrop, 2019a). Monzo is currently running at a loss, which can be very risky for a business, and it seems that the losses will continue to increase, due to spending on staff and technology (Megaw, 2019). The company experienced a security breach, potentially negatively impacting their reputation and causing concern over security measures with digital banks (Pugh, 2019).|
|Within the 18-27 age bracket 40% are choosing to use a mobile banking app as their primary bank, rather than a more well-known brand (Fawthrop, 2019a). Using AI for fraud protection and following in the footsteps of Mimiro (Fawthrop, 2019c). Expanding further internationally, for example into Asian markets, where digital banks have started to increase in popularity (Cheh, 2019).||Traditional banks are responding to challenger banks by investing in and partnering with new technology providers to better compete, which could negatively impact digital only banks (Taddia, 2016). Few people are using digital banks as their main banks, and are keeping lower amounts of money in them, with 47% of consumer using digital banks keeping less than £1000 in the account (Greaves, 2019). Brexit could cause chaos in terms of the economy and could mean changing regulations and legislation in the banking industry, which could negatively impact Monzo.|
5.1 Monzo Strengths
Monzo have been praised for numerous elements of their business model and app design, including the ease of use of their app (Fotis, 2019). This is especially important, as it is likely that some of the consumers who use their app, may not have used one beforehand. If a company’s app is confusing, or hard to use, it could be very off-putting for consumers, especially when it is the only way the consumer can use the services offered by Monzo. Monzo consumers also have the options of instant spending notifications, meaning that they can easily see what they have spent, and this can further help them to instantly see if something fraudulent is happening, as they can see the notification come up and subsequently immediately act (Nixon, 2019). It could additionally help consumers to track spending and help them to save, helped also by Monzo’s clear and intelligent budgeting system (Fotis, 2019). The company offer some useful security options to help reassure consumers, such as the option to freeze their card if a card is lost or stolen. This is vital as research showed that security was a key barrier when it came to consumers adopting new technology for banking services. Recently, Monzo has introduced an energy switching system too, which claims to be able to save consumers money by switching to cheapest deal available for them if they use the account to pay for their gas and electric bills (Meadows, 2019). This could further entice consumers into using the company, as it is a fairly unique option, and is very convenient for a consumer. This is a strength for the company as convenience was a key factor that consumers looked for with digital banks. Additionally, the company was ranked very highly as being one of the best ethical current accounts, further appealing to the ethically conscious consumer (Jones, 2018). Furthermore, consumers with Monzo are covered by FSCS deposit protection, giving them more security over their money and helps to reassure them their money is safe. Additionally, Monzo’s app is compatible with a variety of different products, including iPads, smartphones and Apple watches (Janes, 2019). This is a key strength as tablets, wearable devices and smartphones were the most popular channels for people to interact with their bank (Fawthrop, 2019a).
5.2 Monzo Weaknesses
A key weakness with Monzo could be that human interaction is still valued highly among consumers when wanting to contact their bank (Fawthrop, 2019a). This means that consumers may not want to choose a digital-only bank as they still want human contact, for example, in-branch and assume that Monzo doesn’t provide this. Even though Monzo does have a customer service phone number, it still could be off-putting for some consumers that prefer to speak face-face with their bank. Another key weakness with Monzo is that the company are currently running at a loss which can be risky and off-putting to potential investors. It can furthermore be off-putting to consumers who want to set up banking with the company, as they could misunderstand this and think that the company are failing. Furthermore, a major weakness is the company’s recent security breach which led to customer PINS being copied onto files which could then be accessed by engineers, despite being encrypted (Pugh, 2019). This is likely to have negatively impacted the company’s reputation and potentially caused consumers to lose trust in the company. The way in which this particular issue was security-based is potentially even more problematic, as security issues were a key barrier when it came to consumers adopting new technology in banking services. This means that those who were anxious about using this type of digital-only bank could have been deterred by this recent issue.
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5.3 Monzo Opportunities
There are a variety of opportunities in the digital banking sector. Research showed that 40% of people in the 18-27 age bracket were choosing to use a banking app as their primary bank, instead of a more well-known name (Fawthrop, 2019a). This suggests that Monzo should primarily aim the app at people in this age range, as it seems that they are already potentially interested in this type of product, and are, therefore, a key market. Another potential opportunity for the company is the use of AI for fraud protection, following in the footsteps of fellow UK fintech Mimiro (Fawthrop, 2019c). Mimiro managed to raise 22.9 million in financing for its anti-money laundering fraud prevention (Fawthrop, 2019c). Implementing AI correctly could reap big rewards for the company, including increased security, lower costs and higher customer satisfaction (Fawthrop, 2019c). Another potential opportunity for the company is to expand further internationally, into Asian markets, where there is a growing number of digital banks appearing (Cheh, 2019). This is shown through the fact that digital banking penetration in Asia’s emerging markets has, on average, increased 3-fold since 2014 (Cheh, 2019). This is thought to be due to the regions growing number of young, affluent and smartphone-first population (Cheh, 2019).
5.4 Monzo Threats
There are several threats that Monzo needs to consider when making future strategic business decisions. Banks are now responding to challenger banks, like Monzo, by investing in and partnering with new technology providers (Taddia, 2016). For example, BBVA has bought digital-only banks Atom and Simple, and Clydesdale and Yorkshire Bank’s app-based bank (Taddia, 2016). This is so that they can better compete, and essentially give customers both traditional and innovative options, in the same place, when it comes to banking. This could put digital-only banks at risk, and make it harder for them to compete in the market. Monzo will need to comprehensively look at what messages they can push with their marketing to show consumers how they don’t need any of the bonuses of traditional banks, such as in-store customer service. It would also be potentially useful to inform consumers that Monzo could be the more environmentally friendly brand, with the lack of need to go to a branch and less need to waste paper. Another threat to Monzo is how consumers are using the banking service. Few people are currently using digital banks as their main banks, and are therefore keeping lower amounts of money in them (Fotis, 2019). This is shown through a study which found 47% of consumers using digital banks kept less than £1000 in the account (Greaves, 2019). Monzo, therefore, needs to focus on how to persuade consumers to use their digital-only service as their primary bank. Furthermore, a big current threat is the changes that may come from Brexit and the UK December elections. It is impossible to guess what the outcomes of these issues may be, but there are many changes in the economy and in regulations and legislation that are possible, and that could negatively impact the company. This means Monzo need to be prepared to adapt to a potentially changing industry climate.
6.0 Revolut SWOT Analysis Table
|Offers an impressive range of innovative products, for example transfers into 29 different currencies and offers cryptocurrency exchange (Russon, 2019). Larger global market of users, compared to Monzo (Whitwell, 2018). Offers options such as instant payment notifications and security features such as freezing the consumers card via the app (Warren, 2019). Compared to competitors Monzo and Starling, Revolut is the cheapest when sending money abroad, as there is no charge up to £5000 (Revolut, 2019). Travel and device insurance can be added, using geolocation and offers pay per day cover, with great flexibility (Finextra, 2018).||Revolut consumers are not protected by the FSCS, but competitors Monzo and Starling consumers are (Whitwell, 2018). Can only be contacted by online chat, there is no telephone number (Whitwell, 2018) Charge downgrade fees if a person wants to close account or swap to a cheaper account (Whitwell, 2018). A whistleblower complained to the FCE in 2016 asking it to investigate the compliance of Revolut and the conduct of its chief executive, specifically because the systems in place for flagging suspect payments were completely inadequate (Russon, 2019). Advertising campaign accused of shaming single people was featured for Valentine’s day in 2018 (Russon, 2018).|
|Further expansion internationally into areas outside of Europe, for example Hong Kong. In Hong Kong retail banking is very profitable and there is a lot of potential for digital only banks (Crow and Ruehl 2019). Within the 18-27 age bracket 40% are choosing to use a mobile banking app as their primary bank, rather than a more well-known brand (Fawthrop, 2019a).||Traditional banks are trying to keep up with digital only by investing in newer technology, e.g Lloyds have revamped their banking app, including introduction of a savings pot, and instant payment notifications (Nixon, 2019). Competitors Monzo and Starling offer some interest with certain account criteria and partners e.g Monzo has partnered with Osk North and now offers 1% with an instant access account, with a minimum initial deposit of £500, whereas Revolut offer no interest at all (Richardson, 2019). Competitors Monzo and Starling also offer unlimited ATM withdrawals, whereas Revolut only allow up to £200 free (Revolut, 2019).|
6.1 Revolut Strengths
Revolut offers a very impressive range of innovative products and services for consumers, including transfers into 29 different currencies and cryptocurrency exchange (Russon, 2019). This means the company can appeal to a wide array of consumers, and in particular, could appeal to those who may frequently travel abroad. Another strength that could appeal to travellers particularly, is how Revolut is the cheapest, compared to key competitors Monzo and Starling, when consumers want to send money abroad, having no charge for this service (Revolut, 2019). Additionally, the company offer travel and device insurance, which can be added and paid by the day, with great flexibility (Finextra, 2018). Additionally, the company have a larger global market of users, compared to key competitor Monzo (Whitwell, 2018). This means they have a larger potential target market and operate in more countries than Monzo does, too. Revolut offer options such as instant payment notifications and security features such as freezing the card via the app (Warren, 2019). This can help to reassure consumers that their money is safe, which is important as security was a key barrier relating to the adoption of technology in the banking industry. It could furthermore have the potential to detect fraud quicker, as if a consumer sees a payment notification that wasn’t them, they can quickly act.
6.2 Revolut Weaknesses
Revolut has several weaknesses that could impact them negatively in the future. Firstly, consumers are not protected by the FSCS (Whitwell, 2018). This could be very off-putting for consumers as FSCS is a type of protection for people’s money, and ensures that if a bank fails, consumers are protected up to certain amounts, and therefore don’t lose all their money (Financial Services Compensation Scheme Ltd, 2019). Another weakness of Revolut is how consumers can only contact the company via online chat (Whitwell, 2018). There is no telephone number, which could be frustrating if consumers need immediate help and are not finding that help over online chat. It could also be frustrating for consumers who are more comfortable seeking help over the phone. Furthermore, it was found that human interaction is still valued by consumers in the banking industry (Fawthrop, 2019a), so this could be something Revolut should think about introducing (Fawthrop, 2019c). Another weakness with Revolut services is that they charge downgrade fees for consumers who want to swap to a cheaper account option or for those with a premium account who just to close their account altogether (Whitwell, 2018). This could be frustrating for consumers, in particular for those just wanting to close an account, as they are essentially be asked to pay before they are allowed to close an account. This could lead to the person becoming frustrated, and not wanting to ever use the service again, alongside potential negative word-of-mouth marketing. Another weakness for Revolut is the bad press they have gained, as a relatively new company. They have had numerous issues that have resulted in negative press and thus potentially negatively impacted their reputation. One of these is when a whistleblower complained to the FCE in 2016, asking it to investigate the compliance of Revolut and conduct of its chief executive, specifically as the systems in place for flagging suspect payments were inadequate (Russon, 2019). This could suggest to consumers that the company is not safe to use, causing further problems. Another example of a further publicity issue was when Revolut released an advertising campaign for Valentine’s day 2016, which many people claimed was shaming single people (Russon, 2018). All of the negative press could lead to a negative reputation and be very off-putting for consumers. This is especially important since the company is fairly new, and therefore potentially isn’t seen as being as reputable as a traditional banking service provider.
6.3 Revolut Opportunities
A key opportunity for Revolut is further expansion into areas outside of Europe. A particular opportunity could be in Hong Kong, where retail banking is very profitable and there is a lot of potential for digital-only banks (Crow and Ruehl, 2019). Another key opportunity is the 18-27 age bracket, as 40% are choosing to use a mobile banking app as their primary bank, rather than a more well-known brand (Fawthrop, 2019a). Another market that could be a good opportunity for Revolut is within the 18-27 age group, but specifically travellers within this age bracket. This is because the company have a few options, such as currency exchange, which would appeal to travellers. Furthermore, within the 18-25 age range 230,000 young people choose to take a gap year a
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