Monday 10 August 2020 4:51 am

Monzo? I’d rather invest my tuppence in the bank

Josh Williams is managing director of The Draft

“Railways through Africa. Dams across the Nile. Fleets of ocean greyhounds. Majestic, self-amortizing canals.” 

So enthuses Mr Banks to his dubious son Michael. An investment in the Fidelity Fiduciary Bank, in the words of director Mr Dawes, “fires the imagination”. And tuppence is all you need to open an account.

Never has the promise of banking been better nor more musically (if a little anachronistically) evoked than in Mary Poppins. Mr Dawes you may better recognise as Dick Van Dyke, whose old-face makeup renders him in 1964 the spitting image of the actor  today. 

Read more: Monzo flags ‘significant doubt’ over ability to continue as losses double

Without Van Dyke’s charms to aid them, banks since the Mary Poppins era have failed to instil the world with much passion for the role they play in society, especially since the financial crash. The fallout from decades of underregulated casino capitalism will not soon be forgotten, and nor should it be. This is a burden that all the banks will carry with them for many years to come.

In the post-2008 era, some savvy entrepreneurs saw an opportunity in this collapsing public trust. A fleet of new banks arrived, if not to our hollowed-out high streets then at least to the screens of our phones. 

Leading the charge was Monzo, marked out by the jolly voice with which it spoke to its customers (refreshingly free of the jargon that so infects the industry) and the luminosity of its fluorescent debit cards.

Hipsters across the land rejoiced, and where they led, others followed. In December 2019 (albeit in the period we may come to remember as BC — “before Covid”), Monzo reported that 55,000 new accounts were being opened each week.

And yet, for all those new accounts, when Monzo released its own figures this week, things were not so pretty. Despite sitting on deposits of some £1.4bn from its three million customers — one in every 20 Britons — Monzo recorded a loss and a big one: £113.8m. This loss was so great, in fact, that the bank’s new chief executive admitted there is now “significant doubt” about whether the challenger bank will stay afloat.

The reason for Monzo’s ill-fortune is that the bank has lent so little and found no other way to make money. Last year, its lending amounted to just seven per cent of its asset base, and most of that was overdrafts. It was only last year that Monzo began lending properly at all.

Having discovered no other business model, this failure to lend is clearly bad business. But it is a moral dereliction of duty too. Banks, operating effectively, turn one person’s idle money into new opportunities for another. My savings become the seed money for an entrepreneur’s next investment, who in turn converts my savings into new jobs and economic growth. I, the saver, receive a cut of the proceeds (admittedly a very small one).

Yes, the banks turn a profit at the end of it, and theirs is a far bigger cut than mine. But then banks are not charitable endeavours — and they should never pretend to be. Well run, they serve a critically important function. And when we baulk at their profits, we would do well to remember that the only thing scarier than a highly profitable bank is a bank not making any profit at all.

In Mary Poppins, this argument falls on deaf ears. Young Michael, whose tuppence Mr Dawes so covets, is unconvinced by the promises of the Fidelity Fiduciary Bank. Instead he chooses to spend his tuppence feeding pigeons outside St Paul’s Cathedral. 

If Dick Van Dyke represents big banking, Michael must represent Monzo. A bank that doesn’t lend is for the birds.

Read more: It’s time epidemiological models faced the same scrutiny as banks

Main image credit: Getty

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