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Monzo's losses double as the favored British digital financial institution warns of pandemic uncertainty

A monzo debit card used at a payment terminal.

Monzo

UK digital bank Monzo said Thursday that its annual losses had more than doubled and warned that its ability to continue operating had become more uncertain due to the coronavirus pandemic.

The start-up recorded an annual after-tax loss of £ 113.8m ($ 149.5m) in its 2020 accounts, compared to £ 47.1m in the previous year due to investments in hiring, marketing and expansion got lost in the US. This was despite a tripling of sales from £ 19.7m to £ 67.2m.

Monzo lent a record £ 143.9m compared to £ 19.2m in the 2019 results. However, credit losses are expected to increase dramatically from £ 3.9m to £ 20.3m with £ 4.1m earmarked for increased risk of default related to the pandemic.

As a sign of the toll the crisis has taken on some startups, Monzo said that the disruption caused by Covid-19 had given rise to "significant doubts" about its ability to "continue as a company".

"Our revenue stream has been significantly impacted by the COVID-19 pandemic and the resulting macroeconomic uncertainty," said Monzo in his report. "Regulatory audits will also result in stricter financial crime requirements."

"This can result in lower forecasted customer numbers and sales, as well as higher costs associated with problem area correction. This increases the risk that the group will be unable to execute its business plan, which can adversely affect its ability to make a profit. " or raise sufficient capital to meet future regulatory capital requirements. "

Matt Clifford, founder of London-based start-up investor Entrepreneur First, said that such statements are not typical of young technology companies with access to venture capital or VC funds.

"These statements from accountants are not really for startups," he told CNBC. "Almost all growth companies are not really companies by conventional standards without access to more VC."

It's been a tough year for Monzo, with market value falling 40% to £ 1.25bn last month due to the impact of Covid-19. German app-based bank N26 and UK peer Revolut have kept their respective $ 3.5 billion and $ 5.5 billion ratings in recent fundraising deals, while transfer company TransferWise added value on a secondary share sale to $ 5 billion.

The big challenge for Monzo is now to figure out how to make money with its 4.4 million users. The challenger bank currently generates most of its revenue from fees that are charged each time a customer uses their card. However, she recently opened a premium account called Monzo Plus to diversify her sources of income. The company announced on Thursday that it will launch another premium banking product that includes travel-related features in the next fiscal year.

Monzo said last month that 120 employees would need to be made redundant to weather the crisis, and a Las Vegas customer service office was closed earlier this year. In its annual report, the bank said it wanted to avoid further layoffs. The company's co-founder, Tom Blomfield, recently stepped down as CEO to take on a more product-oriented role as president, with US chief TS Anil taking his place.

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