What the heck is Monzo?

Monzo makes personal finances fun.

I honestly never thought I'd get this excited about day to day finances, but Monzo almost gamifies it, making sticking to your budget more of a fun challenge than a frustrating chore that guilts you into wondering whether you can afford the next round on a Friday night. Since I started using it I worry less about money, I can remember to the nearest £10 what's in my account, I'm disciplined with making choices on what to spend on, and I actually save some money (not bad for a Londoner!)

These are the secondary benefits, the main one is mainly just that you worry less about money which allows space to think about other things. Pretty good product eh?

For those unversed, Monzo is now a fully functioning consumer (and now business) "challenger bank"; branchless, and with all services & support being self served by the end user via a mobile app. Banking in the UK - indeed, globally - is dominated by a select few monopolists. Financial regulations and access to capital historically made entering the sector for any newcomers intentionally difficult - if you were an incumbent bank would you open a credit line to a direct competitor? However, the increase of venture capital markets from 2000 onwards viewing technology companies with a product that can be distributed at zero marginal cost is a combination that allows new value chains to form outside of the ones legacy banks were founded within.

It wasn't entirely easy for Monzo - initially 'Mondo' before a trademark dispute - to get going though. Between the firm's founding in 2015, until 2017, they were issued a restricted banking license by the British Financial Conduct Authority, and able to operate a prepaid debit card service to prove a level of responsibility. This meant you could effectively wire block quantities of cash to the card & manage and budget the money via the app. It wasn't until April 2017 the restrictions were lifted and they became a fully fledged bank you could get paid into. Simply put - everyone finally had an account number and sort code, could get paid into the account, and many people - me included! - went #FullMonzo.

Monzo's product is awesome, and I use it as my primary and only current account now, but here's my hypothesis: designing a product for a prepaid debit card use leaves them with a slight 'hangover' of features that don't quite fit a full time current account user. 

What would take the product to the next level?

They aren't quite mutually exclusive as there's a common thread throughout, but here's 3 relatively distinct features I think suffer from the past, and suggestions for how it could be done differently:

1. Problem: Can't discriminate properly between really heavy bills and discretionary spending

Assuming you've gone #FullMonzo and are managing all your monthly spend out of the account, you'll want to set an all encompassing budget that gives you the full picture of where all your money is going during that period, typically a calendar month. To borrow an analogy from physics, Antoine Lavoisier stated in 1785, "matter is neither created nor destroyed." Well, a budget is just like that, even if you're saving a proportion of it every penny has an allocated destination and can't find itself in no man's land.

Monzo can't really currently handle the concept of discretionary spending and bills properly in the current product iteration. If you imagine as soon as you receive your salary each month you pay your rent, electricity, water, heating and council tax, you're looking at an outlay of £1k+ in a single day - which would be rightly allocated by the app under the Bills category - but would send alarm bells ringing in the Budgeting feature as an overspend, when in fact the velocity of spend will be 10x less from here on out as you progress through the month.

Monzo's official advice when queried via Twitter was that you can exclude these bills from Summary, which does actually work in terms of making sense of your day to day discretionary spend on Groceries, Eating Out, Shopping etc, but doesn't technically allow you to budget all your income 'by the book' as you might expect.

Solution Hypothesis: treat discretionary spending and bills as a different 'class' of spend.

You'd almost want to consider setting two component budgets when you kick off a new period - one for Bills and one for Everything Else - which roll up into the total Budget feature. Part of the issue is that the current Bills category is on the same level of abstraction as every other, but in reality it's a different flavour of spend with a different cadence and should be treated as such. This solution would allow the user to make sense of their overall spend, and the Budget Predictor feature wouldn't freak out immediately implying you're going to overspend, making you feel financially incompetent before the month even began. 

Good product should be cognisant of the user's emotional state, and it's important to remember many (most?) people find real value in using Monzo as a tool to gain a feeling of greater control over their finances, positively affecting their emotional state, and worrying less.

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2. Problem: Budget prediction wheel feature predicts expected expenditure evenly in 30 day intervals

This one is pretty simply to understand and solve conceptually, but I suspect a lot more difficult to solve for in reality. The overall budget and each component category is divided into 30 even blocks and then your daily spend relative to the daily quantity available are compared. Spend more than the block, and it'll warn you will varying degrees of alarm that you're either going to go over budget. Spend on track, and you're in the green.

It's a useful feature, but the issue is it can't handle human foresight. For example, the way I buy groceries is in approx 12 day blocks of food that I get delivered from Ocado to my flat. I plan my meals and strategically live out of the freezer, my typical basket size is about £80, or £6.66 a day.

Monzo treats an £80 spend on Groceries at a certain time of the budget period as a cause for alarm, as if you're going to overspend, when in fact you're actually doing the opposite; being financially prudent and planning efficiently for the future. ie. no more spend will happen in that category for 12 more days.

Solution Hypothesis: weight predictions depending on the historical behaviour within a category

This problem is a lot harder to wrangle, because likely it isn't as simple as amending the basic algorithmic logic of the current feature. Likely long term it's a case of using machine learning to understand the typical cadence of a user's spend in a particular category, look for patterns, and weight that into the overall prediction for whether a user is going to go over/under their budget. It is highly possible this is Monzo's intention already, but that they need a large(er) quantity of user data to make predictions that are in any way useful to the user. Excited to see if this is possible though, and how useful it would ultimately be to people.

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3. Problem: framing spending negatively no matter the context affects users emotional perception of their ability to manage their money

There is a thin line between useful advice and alarm, but to go back to the point in Problem #1, it's likely a large number of users choose Monzo because it decreases the mental overhead required when it comes to personal finance.

The product currently frames fully spending all your budget within a category as a negative thing, as shown by the signifier of a red line once you reach zero. The core of the issue is that it's implying spending all your budget in a category is 'bad'. But it's not. The point of a budget is that you spend all of it, and depending on what the service or product being purchased is, these will happen at different times and in different quantities - some slowly, like Groceries, or some instantly, like the £26 I budget for a haircut once a month.

The current setup effectively guilt trips me for getting a haircut.

Solution Hypothesis: review the concept of 'red flags' within the product

This solution is a lot less tangible and a lot more qualitative, but it flies pretty close to the wind in terms of the core value the user receives from the product. In the context of personal finance, there's an inherent risk in giving advice where you really weren't qualified to, or worse, gave bad advice. This isn't quite analogous to telling someone where to invest their money, but it does affect their psyche and makes influential implications to how they make decisions with their money going forward. 

Monzo need to be super careful that they're providing simple implicit 'advice' through their signifiers to the end user. Not everyone understands personal finances as much as they might like to, or can do their own mental due diligence on whether they're making the right or wrong decisions when it comes to money. In that context, Monzo has a huge responsibility, but also a huge opportunity to get it right.

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Any thoughts on what I wrote? Tweet me your opinion @markjohndouglas