The online-only fintech bank Monzo has admitted it is concerned about its ability to continue as a going concern after reporting growing losses of £114 million. Well-known for its distinctive coral-coloured debit cards, Monzo has become especially popular with millennials who enjoy its low fees foreign exchange transactions and transfers.

However, despite achieving strong growth in account numbers over recent years, with more customers also using their Monzo account as their main bank facility that salaries are paid into, the Covid-19 pandemic has hit it hard.

Monzo’s annual report, published yesterday evening, contained a warning by EY, the bank’s auditor, that revenues and credit losses had been “significantly impacted by Covid-19”. EY highlighted that there is a real threat that Monzo may now fail to generate either profits or raise capital to meet regulatory requirements attached to its banking license.

The bank itself admitted “the ability of the group to continue as a going concern is subject to material uncertainties”.

Founded in 2015, Monzo’s goal is to disrupt the traditional retail banking industry. As well as offering much lower fees for services such as international transfers and exchanges between currencies, the fintech bank’s app offers a number of helpful functionalities, such as tracking spending and distinct pots of money for different purposes.

However, despite success in growing user numbers, Monzo’s path to profitability was always going to be difficult. Its low fees means that relies on achieving significant scale as well as generating revenues through additional, more profitable financial services such as credit cards and loans.

Losses more than doubled to £113.8 million from £47 million over the year that ended with February. That was before the impact of the Covid-19 pandemic. The plan had been to raise more investment on the back of growth but capital markets are now tighter and Monzo a less attractive prospect thanks to an expected increase in bad loans. The value of loans that will turn bad is now estimated at £20.3 million compared to £3.9 million a year earlier.

The company last month raised £58 million at a valuation discounted by 40% on its previous fundraising round. However, it requires further capitalisation and it is not currently clear if that will be attracted.

One bright spot was that revenues rose impressively to £67.2 million from £19.7 million. Monzo customers also spent £10.9 billion from their accounts with the fintech bank, compared to £3.6 billion 12 months earlier. A strong indicator bank accounts held with the start-up are increasingly being used either as a main account or more actively for larger numbers of transactions.

Co-founder and president Tom Blomfield commented:

“We’ve seen organic customer growth slow as word-of-mouth drops, and we’ll see reductions in revenues and higher credit losses.”

Traditional high street banks are also feeling the pinch. Nat West Group, recently renamed from RBS Group, yesterday reported a £770 million loss for the first 6 months of the year. The bank’s share price has lost over 56% of its value since the beginning of 2020.

Nat West has provisioned £2.9 billion to cover expected losses resulting from a rise in unemployment and generally depressed economic environment and weak business activity. A £2.1 billion impairment was taken over the three months to the end of June to reflect expected rises in bad loans.

That was double analyst expectations and the result of “extensive modelling” by the bank’s analysts, who expect GDP to drop by over 14% this year. The bank believes total bad debts could reach between £3.5 billion and £4.5 billion over the entirety of 2020.