LONDON — Startup bank Monzo is doing away with one of its most popular features — unlimited free ATM withdrawals overseas.
The company, which offers a prepaid money card and is rolling out current accounts, is asking its customers to choose the best new charging option for ATM fees abroad, saying its existing policy has become simply too costly to continue.
Withdrawals from international holes-in-the-wall cost Monzo between 1-2% of each transaction. Costs have more than doubled in the last year from £6 to £16 per user, the company says.
“This seems to be a result of a combination of factors, including people using their Monzo cards more frequently, increased awareness of the free cash withdrawals we’ve offered, and people signing up specifically to use the Monzo card abroad,” Tristan Thomas, Monzo’s head of marketing and community, wrote in a blog post this week.
Anecdotally, this rings true. I have recommended Monzo to friends and family to use when travelling abroad thanks to its free ATM withdrawals and good rates. (I also included it in a roundup last year of fintech products that can help you save money when travelling.)
13% of users account for 85% of the ATM fee costs, Monzo says, suggesting that a small core of users have been using Monzo extensively abroad.
“We want to build a sustainable, viable business that is around for many years to come,” Tristan says. “At the moment, the rising costs of foreign ATM withdrawals makes that difficult.”
Spending on cards while abroad, online sales in foreign currencies, and UK ATM withdrawals will all still remain free, Monzo says. But it is asking users to what to do about the overseas ATM withdrawals, offering three options:
- 1% charge for ATM withdrawals in Europe, 2% charge for withdrawals Rest of World
- 1.5% charge for ATM withdrawals everywhere outside the UK
- £200 free allowance per month, 3% charge for withdrawals thereafter everywhere outside the UK
Fintech’s fee problem
The company is not the first fintech to run into issues with ATM withdrawals. Last year German startup bank N26 shuttered some customer accounts, saying they were running up too great a cost in ATM fees. Travel money card Revolut also introduced fees for ATM withdrawals at the end of last year.
All are grappling with a core problem for many fintech startups — can they convert all their users into paying customers?
Businesses like Monzo and Revolut have caught the attention of investors and the press thanks to the rapid growth of their customer bases. Revolut didn’t exist two years ago but already has over half a million users.
Many people have undoubtedly signed up for startups like these because of the low-cost or free services that they offer. Usually, the costs of these services are simply absorbed by the business.
These startups argue that, while giving things like ATM withdrawals costs them money, the cost of user acquisition is still lower than what traditional banks pay. If they can make money from a user through another service, overdrafts say, once they have hooked them with free withdrawals, the up front investment and economics make sense.
However, both Revolut and Monzo are loss making and the claim that they can ultimately make enough money from users to cover costs remains just a theory.
Early indications suggest it could be easier said than done. Travelex launched a card to rival Revolut last year, the SuperCard, which offered free spending abroad but a 2.99% fee on any ATM withdrawals. Clearly, the hope was that customers would get the card but end up doing an ATM withdrawal here and there, giving Travelex a bit of revenue.
Things have not gone to plan. Travelex shut down the SuperCard scheme in May, citing “much higher than anticipated” costs. It seems that it is easier to simply charge the customer the foreign exchange fees up front so that everyone’s on the same page.
There are other examples of plans going awry. Monese, a banking app for migrants, found that when people reached their monthly free activity cap, rather than pay for services people just stopped using the app. It has since pivoted to a paid-for model, to ensure customers are willing to pay from the start.
Across fintech, we may well see the growing creep of up-front charges for services as many startups clock that giving away freebies is not quite the same as winning loyal customers.
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