Udacity, Inc. is MOOCs (Massive Open Online Courses) provider and a for-profit company founded in 2011 with a mission to democratize education. To empower the workforce majorly and upskill them to land jobs they want and build lives they want, it introduced vocational courses. It also offers university-style courses for students as part of their original goal. In fact, the founders named Udacity after the names “audacious” and “university”.

Udacity has played one of the major roles in changing the way of online education. It launched nano degrees for awarding students completing each course, they add a huge weight to students’ portfolio in landing or switching a job. Udacity is not just limited to individuals for enhancing their careers but many enterprises use it to train and upskill their employees. The company charges certain fees for enrolling students and companies.

The company partners with different leading brands and university professors to bring top-notch training courses to its students. It offers more than 200 courses and has over 11.5 million students globally.

Okay enough said. Now let’s get into how did it start, what its business model is, and how it makes money. So, shall we? 

Short History of Udacity

Udacity is an American educational organization that offers on-demand and in-depth courses focusing AI and later expanded its courses to computer science, data science etc for everyone who can access the internet. Having said that, it provides over 200 courses from different programs such as Programming & Development, Artificial Intelligence, Cloud Computing, Data Science, Business, and Autonomous Systems.

The company was founded in 2011 by Sebastian Thrun, Mike Sokolsky and David Stevens who were colleagues at Stanford University. A Ted Talk by the founder of Khan Academy had led to the idea of Udacity. Thrun attended the conference to speak on self-driving cars and after he had listened to the speech of Salman Khan, the founder of Khan Academy, he approached Peter Norvig, the director of Google and also his co-professor at Stanford to make their “Introduction to AI” course to everybody interested. Later he approached David Stavens and Mike Sokolsky to join him and he put $300,000 of his own money to start the company.

Just a couple of weeks later, they made the course “Introduction to Artificial Intelligence” accessible to the world on KnowLabs website and over 100,000 students attended it.

Later they opened two courses on 20 February 2012 on Udacity, entitled –

• CS 101: Building a Search Engine by David Evans from the University of Virginia
• CS 373: Programming a Robotic Car by Thrun

Nearly 65,000 students joined the course and that was the company’s first achievement. Andreessen Horowitz, an American private venture capital firm invested $15 million in the company the same year. However, the low course completion rates fluctuated the company’s success, hence Udacity changed its business strategy from free courses to more exclusive courses offering premium benefits for graduate students.

It also laid off 20% of its staff as part of its strategy in 2018 which actually worked well. The company saw double the revenue and reached $90 million in the same year.

Udacity Business Model

Now that you have seen how and when did the online educational organization was built by industry experts. Let us get into how it works and what is its business model to better understand how the company makes money. Let’s get started…

Udacity was originally built to provide Massive Open Online Courses (MOOCs) to every student and employee who wants to jump start or enhance their career in the field they love. Although it later switched from offering only MOOCs to exclusive courses to continue its operations and grow its revenue. However, its primary goal remained the same which is to make the courses available to anyone who can access the internet. All the courses it provides are of university standards.

As mentioned, Udacity offers all its courses in nano degree format where nano degrees means several topics and on completion of these nano degrees, students have to finish the project.

Udacity delivers the best course content that is both practical and highly applicable in their future jobs. It even provides a personal career coach and technical support mentor for each student.

As we discussed already, Udacity also delivers its courses to companies to train its employees and issues certifications.

The courses take 2 to 6 months to finish and as an exchange for learning students and companies using them have to pay a certain fee. The free courses are still available on the website that focuses only on introduction to concepts and the pricing for paid courses varies based on the course. Hence, you can say Udacity’s business strategy is focussed on the Freemium business model to make profits for itself.

Read: Reddit Business Model – How does Reddit Make Money

How does Udacity Make Money?

As you can see Udacity charges fees from students and enterprises for taking its paid courses, that is how it makes money. The pricing for nano degrees (its courses) ranges between $718 to $2400 based on the course chosen and the duration of courses lasting up to 6 months.

Individual students and enterprises can choose to pay either via one-time payment fee or a recurring monthly subscription model. Students can enroll in any program anytime after it is opened.

As of 2018, more than 50,000 students registered for paid programs. The count is assumed to have doubled or tripled this year due to the impact of a pandemic. Moreover, a member of the company stated that they are seeing a 260% growth in revenue. The company also increased its pricing and introduced a premium program that promises guaranteed job placement, although there is a plan to lift this program.

Thus the revised pricing and its business model favored the company and resulted in growth.

Udacity Funding & Revenue

Udacity has over 11.5 million users and generated more than a total of $100 million in revenue as of 2019. It stated it has seen a 260% boost in annual recurring revenue in the first half of the financial year in 2020.

It has raised a total of $235 million in funding in all 5 funding rounds. The company is backed by 12 investors and the major investors include Hercules Capital, Inc., Bertelsmann, Andreessen Horowitz etc.

The company acquired Terminal.com in March 2017, although the amount is not disclosed.

Read:Microsoft Business Model – How does Microsoft Make Money

Bottom Line

So, this is how Udacity makes money and manages its operations. Although it suffered fluctuations a couple of years after its inception, its revenue has grown dramatically after it revised its business model.

There have been a lot of inventions in the world that have helped the advancement of technology through the history of mankind. But there are some that have changed the world forever. One such invention is the computer. Computers are something that has become very common these days. But a couple of decades ago not many people actually had computers. They were used by big companies and scientists to do complex calculations and store data. The first-ever computer that was built was nearly as big as a room. From there they have evolved in such a way that you can carry one in your backpack. It is such a small and compact machine that stores a lot of information and power to do various things. The computer you use today is so advanced that you would probably break an old computer if you were given it as a gift. 

The computers that were manufactured two decades or even a decade ago are not as fast as the ones that you are using now. Even the size of the computers drastically changed by that time the hardware that was developed was not as advanced as it is today. You might have used a computer when you were young. If you did you would know how long it would take you to perform some actions. This is because the processing speed of the computer was not as quick as you wanted it to be. But with time the processing speed of the computers changed. Today you have computers that can perform several complex activities simultaneously at lightning-fast speed. The company that made this possible is Intel. This is a company that everyone who knows about computers has heard about. It is famous for its microprocessor. But not many people know much about this global company and its business model. This article is completely about that. 

You are going to learn about the business model of Intel but before that let’s know more about the company. 

What is Intel?

If you are someone who has the slightest knowledge about computers you already know what intel is. But for those who don’t know, Intel is an American technology company and multinational corporation. The main headquarters of the company is situated in the famous Silicon Valley in California. Intel was founded by Gordon E. Moore and Robert Noyce in the year 1968. Gordon E. Moore was a chemist and Robert Noyce was a physicist. Even though the first integrated circuit was invented by Jack Kilby the design made it unsuitable for mass production. After that Robert Noyce invented the first monolithic integrated circuit that can be manufactured on a large scale. Both the founders were able to start the company with help of Arthur Rock and Max Pavelsky who were venture capitalists.

In the initial years, the company was known for its semiconductor devices and logic circuits. The main aim was the semiconductor memory market as they predicted it would replace the magnetic core. The first product of the company SRAM was twice as fast as the Schottky diode which was used at that time. In the same year, it also invented the MOSFET but it was not as successful as the previous ones. The company invented DRAM in 1972. This semiconductor memory chip was the best selling memory chip at the time as it replaced the core memory in lots of applications. After this, the company started manufacturing a wide range of products. But it changed the technology industry forever when it invented the first microprocessor that is commercially available. It was a revolution as it brought down the size of a CPU. Because of this, even small machines could do complex calculations quickly which could only be done by large machines at the time. After that company went on to become one of the most valuable companies in the world. 

Business model of Intel

Now that you learned the brief history of the company let’s look at the business model of Intel. 

Research and development

The research and development team of Intel is one of the most important reasons behind the success of the company. Their research and development team is responsible for introducing changes and specifications to products that made them better. More than 70% of the staff at Intel are in the research and development department. This goes to show much the company puts emphasis on innovation. Maybe that’s why the company is successful in making hardware and software products that are used by top computer manufacturers. 

High-performance hardware

Intel provides high-performance hardware to many of the top computer manufacturing companies. Providing high performance and high-quality hardware has been the main focus of Intel right from the beginning. Even when you see an ad about computers. You must have noticed that they would mention the type of Intel core processor they are using. That’s how much of an impact Intel has on the sales of a computer model manufactured by other companies. Apart from microprocessors, Intel manufactures other things like PC components, board-level products, networking, and communication products. Intel acts as an original equipment manufacturer for other branded and unbranded resellers. 

Key partners

Intel has to rely on some of its partners to create and sell products that are world-class. One of the most important partners is technology providers. These are the entities that provide software and other services to Intel so that they can use them in their products. Authorized distributors are also very important for the company if they want to generate good revenue from the products they manufactured. These are the distributors that have the ability to sell large quantities of their products. They can do this both online and offline which cannot be done by private sellers. 

The Inside program is another thing that helps the company to promote its brand as well as its products and services. If you have a laptop you might have noticed that there is an Intel sticker in the left corner of your laptop’s keyboard. This is part of Intel’s Inside program. It makes sure that the end customers know that the product they are using has components manufactured by Intel. 

Customer service

This one doesn’t need any emphasis. Good customer service is very important if you want to make sure your business is a success. Intel provides good customer service to its customers. This is one of the reasons why so many customers like to buy from them. Their website provides a variety of resources to help and assist their customers. It has videos, a content library, product information, a documentation library, and a section for FAQs. They also provide support through phone and email. 

How does Intel make money?

There are a lot of ways in which Intel generates revenue. Most of you might not know all of them. But just like any other big company it has multiple revenue streams. Let’s go through them one by one. 

Selling products

There are lots of products that are manufactured by Intel. Most people know Intel for its microprocessors but there are a lot more products that it manufactures. It manufactures chipsets, servers, SSDs, networking products, I/O products, boards, and kits. It sells them to many companies that need these products in large quantities. Not only hardware but Intel also provides software services to the companies. If you know about computer security then you might have heard about McAfee security. This is also a product of Intel as it acquired it. 

By being an OEM and ODM

OEM and ODM stand for original equipment manufacturer and original design manufacturer. Intel acts as an OEM and ODM for many computers. OEM means it manufactures products or components for other companies. Those companies sell those products or use them in their products and sell them to their customers by putting their label on them. ODM means Intel not only manufactures the products or components but also designs them. Many companies use the components manufactured by Intel in their products. 

Intel Operating groups

These services include various groups of Intel that specialize in different things. The client computing group is responsible for designing platforms for smartphones, desktops, and tablets. They are also responsible for designing wireless, wired, and mobile communication products. The software and services group deals with security-related products. Datacenter group deals with storage and network platforms. They also have a group for the Internet of Things. The Intel Operating Group generates revenue of $55.4 billion. More than half of this revenue is generated by the client computing group. 

Conclusion

This is the business model of Intel. Today Intel generates the most revenue by selling computer components than any other company. Not only that but top companies like Lenovo, Dell, HP, and Apple use the microprocessors manufactured by Intel. You can know more about the business models of other companies on Postling. Click here to know about the business model of Amway. 

The digital payment market has been seeing striking growth as many businesses and consumers tend towards choosing online transactions over cash payments. In fact, the online payment market size is expected to reach around USD 154.1 by 2025 whereas it is USD 79.3 billion as of October 2020 as per a report.

Integrating online payment into business was not an easy thing a decade ago as it is today. There were security threats, lack of technology, and too much complexity, but the game had changed with the entry of new payment processors and payment gateways. They both have a long way to go as they facilitate physical and online payments and hence, the market has tough competition.

However, Stripe, one of the most valued fintech companies across the world has been keeping itself the most-preferable payment processor for most businesses and consumers. The company surpassed Square, Adyen and went nearly halfway to PayPal in processing the higher payment volume as of 2019. 

Want to know more about this most undervalued company in the Fintech industry? Then let’s jump into the topic. Let us see what Stripe is, how it started, its business model, and how it makes money in this article.

Short History of Stripe

Stripe is an American SaaS and financial services company founded in 2010. The company is headquartered in San Francisco, California, US and serves in over 120 countries. It is a technology company founded by the Irish brothers to increase the GDP of the internet. Stripe helps millions of companies to manage their business online using their software to accept payments.

The founders, John and Patrick Collison sold their first company, Auctomatic for $5 million in 2008 and became overnight millionaires. The brothers started Stripe in 2010 and named it initially as /dev/payments. The company was first funded by Paul Graham, Y Combinator’s founder as he knew Patrick and his work.

Anyhow it didn’t take any longer for the company to seek funds as investors in Silicon Valley are close to each other. A few investors including Elon Musk and Peter Thiel participated in seed funding and as a result, the company raised $2 million in seed funding. This in turn helped Stripe to kickstart their service towards success. The company processed billions in transaction volume in more than 12 countries by 2014, just four years after its inception.

Today, millions of companies from startups to the world’s largest companies such as Amazon, Google, Microsoft, Spotify, National Geographic, Salesforce, Uber, etc., use Stripe to start, run and scale their businesses.

Okay, enough said! Now let’s get into Stripe Business Model to understand how it makes money.

Stripe Business Model

Being one of the world’s largest and popular fintech companies, it serves millions of companies to manage online payments through its platform. Its mission is to ease the online payment process and help businesses thrive using reliable, flexible, and scalable software so that they can fully focus on their core business. Hence, it offers software products for payments, payouts, and business operations which are discussed below.

Payments

• Payments – A payment platform to accept, process, manage and reconcile payments and reports and has many other features.
• Terminal – It lets you extend Stripe payments to point of sale easily.
• Connect – A tool to facilitate payments for platforms and marketplaces. It helps in onboarding and verifying users, accepting payments, controlling the fund’s flow, and managing your software platform.
• Billing – Supports subscriptions, invoices, any billing model, and accepts recurring payments globally.

Payouts

• Payouts – It helps in paying out fast around the world. The payout can be used to automate payout workflows, offload KYC, or other verification requirements and boost user experience.
• Issuing –  Helps in creating their own virtual and physical cards for businesses in the US.

Business Operations

• Radar – Fights fraud using advanced machine learning and protects your business without blocking legitimate customers
• Sigma – A unique software that helps businesses to analyze their Stripe data quickly to improve their business model.
• Atlas – Form a company from anywhere in the world without any lengthy paperwork, bulk fee, and legal complexity.

It is a full-stack provider that helps people launch a business and companies run and scale their business with cloud-based products. The best part is it offers customizable and also ready-to-use applications which is why most developers choose Stripe over its competitors such as PayPal, Square etc.

The company charges for using products and services from businesses for exchange and makes money.

How Stripe Makes Money?

Having said that the company makes money from fees it gains from products and services based on different packages. Say it lets businesses accept payments from the credit, debit, UPI payments, and charges a certain fee for every successful transaction.

Payment Fees

It takes 2.9% and fixed 0.30 cents for every transaction. It charges 1% extra (a 3.9%) for international transactions. Stripe makes the majority of the income from the transaction fee and the remaining from other services.

It charges 0.8% of the total order value when the payment is made using Bitcoin or ACH. Stripe’s payment fee is capped at $5.

Stripe Product’s Revenue

Although it is completely free to start using Stripe, create an account, it charges a certain fee for premium products as a monthly package and a transaction fee for free-to-use products.

Connect

Connect lets you add payments to the platform and doesn’t charge any specific fee for the Standard plan. Whereas in case any business wants Custom or Express plans to use advanced features, the pricing starts at 0.25% of account volume. An additional fee per account fee may also apply.

Billing

This helps you accept and manage any type of billing and grow your recurring revenue. Stripe charges 0.5% on recurring payments.

Payout

Stripe charges 1% of the total payout amount for crediting the amount to the bank account instantly.

Terminal

Stripe offers two types of readers for prices of $59 and $259 respectively. It further charges a 2.7% and fixed 5 cent fee for every payment.

Radar

This is a fraud management software that comes with two plans – Pay As You Go and Enterprise.

It charges 5 cents per screened transaction for Radar’s machine learning. Accounts with standard 2.9% and 30cent pricing are waived off from this fee.

Stripe charges 7 cents for using Radar for Fraud Teams. A 0.4% per transaction is charged for Chargeback Protection.

Sigma

Stripe cuts a 2 cents as fees for using Sigma and it may also charge an extra infrastructure fee.

Atlas

Stripe eases the job of its customers in starting a company and also offers benefits such as free credits from Amazon Web Services, issues stocks/shares to co-founders, etc. It charges a one-time fee of $500 for this service.

Premium Support

Stripe additionally offers Premium Support for fast-growing and complex businesses. It includes faster and prioritized support, personalized optimizations, a dedicated support manager, and emergency support for critical issues. The pricing for Premium Support starts at $1800 per month.

Stripe Funding & Valuation

As said, Stripe is one of the most undervalued fintech companies over the internet and it is valued at $36 billion after the recent Series G funding round held in April 2020. This latest round of funding raised about $250 million and made the company one of the most valuable private companies in the fintech industry. The company has raised nearly $1.6 billion to date from different funding rounds.

The company has processed more than $200 billion in total transactions manually and has surpassed its competitors. However, the annual revenue and profits of the company are kept private.

What’s more interesting is that Stripe didn’t go public to date and its founders have no idea of taking it into public anytime sooner. 

Stripe Investments

The first investment of Stripe was Monzo in November 2017. It had participated in three rounds of funding till June 24, 2019, and raised a total of around $144 million in funding for Monzo. Monzo was valued at $2.5 billion after three funding rounds, its valuation almost grew from approximately $350 million to $2.5 billion.

The other investments of the company include Paystack, PayMongo, Step, and Fast.

Bottom Line

This independent company that doesn’t rely on public funding is beating its strong competitors with the help of its brilliant business model. One of its main assets is its mission to help businesses thrive using online payment software and services which is a win-win for its customers and the company.

With its smart business strategies the company is racking up and planning to enter into new markets and products, it serves in over 120 countries currently. This proves that Stripe is making more than enough profits to continue its operations and expand.

How many of you use beauty products? Some of you may use them and some of you might not. How many of you use home care and health care products? Most of you, isn’t it? Have you ever wondered how these products get to you once they are manufactured? You may have a good idea about this. Many people think that these products get to the stores in a simple way. A company sets up factories and manufactures products. It advertises the products they make and recruits distributors to distribute their products all over the country. The company makes a profit once the distributors receive the shipment and the distributors make a profit once the products are distributed to merchants. Then the merchant becomes the sole owner of the products and makes money by selling the products. This is the usual assimilation of people which is true most of the time. 

However, did you know that there is another type of business model where the process of selling and promoting goods is completely different from the usual one you know. There are some companies that rely on this type of business model to run their businesses and make money. This is because not all businesses do not use the same strategy to get their products to people. Some businesses use different tactics to get to their customers. This helps them to avoid competition in the market. Not only that but it also gives them a sort of advantage over companies that sell similar products. One such company that employs a different strategy to grow its business is Amway. Many of you might have or even used the products of Amway. They are a global brand and they sell different types of products. But not many people are familiar with the business model of Amway. This article will tell you what exactly is the business model of Amway.

But before that let’s know a little bit about the company itself. 

What is Amway?

As you already know Amway is a company that sells beauty, health, and home care products. This is an American company that was founded in the year 1959. It was founded by Richard Devos and Jay Van Andel. Richard Devos and Jay Van Andel are childhood friends. Both of them later became business partners. They had done a lot of businesses together. The duo were partners in the sailing business, an air charter service, and even a burger stand. They were introduced to Nutrilite products by the cousin of Van Andel whose name is Neil Maaskant. Richard Devos and Jay Van Andel lost interest after selling their first box. But Neil Maaskant urged them to attend a meeting that was held in Chicago. By this time Neil Maaskant has become their sponsor. After attending the meeting they were convinced to continue Nutrilite business as they listened to the speeches given by successful distributors and the company’s representatives. 

After that, they turned their “Ja-Ri” Corporation into a Nutrilite distributorship which was originally formed to import wooden goods from South America. What they found interesting was the way they made money. The company not only let them make a profit by selling their products but also paid them commissions on the products sold by the distributors who were introduced to Nutrilite by them. This is known as multi-level marketing which you are going to learn about later. Jay Van Andel and Richard Devos were successful in forming an organization of more than 5000 distributors. In 1958 along with their distributors they formed an association Amway which is short for American Way. After this, they bought rights to manufacture an organic cleaner called which was later renamed LOC. Amway bought a good amount of shares of Nutrilite in 1972 and complete ownership in 1994. During this period Amway has already expanded to many other countries. Today Amway offers its products and services in nearly 100 countries. It is also featured on Forbes as one of the top companies. 

What is multi-level marketing?

As mentioned above Amway is a multi-level marketing company. Multi-level marketing is also known as network marketing. This business strategy is a bit controversial because sometimes it is also known as pyramid selling. This means that the money made by the sellers is used to pay the people who are at the top of the chain and the people at the bottom. The strategy is controversial because all the money made by the company is because of the people who actually sell the products to the customers. They have to put in the effort to promote and sell the products to customers rather than the company itself. The only thing the company does is give them products to sell. Once they sell the products the sellers receive a commission based on the number of products they sell. 

There are only two ways in which you can make money by selling these products. Either you have to be a participant who sells these products and receives a commission or you have to be a distributor who distributes the products to retail owners. Here the one who is expected to sell the products to the customers is the salesperson. The responsibility of selling the products is completely on them. They have to promote these products by word of mouth and referring them to others through the people they know. These people are encouraged to recruit others so they can become a part of the chain and expand it. Most of the people at the bottom lose their money as they cannot generate enough returns. But the company that recruits them does as they rely on these people and not the sales. 

Now that you know what multi-level marketing is let’s look at the business model of Amway. 

The business model of Amway

As it uses the multi-level marketing strategy it has to make sure that it always maintains a few aspects of the business model. Here are the things that are crucial for Amway to make money.

Independent contractors

These are the people who are responsible for the distribution of Amway products. They are the ones who recruit others to sell Amway products to other people. It is not necessary that the ones who are recruited by these people sell the products directly to the customers. Even they can recruit another person to do this job. More these people are not called contractors or distributors but Amway Business owners. These ABOs make money in three ways. One is by selling products directly to the customers. The second one is when they get bonuses if the sales volume is high and lastly through incentives when the business grows. 

Low investment

On average it only takes $100 for people to become Amway Business Owners. This is true for every country that Amway is present in. If you look at it from an investor’s point of view you will see that this is not a big amount. It has the potential to get you a lot of returns with a low risk of losing too much money. But to get the investment back the Amway Business Owners will have to sell their products and they have to do it consistently if they want to see returns. 

High prices

You see the whole model of generating revenue through Amway products depends on commissions. The more people involved the more commissions you have to pay. So if Amway sells products for normal rates they won’t be getting much in return. To make sure that they earn a good return they sell their products at a very high price. By doing this they will be able to give commissions to everyone involved in the hierarchy.

Expanding network

Without this, the company will not be able to survive. If the company wants to keep growing their business then they have to constantly find new participants who will not sell their products but also recruit other people. If they fail to do this then the chain will stop growing. For Amway, the end customer who buys the product is not the only one who is considered as a customer. Everyone who is involved in the hierarchy is a customer of the company.

How does Amway make money?

Now that you have understood the business model of the company. Let’s look at the ways in which it makes money.

Registration fee

Amway charges a registration fee if you want to become an Amway Business Owner. The registration fee varies depending on which country you are living in. This acts as a direct source of income for the company. 

By selling Amway products

This is an obvious one. Amway manufactures more than 450 products. Many people are familiar with some of their products. It sells these products all around the world. It generates roughly 26% of its revenue from beauty products. But the majority of its revenue is generated from Nutrition products which nearly 52%. Nutrilite, Artistry, eSpring, and XS are some of the top-performing products of Amway.

Conclusion

This is the business model of Amway. This may be one of the top companies in the world but it is a bit tough to make good money quickly by becoming an Amway Business Owner. Most of the people give up after joining the company and only a few will be able to make good returns. If you want to more about the business models of top companies check out other articles on Postling. Click here to know the business model of Spotify. 

Monzo Bank Ltd, popularly known as Monzo is a new bank based in the United Kingdom headquartered in London. A neo-bank is a purely digital bank or virtual bank that doesn’t have any physical branches. All the services related to accounts, payments, and credits are provided online, mostly via a website or mobile app.

Thus Monzo is a newer version of old-fashioned banks serving the tech-savvy customers with all comfort and exclusive services related to banking. Curious to know a little more about the neo-bank Monzo? Then let’s jump into it right away. Let us also discuss its business model and understand how it makes money. So, shall we?

What is Monzo?

Monzo is a purely digital bank based in the UK that operates through a mobile app. It was one of the earliest app-based banks in the United Kingdom. 

Monzo has been serving its customers through a mobile app since September 2016. Along with the app, the company also issues Monzo cards (the same as PayPal) for its customers to make online and offline transactions. The company offers all the services a physical bank offers but the only difference is it doesn’t operate in any physical branch.

The company has over 4 million customers as of March 2020 and it posted £67.2 million in 2020. The company showed a net loss of £113.8 million in July 2020 financial results. The loss was huge when compared to the £47.1 million loss in the previous year. However, as of 2019, Monzo was the 125th largest bank in the UK and holds a local market share of 0.01%. Whereas Starling, Monzo’s one of the key competitors holds a 2.6% share in the UK’s banking market. However, Monzo’s banking app is the most popular fintech product and occupies 50% of the market.

Short History of Monzo

Monzo has founded in 2015 as Mondo by Tom Blomfield, Jason Bates, Jonas Huckestein, Gary Dolman, and Pal Rippon who were colleagues at Starling Bank. The company was recorded as the quickest crowd-funding campaign in history as it raised £1 million in 96 seconds in February 2016. The company was granted a license before it changed to Monzo from Mondo in April 2017. It issued several prepaid debit cards for its users for testing and in May 2017, the company announced that its 200,000 customers had spent over £250 million through the card. The prepaid program was shut in April 2018, though.

The company announced that customers could sign up for a current account on 17 July 2017. In December 2017, it discontinued the free ATM withdrawals. It instead replaced free withdrawals with a free monthly limit of up to £200 and charged a certain fee of 3% for subsequent withdrawals.

Monzo reached 1 million customers in October 2018 and in November 2018, it introduced a new feature that lets users pay cash into their accounts using PayPoint for which it charges £1 per each deposit.

In January 2019, the company announced its partnership with Flux to launch loyalty points and itemized receipts. In July 2020, it launched Monzo Plus, a premium subscription service that had gained about 50,000 active users within the first month.

In October 2016, Monzo was valued at £50 million after interim funding and raised over £4.8 million in the funding process. It raised £2.5 million in the second round of crowdfunding.

Monzo is very much backed by its investors such as Thrive Capital, Orange Digital Ventures and Passion Capital, Goodwater Capital, and Y Combinator’s Continuity in different funding rounds to date. Monzo became a pound unicorn for raising £85 million in funds and valuing at £1 billion in October 2018. In June 2019, Monzo was valued at £2 billion raising £113 million in a funding round led by Y Combinator’s Continuity Fund. The company’s valuation is £1.24 billion as of June 2020.

Okay, enough said. Let’s now look into the business model of Monzo.

Monzo Business Model

Monzo being a digital bank generates money from several streams which include subscription fees, interests, consumer and business loans, and partnerships.

Read: Square Business Model – Square Makes Money

To better understand its revenue streams (business segments), let us have a look at the features it offers to its customers.

• Monzo issues a Mastercard debit card for customers to make transactions.
• It lets users set budgets for expenses.
• Users can automatically save money once deposited by putting it aside.
• Customers can split expenses with family and friends.
• Get joint accounts and business accounts.
• Users can connect to accounting tools, which best suits employers.
• Monzo enables users to compare and purchase energy plans to save money.

In exchange for all these services, Monzo charges certain fees. The app and ATM withdrawals are of course offered for free. However, if the withdrawals exceed a limit it deducts a 3% fee. Its mobile app is simple and clean with peer-to-peer payments, real-time balance updates features. It served as a comfortable app for millennials who naturally do not look for mortgages or savings.

So, Monzo’s business model is based on its sales of products and services, integrations, and partnerships. Additionally, it raises funds from its investors for business operations.

So, now that you have seen the Monzo business model. Let us have a look at how Monzo makes from its different revenue streams.

How Monzo Makes Money?

Transaction Fees

Monzo issues a Mastercard debit card for its users, hence cardholders can use the card anywhere in the world.

The company generates a small revenue from such Mastercard card transactions. It deducts a small fee for every transaction using the Mastercard Card from the merchant. It is assumed that the fee could be between 1-3% and is shared between both Monzo and Mastercard.

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Overdraft

As you know every bank charges its customers for holding a negative balance in the account. Overdraft is the fee paid against such a negative balance which increases over time if not cleared as interest adds to it. Monzo charges up to 39% overdraft fees per year based on credit score, negative balance amount, and the number of days.

Business Accounts

Though Monzo offers consumer accounts for free, it charges business accounts to cover its expenses and manage operations.

Monzo business accounts are available for monthly subscription fees and can be accessed from the app. The Monzo offers business accounts with two types of plans; Pro that costs £5/Month and Lite which is free.

The Pro version has many features and businesses to help small businesses with their finances.

Savings

Monzo offers a 1.3% Annual Equivalent Rate (AER) per year for its customers for saving funds in their accounts. The company collaborates with other legit lenders and promotes borrowing to create such saving and earning opportunities.

Monzo then makes money through interests collected from such lenders.

Cash Withdrawals

Customers are allowed to withdraw up to £200 every month for free. Monzo only charges a flat 3% fee when the customers withdraw beyond the limit.

Loans

Monzo’s customers can avail of a loan of up to £15,000 from the bank. The Annual Interest Rate (APR) can be as high as 26.6% based on the loan amount and repayment period.

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Commissions

Monzo promotes energy providers- Octopus Energy and OVO Energy and offers flexibility for users to switch to the plans. Furthermore, it offers £75 in credit for opting for the plan.

Monzo might earn a certain commission or share revenue with the brands on conversions.

Competitors of Monzo

Neobanks raised about $2.5 billion in venture capital in 2019

Monzo’s competitors are Starling, Revolut, N26, and Chime who raised $323 million, $836 million, $682 million, and $800 million in venture capital in 2019 alone.

Monzo is not a publicly funded company to date, it is only funded through the revenue it generates and funds it raises in venture capital.

The company posted around $51 million in revenues in FY2019. Although the company was in growth mode, it had to pay $61 million from its funds to cover losses after tax.

Bottom Line

Monzo is the new generation banking solution that can be accessed through its mobile app. The company created a buzz without even offering attractive interest rates or bonuses for customers, unlike the big four banks. Although the company has been seeing a negative net income for two years in a row, it manages to raise a good deal in funding campaigns and covers losses. Despite all, the company is still in growth-mode by launching new features and services for both individuals and businesses to ease their financial burden. Hence it is still a company worth considering as there are many opportunities for digital banking in the future.

Read: Paytm Business Model – How Paytm Makes Money