What to know before joining a bank: how they make money

Hi folks, Henry here – I’m one of the Engineering Managers in the Business Banking Collective at Monzo.

Before I joined I worked at a few different places, from a small pet startup to big tech, so I was reasonably comfortable with the technical part of the job. 

This was my first role in the banking industry so I wasn’t quite sure what to expect as I dipped my toes into the world of finance.

Now that I’ve been here for almost two years, I’d like to share some of the things I’ve learnt which would have given me a headstart, that you might find useful too. This blog post will cover the commercials of banks – i.e. how they make money – and some Monzo specifics on how we do so in a way that helps our customers win, too.

Our internal onboarding program covers many of these topics and more in detail, which all new joiners get to experience first hand. In order to keep things moving along and not to spoil the fun for any future Monzonauts reading this, I’ll only be providing a high level overview. If you’re hungry for more, I’d encourage you to read through internet resources such as Investopedia or ask your favourite conversational AI some questions 🙂

It’s important to understand the commercial activities that support a bank. This isn’t to ‘make as much money as possible’, which is strictly not the goal at Monzo! In order to make money work for everyone, we also need to make money in order to pay for building and maintaining the services that millions of customers rely on us to provide, and to enable us to grow sustainably as we expand into new markets and tackle as of yet unsolved financial problems in peoples’ lives. There are four main ways we do this at Monzo, and you’re probably familiar with at least one of these. This isn’t everything we could do, as there are things other banks might be doing that we aren’t currently doing (or plan to do).

This is likely the first thing that comes to mind when thinking about how banks make money. They provide a safe place for customers to store money and sometimes offer incentives to deposit money, like paying interest on savings accounts. While securely looking after these deposits, a portion of available money is also loaned out to other customers. These customers repay their loans over time, usually at higher interest rates than the savings rates. The difference in these rates provides income for banks.

Interest rates are also influenced by the Bank of England (BoE) base rate, which is how much it costs banks to borrow from the Bank of England. This is why you often see interest rates shift in the same direction when the base rate changes.

Common loan types for personal customers are mortgages, overdrafts, and things like our award winning Monzo Flex¹ credit card complete with Section 75 protection. Because we think customer first, this part of Monzo is known as the Borrowing Collective, instead of a Lending or Loans department. Beyond the name, we follow core principles for responsible lending, such as allowing loans to be repaid in full with no charges for doing so.

Banks can charge fees for providing their services. This can vary greatly depending on industry and locale, but includes things like monthly fees, transaction fees, currency conversion, other service fees and other subscription fees. There are rules and regulations to ensure all these fees are fair and transparent for customers, but different banks can have different fee structures. A portion of these fees can provide income for a bank.

While some business accounts charge a fee for bank transfers, we offer unlimited fee-free instant bank transfers. We also offer a series of paid subscription plans on both Personal and Business accounts, with tiers that offer different additional features, perks and capabilities that we’ve designed to provide excellent value in exchange for what it costs us to offer them to customers.

Banks need to hold large amounts of money, ready for customers to access and withdraw whenever it’s needed. Money stored in reserve in this way with The Bank of England earns interest with the same base rate mentioned earlier, in the same way you would with your own money in a personal savings account. Banks set the rates on their own personal savings accounts, which is why you’ll see a range of different interest rates in the market, and it isn’t always just the base rate.

Additionally, just like how people might invest some of their money to grow it over time, banks can also decide to invest and ‘put the money to work’. These are usually in longer term and lower risk things like government bonds, rather than speculative investments, as banks have an important responsibility to look after peoples’ money.

At Monzo, we invest our customer deposits safely and ethically – for example, we don’t invest in fossil-fuel based energy companies, arms companies or tobacco companies

This was the part I found the most interesting as a newcomer to the financial industry. I’d been using contactless payments, debit and credit cards, happily entering my pin in countless card terminals without ever considering what was happening behind the scenes. While consumers these days don’t usually get charged for paying with their bank card, all of this infrastructure needs development and maintenance, which costs money. As a result, someone pays for it, and it’s usually the merchant. 

The world of interchange and payments is its own complex topic with many players (payment facilitators, acquirers, issuers, networks), but you can boil it down to the fact that every time someone uses their bank card to pay for something, banks receive a very small percentage of that money. Knowing about interchange fees and the ecosystem behind them can also help explain some of the dynamics around why some shops accept or prefer certain payment methods over others, and how some reward schemes like cashback can be funded. 

These days, when I see my phone light up after paying for something, I’m certainly much more appreciative of the underlying effort to make payments feel frictionless!

To recap, the main ways that Monzo makes money as a bank is through deposits and lending, account and subscription fees, treasury income and interchange fees. Everyone at Monzo plays a part in this, with some teams working on this directly, such as our Treasury team. Other teams help indirectly, like our Operations Collective who provide our customers support when it’s needed, and one of many reasons why we were recognised as the Best British Bank at the 2025 British Bank Awards from Smart Money People.

We align our incentives with our customers as part of supporting their financial wellbeing by providing industry-first security features, humans on hand 24/7, and advanced fraud protection as a regulated bank with full FSCS protection.

Now that you have a high level understanding of how the economics work, join us on our mission to make money work for everyone!

¹ You'll need a Monzo current account to apply for Flex. Eligibility criteria and Ts&Cs apply. UK residents & 18+ year olds only. Missed payments may negatively impact credit scores.