A Disruptive Innovation Theory Application in Monzo 1
INNOVATION MANAGEMENT ASSESSMENT: A DISRUPTIVE INNOVATION
THEORY APPLICATION IN MONZO
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A Disruptive Innovation Theory Application in Monzo 2
INNOVATION MANAGEMENT ASSESSMENT: A DISRUPTIVE INNOVATION
THEORY APPLICATION IN MONZO
Monzo Bank Limited commonly known as Monzo is an online banking system
based in the UK. The company was one of the pioneers in innovating various new appbased challenger banks within the UK environment. The company was started in 2015 and
operated majorly by offering financial services to its clients (Carey, 2016). The major
creators of the company were Gray Dolman, Jason Bates, Jonas Huckenstein, Paul Rippon,
and Tom Bromfield. These five people in the 2015 period conceptualized the idea to make
the baking business more efficient for its customers. Originally, the company operated as
mobile apps and prepaid debit cards. In April 2017, the UK bank license restrictions were
fitted which assisted it to offer full current account information. By July 2022, Monzo had
managed to obtain nearly 5.8 million customers (Monzo Bank Limited, 2022). One of the
elements that have assisted the company to bolster its operations within the financial
market is the innovation aspect. Monzo commenced its operations within the innovational
era. In 2015, with the world's technological advancements, many companies incorporated
many technological devices and software within their business (Monzo Bank Limited,
2022). With the growth of innovation around the global market. Many scholars have
attributed this growth to a different theory formulated within the 20 th century. Some of the
theories analyzed are the disruptive innovation theory and how it helps companies thrive in
the market. With regards to disruptive innovation theory, it is important to assess how
these two theories influence Monzo's operations and denote the future development that
can assist the company boosts its operation within the financial market.
Theory Explanation
Disruptive Innovation Theory
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Clayton Christensen proposed the disruptive innovation theory in 1995. Clayton is
a Harvard professor and business consultant who has focusesd on assessing the market
forces and how they are shaped by technology. He promoted the theory in 1997 after
publishing his book ‘the innovators' Dilemma. Christensen in his book defined disruptive
innovation as a process where the goods and services are initiated and slowly maneuver
through the market to the later stage of outweighing the already existing companies.
Opportunities are always available within the market. It is the mandate of every
organization to ensure that it promotes its products to outweigh its competitors in the
markets. Although Christensen coined this theory towards the end of the 20 th century, the
theory has received many developments by various scholars and practitioners, within the
economic realm. Christensen with the support of their scholars through the disruptive
innovation theory alluded that new creations including technologies can create new
markets, reduce purchasing costs and create other new opportunities for further innovation.
Currently, these theories have gained more recognition within the global market and have
been the cornerstone of explaining how companies such as Apple and Tesla managed to
grasp a large market presence despite many already existing firms in the market. This
theory has been the cornerstone to formulate the public policy and business process for
creating, fostering, and capitalizing on innovations.
Disruptive innovation theories are applied widely by companies to promote new
products. The theory concept revolves around capturing new products by disrupting the
existing product in the market. The theory highlights that first an entrepreneur must
identify the niche within the market. They then focus on fulfilling the need by formulating
other products and services that create value networks and other new markets. With the
competition embodied within the market, there is no doubt that some business musts seize
their operations if they fail to adapt to the new emerging needs (Christensen & Raylor,
A Disruptive Innovation Theory Application in Monzo 4
2013). This theory thus also assists in analyzing the major reasons why some fail to thrive
within the market about technological adoption. For instance, this technology can explain
the rise of online shopping, the crumbling of brick-and-mortar stores, and the increasing
digital and AI operations in the market.
Firms that thrive within the market usually benefit from this theory. For instance,
the disruptive theory assists in identifying and capitalizing the merging trends which n turn
assist in increasing the profit and market share of the firm. Through this, the organization
can identify its needs and weakness as well as the opportunities and threats for growth
(Corsi &Di Minin, 2014). One major strength of this theory is that it provides a clear view
of how to anticipate, recognize, and capitalize on the shifts, between customer behaviors,
technology, and the market. Moreover, it is very essential in assisting teams to develop a
more strategic process of maintaining competitors and deriving new strategies to produce
different products and services that the competitors. Companies that utilize the disruptive
innovation theory can identify and target new customer segments, magnify the already
established markets and create a new market for their product and services.
A Disruptive Innovation Theory Application in Monzo 5
In the current global market, the firm is increasingly utilizing the disruptive
innovation theory to bolster its operations. The theory provides that firms should be more
willing to take risks and try new technologies that assist in creating new products and
services. This process is attained through the integration of different technological
elements invented within the market. While firms use technologies as the main element of
innovation, it is vital to note that technologies often change rapidly, this provides that
every firm should incline its operation with the new changes to boost their products'
competitiveness. Knowing disruptive innovation reduces the threats of new entrants
having their way into the market (Corsi & Di Minin, 2014). Low entrants mean that a
company will compete fairly and remain innovative by offering different products that
satisfy the customer's needs. Moreover, the disruptive theory also provides an avenue to
develop new business frameworks that also helped in replacing the existing ones. The new
framework formulation focuses on promoting cost-effectiveness within any given firm.
One of the most disruptive elements being utilized currently is artificial
intelligence. Companies have used this aspect to provide customers with better products
and services. Better services are attained through process automation aspects. the
automation aspect is disruptive to any existing market since customers value efficiency
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and satisfaction with the service offered by any given form. AI is moreover used to market
and advertise different products across the market (Christensen et al., 2018). Companies
have seen the need of using such a process to bolster their operations and ensure that they
market their product to a large customer base. In line with automation is the use of social
media and chatbots which boost the customers' service experiences.
The willingness of the different firms to take up risks and create new things creates
a competitive advantage that assists them to outweigh other firms. They attain this by
providing clients with new things that are more exciting and efficient. Through the new
commodities, the firm can entice customers and change their shopping ways, perceptions,
feelings, and tastes over the new products. Another major benefit of disruptive innovation
is ensuring that products are readily available to customers. Although technology acts as a
breakthrough for firms to create new products, it is also vital to understand that enhancing
the accessibility and affordability of this product also plays a crucial role in boosting
innovation (Mahto et al., 2020). Generally, disruptive innovation theory has been the
major element that dictates how businesses operate in this 21st century. With a clear
understanding of this theory, companies can quickly reply to changes and note where to
invest at any given time. The current business market is highly competitive (Mahto et al.
2020). With the continued development of the disruptive innovation model, there is no
doubt that the market will continue to be more competitive and companies ought to cope
with these changes to streamline their operations.
Theory Application
Monzo Bank Limited is one of the companies that has been labeled as a disruptor
within the UK banking market. The firm has little involvement in the traditional media,
marketing, and banks its main challenge is fulfilling the consumers' demands by focusing
more on working. Since its inception, by 2018, the company had already grasped nearly
A Disruptive Innovation Theory Application in Monzo 7
1.2 million people across the market (Fleming, 2018). Within the UK market, the company
has managed to position itself as a digital-only alternative to the available traditional
consumer banks. Monzo’s technology use has provided a clear path for them to create
more convenient, ad transparent service at a lower cost (Fleming, 2018). Currently, the
company has already won the UK market and it has also ensured the US market to
continue with its digital operations.
For quite some time, the UK banks consumed has had a bad experience with the
traditional banks, many banks while measures on the NPS scale usually score negatively.
One of the major aspects that make this bank score negative is the excessive fees that they
charge their customers (Farrell, 2020). With excessive over-the-counter fees, the
customers were left with no alternative but to bear the burden and ensure that they make
swift transactions. Another major element is having outdated in-person branching banking.
The lack of proper structuring to meet the market demand is also another major concern of
traditional banks. The last aspect of the traditional banks is the provision of lackluster
digital services all of which did not meet the current technological advancement. In the
realm of this operation, Monzo 2015 entered the UK market and proved to transform the
digital banking sector of the UK region.
Monzo entering into the UK market is a true definition of the disruptive innovation
theory. For instance, despite the long-serving banks such as Barclays, HSBC and the
Lloyds groups being in existence, the Monzo founders saw the need and invested in
promoting the digital funding systems within the country. Monzo is a digitally-only bank
founded in 2015 (Farrell, 2020). The company does not have a physical branch; however,
it has specifically dwelled on investing in technology. This ban provides an opportunity
for its customers to open an account within a few minutes at their convenience. They can
also get instant payment notifications after saving through the saving pots. moreover, the
A Disruptive Innovation Theory Application in Monzo 8
customer can also split the bill with a friend easily. With its operation in the UK market,
the company caused a major splash within the banking sector. As of 2020, the company
had managed to attract approximately 3 million UK customers (Farrell, 2020). This figure
implies that for every 20 adults, 1 ha an account with Monzo (Farrell, 2020). The majority
of these customers were acquired from already existing banks such as RBS, NatWest,
Santander and Barclays. All these banks experienced a customer contraction when Monzo
witnessed a significant growth during the 2019 quarter period.
The application of disruptive innovation theory at Monzo is witnessed in the value
creation that focused on the use of technology. One of the elements noted with value
creation is convenience. Monzo during its inception had identified the client's pain point
and vowed to tackle the, using technology. One major hurdle for customers was opening
their accounts. The traditional banks had caused major frustration with their different
process of bank opening taking weeks and after visiting more branches. Monzo on the
other hand designed a fully digitalized process of opening the customers' accounts. With
Monzo, the step was simple. In just download the app, uploads their identification
A Disruptive Innovation Theory Application in Monzo 9
document copies, and then take their own self-video that says ‘My name is…’ (Farrell,
2020). To check for the eligibility of the information provided, Monzo entered into
partnerships with Jumio that use artificial intelligence algorithms to analyze and detect any
fake documents and self-video uploaded. This enables the customer to open their account
within minutes.
The second aspect was transparency. Unlike other traditional banks, Monzo
focused on openness as their main virtue for operation. The firm has a well-structured
active online community forum with more than 50000 people (Farrell, 2020). The
company has used this forum to update their customer on upcoming tend and
developments which also allows customers to socialize. This forum also assists the
company to obtain feedback about new feature ideas. The ideas are gotten by letting the
customers vote and prioritizing them. One of the best examples of idea voting was
witnessed in the recent US banks launch (Farrell, 2020). The company made the product
development roadmap and posted it to the public. The customer was asked to provide
feedback on the key elements that they would like to have within the applications. This
element assisted the company to promote its operations efficiently within the market.
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Thirdly, the disruptive innovation theory is also evident within the Monzo’s
customer service provision. Monzo values the use of technology in providing customer
service. The company has focused its investment on service technology to ensure that its
customers gate superb services. Within its mobile app, the firm has the ‘Monzo Chat’
which gives the customers an able time to chat with the company’s representative on a
24/7 basis (Farrell, 2020). The company also went further to build an office in Las Vegas
to support its service provision for customers located outside the UK environment. This is
one of the major drives that assists the company to promote its operation and scores highly
on the NPS scale.
Furthermore, one of the major throwbacks highlighted within the previous
assessment is that traditional banks offer high exercise fees to their customers. Through
the disruptive innovation theory concept, the company lowered its cost base, a process that
made it to promote its varsity operation in the UK market. With its digital-only model, the
economy has vehemently developed a leaner operation than the traditional banks. Banks
such as Barclay and HSBC account for a 30% of their costs base with an additional 20%
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for information technology (IT) (Farrell, 2020). Monzo on the other hand has no physicals
office with little pressure on maintaining tehri IT systems. Through this, the company thus
has the capability to utilize the opportunities to leverage its technology to boost their
operations.
Many incumbent banks have tried to emulate the Monzo operation technique but all
in vain. Many banks have also invested in technology. However, regardless of the size of
the company, the recovery speed to curb the Monzo rise has been slow. A study conducted
in 2020 showed that approximately 50% of UK customers express their dissatisfaction
with their current banks in terms of digital services (Farrell, 2020). Some of the banks
have closed their branch with the figure amounting to nearly one-third of the total
branches since 2015. This equates to 3303 closures (Farrell, 2020). Some companies have
also tried to imitate Monzo’s operating model. For instance, RBS, reportedly placed a bid
to acquire Monzo in 2017 (Farrell, 2020). However, they scoffed at the process that let
Monzo continue offering stiff competition to these firms. Moreover, RBS up to date has
spent approximately £100m to structure its digital-only bank titled Bo. This digital-only
bank was launched in November 2019 after 2 years of contemplation and preparation
(Farrell, 2020). However, even after planning for a long and investing a large amount of
capital in the system, the plans seem to not work well for the RBS investment. Notably,
three months immediately after launching the business the project leader Mark Bailie left
the company.
Future Development
Disruptive technology provides an array of opportunities for a firm to explore and
thrive within the market. For instance, with the current technological advancements
Monzo has various future development plans that could assist it to bolster its operations.
Currently, the firm has entered the US banking market. This implies that the company will
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face more competition and need to have a robust team to manage its operations. The Retail
Banker International in their news article (2022) noted that the firm has decided to focus
on its trends by implementing different plans to upscale its business. This process focuses
on curbing the slowing economic growth and volatile markets that have become difficult
for other firms to handle. The current Monzo achieved executive TS anile noted that ‘the
bank’s shareholders have backed his plans to keep investing in teams, products,
infrastructure, and developing new products’ (Retail Banker International, 2022, 1). This
implies that the company has focused on developing new more product that could assist it
to bolster its operations.
Monzo primarily focuses on online operations, thus most of its operations should
be centered on online processes. With the current technological development process,
many people are now accessing the internet globally Monzo limiting its operation only
within the UK regions is more disheartening (Yurcan, 2022). One of the future
developments is the company expanding further its operations across other nations such as
china, US and other third-world countries. Convenience is one of the majors that promote
this online business. Thus, Monzo while investing in other countries should ensure that it
provides adequate service that could boost customer satisfaction in terms of convenience.
With a wide market value of nearly 5.24 million customers, Monzo has made
various steps in grasping a large customer base (Yurcan, 2022). The company needs to
upkeep its competition and compete fairly with the traditional banks. Within its markets,
the company does not only compete with the already existing firms such as the starling,
N26 in the UK and chime and Varo bank in the US (Yurcan, 2022). The company has been
focusing on using a more traditional channel to promote its presence through traditional
marketing channels. The company head of marketing alludes stat the company has done
various Facebook, Google, and YouTube adverts to promote its presence. However, this is
A Disruptive Innovation Theory Application in Monzo 13
not enough, the company should as well engage in media streaming including TV,
partnering with different celebrates and TV shows program to reach out to a large form of
people in the market.
Generally, the disruptive innovation theory is the driving force for most new firm
to outweigh their competitors within the market Monzo is one of the small firms that has
proved the application of this theory within the market. The company since its inception in
2015 has disrupted the tradition banking system models in UK and ushered in the use of
technology and digital-process to promote the service delivery in the industry. The
company enjoys a smooth business running since its competitors are not well-positioned to
work with the pace at which the company is operating. With the company now entering
into the US market, the US incumbent should also be more worried of the competition that
will be posed by the company within the new market.
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References
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ed-uks-new-breed-of-digital-only-challenger-banks-3635411/
Christensen, C. and Raynor, M., 2013. The innovator's solution: Creating and sustaining
successful growth. Harvard Business Review Press.
Christensen, C.M., McDonald, R., Altman, E.J. and Palmer, J.E., 2018. Disruptive
innovation: An intellectual history and directions for future research. Journal of
management studies, 55(7), pp.1043-1078.
Corsi, S. and Di Minin, A., 2014. Disruptive innovation… in reverse: Adding a
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Farrell, C., 2020. Monzo: A digital offering that has traditional UK banks scrambling, Digital
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Retail Banker International, 2022. Monzo to push ahead with scale-up plans amid economic
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