B anks are boring, for a good reason. The last thing you want to hear from the organisation you’ve entrusted with your money is their exciting plans for how to shake up the world of finance. Generally, you want a beige person in beige clothes gesturing to whatever is the digital equivalent of a big vault filled with gold. It’s boring, it’s reassuring, it’s safe.
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Banks are, in short, the opposite of a tech startup. So a tech startup wanting to take on the banks on their own turf has its work cut out for it.
But that’s the goal of London-based firm Monzo (née Mondo: the company had to change its name this year after a trademark challenge). The company doesn’t just want to become a new bank, though. It wants to become the Facebook of banking, with a billion users worldwide, bypassing much of the traditional banking infrastructure in the process to become something the world has never seen.
That’s a long way away, though. In the present, Monzo is operating in a limited beta test, with 50,000 cardholders using the service through pre-paid debit cards. It just got a restricted banking licence, putting it on the path to opening up a full current account service in early 2017 (as well as granting it deposit protection, faster payments and direct debits).
That puts it a step behind some other so-called challenger banks, including Atom and Tandem, which received their own licences this year. Nonetheless, Monzo has received the lion’s share of the attention given to the sector, owing to the scale of the firm’s ambition.
Building a bank from the ground up
It’s not just a result of founder Tom Blomfield’s goal “to get to 1 billion customers”, and subsequent plans for international expansion before the company has even fully launched in the UK (Monzo is “testing US dollar and Euro cards right now”, he says). It’s also because, where its competitors have largely been positioning themselves as innovative banks, focusing on the cost savings afforded without the overheads of branches, and highlighting their competitive deals, Monzo has focused more on the wider possibilities offered by building a bank from the ground up in the 21st century.
Blomfield’s ambition can get ahead of him at times, leaving it hard to disentangle possibilities from plans, and plans from actually existing products. So here’s what Monzo is today: a pre-paid MasterCard, issued by Wirecard Solutions, with deep hooks into a companion app which offers a real-time log of your spending and control over how the card is used.
The real-time log is impressive for anyone who’s had to wait days for online banking to update to find out how much they spent after a boozy night out, and Blomfield proudly points out that it would be impossible for a “legacy bank” to do the same. “If you slap this app on top of NatWest’s systems, the phone wouldn’t buzz when you make the transaction. It would buzz three days later, when the bank finally posted to its ledger.”
Other pre-paid accounts are more real-time, and Blomfield concedes that American Express also offers that speed of response. But, he says, “the amount of information that we ingest and show is a hundred times greater” than even new payment networks. That means that not only can the app show you what you spent, it can tag it to the physical location of the store, pull the logo of the brand, and let you sort your spending by location, category, or cost.
He pulls out his phone, and shows me an example: “This McDonalds. I was still on holiday at the time, so it’s tagged it as holidays. The fact that it can geolocate it, show the address, the name, the logo. It tells me I’ve been, embarrassingly, four times to the McDonalds, and spent £25. The fact that you can search and say to show me everywhere you’ve been in San Francisco. The data isn’t there in a legacy bank. You can put it in a shiny app, but the actual functionality isn’t there.”
There are other draws, concerning safety and security. The app allows a user to freeze and unfreeze cards at will – perfect for those “where’s my wallet?! Oh, there it is” moments – and can report when and why transactions fail as well as when they succeed.
A customer uses an ATM machine outside National Australia Bank in Sydney. Uk banks charge for overseas transactions, whereas Monzo does not. Photograph: Saeed Khan/AFP/Getty Images For users of Monzo today, then, that’s most of the tech on offer. The other major draw is the fact that the service offers fee-free, 0% commission use overseas, something Blomfield gets quite excited about as he checks his own bank account for comparison. “Let’s see how much Natwest charge me on similar transactions. ATM transaction … oh my god. So, for a £100 transaction, about £5.60 in charges, and then an exchange rate that’s way off.
“And we charge nothing. There are some companies where that’s a USP, but I question whether that’s a long-term viable business model. The trend with FX [foreign exchange] is it will go very low, or zero, and I think the bank of the future needs to offer FX at basically zero, but it’s very hard to build a defensible model around zero price, because once you have, where do you go?”
Where you go is where the distinction between plans and possibilities comes in. Here’s the plan: a full current account service, launching in 2017, that takes Monzo from being a curiosity to something people can genuinely have at the heart of their financial lives. It also gives the company the chance to actually start making revenue, as those accounts will come with an overdraft facility.
Notably, Monzo’s genesis as a full bank both begins and ends there. The company has no ambitions to grow beyond the current account, to offer the full panoply of financial services, from mortgages and loans through savings accounts and investment advice. Instead, Blomfield wants the end stage of Monzo to be the hub for a 21st century “portfolio bank”, letting customers easily hook in, say, FX transactions from TransferWise, day trading from Nutmeg, and loans from FundingCircle.
The possibilities are endless – kind of
That’s the plan. The possibilities, though, are … well, not endless. But there’s a lot of them. Blomfield enthuses about the doors unlocked by access to financial data alone: your bank could compare your heating bill with those of comparable houses, and automatically notify you if it’s found a better deal. With an open-access finance infrastructure, it could even switch for you, just by sending an API call to British Gas.
And while the lean model of Monzo leaves no room for simple offers like cashback or reward points (something which causes the departure of around 5% of customers, Blomfield says, who quit to return to using American Express cards for the majority of their spending), there’s the possibility of smarter deals that offer the same premium to the customer. He likens it to the advertising world before Google and Facebook came on the scene, when advertisers would struggle to discover the return on their investment. Now, advertisers pay less to advertise more effectively, customers get more relevant ads – and Google and Facebook make billions.
Blomfield also wants Monzo to become the first bank to fully leverage the network effect of the internet: the characteristic, shared by sites like Facebook and technologies like the telephone, which means they become more useful the more people use them. He’s got small ideas to start, like the ability to split bills automatically between every Monzo user at the meal at the point of payment, but they’re already very different from what the wider banking industry expects. It’s not normal to try to get your friends to switch to your bank so you can both use a cool new feature, but Monzo hopes to change that.
The question for the bank’s future is how many of those possibilities can crystallise into plans, and then projects, and then, eventually, features. That very uncertainty is what makes Monzo a tech company, not a bank: as Blomfield puts it, “most people don’t worry that their bank will announce one day that it’s pivoting to become a social network for cats.” Not that Monzo will make that change; but Blomfield says that he would be surprised if it was substantially the same company in 10 years as it is now.
For some, that will be terrifying to hear from someone who is simultaneously pitching to hold all their money and route all their transactions. For others, it’s the point.
“When we launched,” Blomfield says, “the first three or four thousand people, they had to physically come to our office and actually hear a presentation from me. I stood up and said ‘it’s not ready yet. This is not a bank account, it’s a beta of a bank account, it’s a pre-paid card. Don’t rely on it, always carry a back up, it may break, but as a result, you get to experience a taste of the future.’”
The pitch worked on me. I have a Mondo card in my wallet right now. Who doesn’t want a taste of the future?