Monzo, hurry up and announce fundraising

Monzo Chat
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Hi All,
Since investing in Monzo last year, I am thrilled with how well they have done, but in the early days I have to admit I was not as positive (especially after Brexit vote)… i am now 100% happy with my investment decision.

My only complaint is that they are still to announce the next fund raising so we can jump the final hurdle and start offering currant accounts - so come on Guys - get the ball rolling so we can get as much publicity as possible before article 50 is triggered and it takes up all the headlines.

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It’s great to hear that you have confidence in the company and its vision.
The next round of crowd funding should be coming very soon so just be patient.

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I would imagine they’re going to exit the mobilisation phase and launch their current account product before the next fundraise as they’ll be able to value the company higher at that point (and therefore give away less equity per pound raised).

The next raise should, I imagine, provide Monzo with enough to take the company to the break-even point at around half a million customers (Tom has said 400k previously).

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Seconded.

But very much with the understanding that they don’t want to rush through their roadmap. It’s good to see them make steady progress, but without making brash / rushed moves (as far as I can tell)

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@Investor_No1 great to hear from you! It’s a super exciting time and we’re looking forward to sharing more information as soon as we can. We to have some concrete details to confirmed before we share more widely. I would recommend coming along to the Open Office or watching the presentation live (we’ll be looking at streaming the presentation via Facebook Live or Periscope) I know a lot of people missed out on taking part last time, so we’ve worked hard to make the process fairer and more democratic this time round.

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Hi Tommy I thought they had to have a minimum amount of capital in the bank to get the restrictions lifted and this is why they are raising more money - I might be wrong though - so they can’t do it that way - anyone else out there that can clarify ?

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This restriction is imposed as part of the PRA and FCA mobilisation process for all newly authorised banks.

In carrying out the regulated activity of accepting deposits, the aggregate amount of deposits held by Monzo at any time and may not exceed £50,000.00

Deposit has the meaning given in Article 5(2) of the Financial Services and Markets Act 2000 (regulated Activities) Order 2001.

Mobilisation is to the best of my knowledge not to do with capital, that requirement is part of the previous stage in a 5 step process.

Mobilisation is given to new start ups after they are happy with business plans, financial resources, etc. It is more to do with getting the systems up and running. They say on the Bank of England website “Mobilisation is generally suitable for start-up banks which may not have the upfront investment, or that need time to build IT systems, infrastructure, recruit staff or engage with third-party suppliers.”

Note: For more information on mobilisation see the PRA and FCA websites

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Thanks but what does this actually mean

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In this thread about Crowdfunding Tommy theorised that the delay was Monzo waiting until after mobilisation and you then stated that the amount of capital dictated the restrictions being lifted. I just clarified that the restrictions placed on a new entrant during the mobilisation phase relate to getting systems and staff in place rather than anything to do with capital. They had to satisfy regulators that they had sufficient capital in order to proceed to the mobilisation phase and they have satisfied them in this regard otherwise mobilisation would not have been granted. I then refered you to the regulators website in case you wanted to find out further details on the regulatory process as while the issue of mobilisation had been raised to discuss it in any more length would distract from the theme of this thread which was about crowdfunding rather than mobilisation.

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You’ll probably need an response from one of the Monzo team (perhaps @paul?) to get a complete answer.

But having a look through the site, one of his posts got me to this page on the Bank of England’s website which explains the process for starting a bank http://www.bankofengland.co.uk/pra/nbsu/Pages/default.aspx :clipboard:

This guide seems to explain the process in quite a bit of detail. When it comes to capital requirements, here’s what I could find:

SSB = Small Specialist Banks.

A SSB is defined as a bank with less than €5 million of capital which provides current and savings accounts, or lends to SMEs, or offers residential mortgages.

Application Stage

For SSBs, the initial minimum capital requirement is £1 million, plus buffers. The £1 million is the Base Capital Requirement (BCR), and may apply both during and after mobilisation.

From page 22.

So obviously Monzo’s already got enough capital to cover that from the previous fundraising rounds, assuming they didn’t have to buy too much beer for the last open office :beers:

Although

RWA = risk-weighted assets
ICG = Internal Capital Guidance
BCR = Base Capital Requirement

Once the bank’s RWAs rise beyond a very low level, and its ICG exceeds the BCR, the ICG sets the effective level of capital to be held (plus buffers).

Also from page 22.

Then

After Authorisation

Capital stack

• Pillar 1, 2a and 2b.
• PRA Buffer, Capital Conservation Buffer, (Countercyclical Buffer).
• New bank approach to setting buffers: wind down costs.

Other Considerations

• Leverage ratio.
• Minimum requirement for own funds and eligible liabilities (MREL).

From page 49.

After Authorisation is the stage after Mobilisation is complete. And your guess on what the above means is as good as mine! :dizzy_face:

But it looks like Monzo shouldn’t need to raise any extra capital before they can be granted the full banking license :tada:

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Perfect thank you in that case I agree with Tommy it would be better to get restrictions lifted before raising more but I think the regulators will want to see it with cash in the bank as a buffer so the raise will be before restrictions I reckon - any way looking forward to the 28th Febs open office.

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See you there on the 28th.

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I don’t think thats how it works - the regulators I assume would not lift the restrictions without the capital buffers ( tier 1 capital ?) being in place with sufficient running expenses for the year
I would think in the region of 5-6million capital lodged at BofE + running expenses for the year at about £40 / user / year with 100,000 + 6000 user uptake per week could soon be in the region of 150-200,000 users which would require a further 8 -15 million depending on how many new users Monzo are looking for

Edited - Investor No1 - sorry misread your post, yes I agree that the raise will need to be before restrictions lifted as you said

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Good point, I didn’t mention liquidity requirements in my earlier post & they’re not detailed in the guide that I shared :confused:

But on the off chance that anyone’s interested, the assessment forms are here https://www.bankingsupervision.europa.eu/ecb/pub/pdf/160108letter_nouy.en.pdf

& the PRAs guidelines on how they supervise liquidity and funding risks is here http://www.bankofengland.co.uk/pra/Documents/publications/ss/2015/ss2415.pdf

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Monzo recently announced in their :mondo: February journal that on 28 February, Tristan would be sharing news on how investors might try to beat the last round of investment.

I’m expecting this to mean clarity on how much they’re intending to raise from private equity and crowdfunding, and hopefully a timetable as well. :hourglass_flowing_sand:

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If you’re interested in hearing some thoughts on the macro effect of Brexit on FinTech investment, I’d recommend giving the short analysis at the beginning of this podcast a listen, especially because the first part of the podcast’s title makes it sounds like it’s one that would appeal :wink: -

http://11fs.co.uk/podcasts/ep212-news-is-fintech-failing-dodd-frank-and-everything-goes-back-to-cannabis/

To summarise -

  • Investment in [UK FinTech startups] is down 33% vs 2015
  • This is generally attributed to Brexit & geopolitical uncertainty

But…

  • Investment in Q3, just after Brexit, was just as high as the previous year’s
  • So Brexit is already priced into the market [valuations]
  • Foreign VCs recognise that passporting isn’t critical to most FinTech companies
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:tada: It’s going to be fun!

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@alexs @anon44204028 @anon95680666 @Investor_No1 tier1, liquidity, RWA, mobilisation - you guy should be advising the Bank of England :wink:

During Mobilisation we apply for and have been informed by the PRA about our liquidity and capital requirements. A ‘feature’ of the UK regulatory regime is that these two formulas/numbers are confidential between the regulator and firm. Our capital is all called ‘tier one’ in otherwords ordinary shares, the best and safest form of bank capital :cool:. The amount of capital we need is a function of something called RWAs or Risk-weighted assets, a way of adjusting bank balance sheets for risk. We’re in the midst of another fundraise now because we need enough capital to run the bank on what’s called T+12, or for the next 12 months and this includes all growth :rocket: plans :map:.

On the liquidity side (because you can have capital without liquidity and you can be liquid without capital :confounded:) you may recall that aside from a modest amount of overdraft lending and some funds held as surety for using the payment schemes, most of our assets are held at our Reserves Account with the Bank of England - and you don’t get more liquid :potable_water: than that :tada:

If you want me to explain the “capital stack” I’m happy to shed some :flashlight: on this dark banking corner!

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ha ha, cheers @paul .

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Hi Paul, please give us the ‘capital stack’ class when you can… very intrigued to learn more about it.

Thanks for sharing your knowledge with us on a weekend night btw! :heart_eyes:

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