Reformation or refactoring of banking is the Holy Grail of the Fintech Revolution. Do that and the revolution is a big deal. Get nowhere near and its all rather marginal. So-called challenger banks have ended up rather same-y. Will “App-only” banks end up going down the same route forced my micro-regulation and micro-supervision into the same tight mould. Or will they somehow remain within the constraints of the mould but somehow break it at the same time?
Tom’s long relationship with the internet and business from early teenagerdom through university and onto founding two successful modern Fintech startups
the importance of the Social Network as an inspiration for a generation who were the last to have been told that the interweb was kind of a hobby not a career – Oxford University Entrepreneurs were only 10-15 people in mid-2000s [’03-’08]
Silicon Valley and Y Combinator
Monzo started February 2015
B2C versus B2C banking decisions – “how to do 10x better” – pros and cons of choosing one or the other for a Fintech target market
“people don’t switch consumer banks as there hasn’t been a viable alternative to date” – “removing the warts of retail banking may give a 1.5x improvement in experience”
“what does the future of retail banking look like?” is the larger part of the equation
doing financial stuff for folks can be fitted in to non-regulated structures, into being an e-money issuer as well as being a bank – this progression is increasingly expensive and onerous. So why choose a bank?
Tom’s rationale for getting a banking licence – “an incredibly onerous process” – theory vs practice, multiple benefits of being a known form, clarity of constraints (versus eg more opaque restrictions from commercial banking partners who tend to gold plate the regulations) – cf Simple and Bank 26 in this context
“having your own licence puts you in control of your destiny”
emotional benefits of being a bank with journalists and customers
relying on partner banks implying you are only ever a reseller
“banking is broken due to a misalignment of interests (between customers and bank”
the switch in mentality from the current producer-based banks (sell their products, gather assets) to consumer-based bank – not so interested in traditional approaches to banking but “offering a financial control centre to solve customers [financial] problems”
the importance of data in doing this well
the oligopolisation of the microeconomy as leading to increasingly producer-based organisations; the interweb/smartphone as flipping that around to empower consumers
a case study of business expenses as an example of solving a friction point and the potential for automating it even more
loyalty cards – “what is Monzo went and collected your points automatically and refunded them for you without you having to any admin whatsoever?”
this model as “consumer financial support” rather than “monetary creation and maturity transformation” as the core of this new concept of banking
“we want to utilise the data and identity to help solve peoples’ problems” – the Googles, Facebooks and Amazons aren’t really leveraging this yet
there is no term for their model yet – all terms don’t fit the bill
the new technology leading to the opportunity to solve new problems in new ways
making profits as a new imperative in the Fintech world
Monzo’s card freezing visuals in the app as very cool [ha!]
- Prepaid mastercard – 80,000 customers – from zero a year ago (!!) – they expected 4-5,000 customers; the current demographic (“the unifying characteristic is they live their life on a smartphone”)
- Early 2017 a current account – this should take them to break-even
- 2017-18 the marketplace model
time of interacting with a provider (“convenience”) as being as important as price (Amazon qv)
they are eyeing 1,000,000 customers as their key target
detailed focuses for 2017: price comparison as a focus; retailer loyalty and discounts; investor products
they are recruiting for a Head of Partnerships/Marketplace – see Monzo Careers for this and other career opportunities
international expansion thoughts inc. the recent announcements of the US regulator to give Fintechs full banking charters
Since the original topic’s long enough, I thought I’d add a few highlights of my own separately, which are noteworthy & / or feed into the conversations that are happening here in the community.
Partnerships with banks & building on top of bank’s APIs to create products, access to payment schemes are all possible hypothetically but these things can’t be done at the moment
Getting a banking license vs offering a prepaid solution: The benefits of being a bank are: direct access to payment schemes, the bank business model - taking deposits & lending that money, to earn net interest margin, FSCS deposit protection, control over compliance ‘burden’
You don’t have to work with a card sponsor or issuing bank who have their own ideas about risk & compliance and tend to “gold plate” regulation.
On messaging: if you say to journalists or investors or customers “we’ve got an innovative new prepaid card / eMoney wallet” they’re a little bit skeptical [about whether Monzo really is doing anything very different] but if you say “we think banks are broken, we’re starting a bank” people take notice
Monzo wants to be seen as a trusted agent or partner of the customer, to help them run their financial lives
Monzo is still planning to help users report their business expenses
Tom hates “those horrible pie charts in your traditional banking app” too
The average age of a Monzo user is 31 / 32 (so demand isn’t mainly coming from students), they’re outside London & they’re not mostly techy (unlike the Alpha users)
Monzo wants to provide details about providers of the financial products in their marketplace like “here’s what other Monzo users have chosen” & star ratings but also “here’s how long it took them to sign up” as “the administrative burden & the overhead of just filling in forms is more painful for a lot of people than the pure price”
When Tom mentioned
he was referring to P2P lending, starting an ISA or topping up your pension.
“Head of Partnerships” = “Head of Marketplace”
Tom is personally very interested in the recent announcement from the US regulators -
Yes great summary (&excellent additions Alex) … some poor s.d must spend ages writing those Pity he clearly can’t spellcheck lol (pre Xmas haste is my weak excuse lol).
It’s a great conversation and a great, grounded and credible vision of where this might all go. A “small” matter of this “execution” thing in the meantime but definitely so far so good…
Share and enjoy.
Yrs happily using my monzo card without a flaw in Seville.
Ps our idea of the day, drawn from B’s new camera which we can tell it we are on holiday and autolabels photos as “holiday Seville 2016” (very useful when a million jpegs on the hard drive) is similar for monzo labeling… presumably it can spot we are abroad and hence auto label as trip? One for the 1,001 ideas list.
When you travel abroad, if you’ve enabled Location Services in your settings, you’ll get a notification & a feed item which acknowledges that you’re abroad and enables you categorise all of your transactions as Holidays / Expenses for the remainder of your trip
Just listened to the Podcast, interesting stuff. Its funny to hear Tom talking about his ‘80,000’ customers and being pretty chuffed about it. Its fantastic to know that already Monzo have more than doubled their customer base.
They are close to 280,000 now! Every few months the old podcasts become laughable just how small the user base was. It makes you wonder how long until we are like '“lol. They were so excited about 280k users and now they have a million/billion!”