Taking the Challenger Bank Global

We sat down to chat with Thomas George, Head of International with Monzo. The UK challenger bank announced a month ago a new milestone: they’ve reached one million customers. We wanted to know what’s next for them and how the digital banking revolution is set to become a cross-border reality.

Don’t miss George Thomas at the Empire FinTech Conference in San Francisco on Nov. 13 in the panel “You Say You Want a Revolution? Enter the Challenger Bank.”

EMPIRE STARTUPS: To what extent is Monzo international?

Thomas George: Monzo was founded in 2015 and a full banking license was granted August 2016, so we’ve been a bank for little over 2 years. At the moment we’re present in the UK and are not actively pursuing expansion abroad, but this may change.

We recently published an article on our blog that described our new mission statement which is “Monzo makes money work for everyone”. A part of that is “everyone”, and we’ve often said that we want to be the first Bank in the world that serves a billion people. So we will definitely need to expand beyond the UK to meet that target!

At the end of the day – whether it’s receiving or sending money, saving or borrowing – retail banking is an activity that is somewhat universal. We think that everyone around the world probably needs help in some form managing their money. So perhaps based on these commonalities we might achieve our slightly grandiose vision…

ES: Looking at the challenges for challengers – what are some of the barriers to entry for a challenger when it comes to expanding into the US?

TG: I think there are three mains sets of barriers: competition, regulation and cultural aspects.

Firstly for competition, the number of players makes a difference. Looking at the UK, our banking sector has traditionally been dominated by a small number of really large players. By comparison the market in the US is much more crowded with thousands of banks. There are a few ways to look at this. From a new entrant’s perspective it’s probably difficult to get a brand to stand out. On the other hand the US market is characterized by a wider number of different offerings, with some better serving those niche markets. Perhaps that means it’s easier to build a niche product in the US.

In terms of challenger bank competition itself in the UK you see different players in the market, you’ve got new banks like Monzo who have got a full banking license, and then you have a wider range of other providers who are offering more specific products, some of which haven’t become full banks but are using a third party or partnership model. The approaches to getting into the market differ, but if we take an aggregate view at what all these players are doing, it’s clearly becoming a more established de facto way of banking for consumers [banking with a digital provider]. Comparatively the US is a bit further behind, and perhaps that means the idea of banking from a mobile or app only banki is more of an alien concept.

On the regulation front, in the UK the PRA (Prudential Regulation Authority) or the FCA (Financial Conduct Authority) have been really supportive of new banking products and firms entering the space. And they were really keen to encourage more competition post the Financial Crisis, and given the super-consolidated banking market in the UK. Through initiatives like the New Banks Start-up Unit or the FCA Sandbox we’ve really felt like they understood that change was coming and were trying to work with us. Ultimately its better for the consumer because there’s competition between suppliers and more choices.

In the US, there are these wide range of different regulators coexisting (The Fed, OCC, FDIC, State Regulators, etc.) which adds layers of complexity to both chartering and ongoing supervision. Navigating this landscape and regime is hard for new entrants and that’s perhaps the reason why we have not seen as many digital banks move to the US yet. On the flip side, there has been a lot of recent press coverage about the US regulatory agencies pushing for change to regulation that would support new banking business models, for instance the OCC with the FinTech Charter. All this sounds promising…

Last, cultural differences. The US and the UK share a lot in common, but there are many differences! I think a few might pose a few issues in regards new market entrants. If we look at credit cards, the product penetration is high in the US, and when you can get a credit card that will award you hundreds of dollars in rewards that’s very tricky to compete with as a new entrant. Another reason is that your payments infrastructure is not the same as it is in Europe. You’ve got a bigger reliance on cash and checks. That means that if you’re a legacy player with an excellent ATM network it is ultimately way more difficult for market entrants, because of that much higher demand for good access to ATMs.

ES: We’re seeing a growing interest for the challenger bank concept in the US. We’re still unclear about one thing, are the US challengers the same as European challengers?

TG: I think there are a lot of similarities between US and European Fintechs and challenger banks, and indeed a number of successful brands operating in both markets.

The main difference I see is that in the US products have been more focused around specific niche product areas, whether it is lending, investing, crypto, budgeting et cetera. In Europe I think there have been more products that address more central customer needs such as personal checking account or transactional banking services. Perhaps that’s in part because players have been able to launch fully regulated banks to offer those services. In the US we are now seeing some more mature players scale and expand their offering into those core checking or transactional services, but initially that was never part of their mission.

ES: When challengers become global how will they ensure that they’re providing value to international clients?

TG: At Monzo we see this as part of our vision. We’d want to balance two competing aspects. On one side we want to build a scalable global product, allowing us to offer our services to customers at low cost. On the other side of the equation you’re balancing with the need to localize, making sure the product is tailored to consumers in certain regions and meeting their demands. That’s going be a really tough challenge!

ES: Finally, where do you see Monzo in 5 years?

TG: This is almost double the lifetime of the company so it’s very hard to see the future! Definitely we’ll be looking outside the UK borders to start expanding our services to more countries so we can bring Monzo to new customers. I guess the other thing is we want to continue to serve and grow our amazing customer base in the UK, and continue to develop the product for them. I’m guessing that the product we’ll have in 5 years will be almost unrecognizable for users today.

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