Do the challenger banks pose a threat to the big banks?

In recent years as the tech startup space has grown, one industry gaining momentum is fintech. With businesses focused on automating invoices (e.g. MarketInvoice) through to others focused on making foreign transfers easier (e.g. Transferwise), the fintech space is a varied one.

Some of these startups are boldly taking on the big banks, targeting both retail and business customers. These are businesses like Monzo, Starling, Revolut and Atom.

Credit: QuinceMedia

Monzo, one of these digital, app-only banks, began merely 3 years ago in February 2015. The bank already boasts 400,000 customers, and a previous £1M crowdfunding campaign lasted just 96seconds — a record. The company is backed by the renown Passion Capital, of which “queen of British VC’s” Eileen Burbidge is a Partner. CEO Tom Blomfield is an Oxford grad with a positive track record, having previously co-founded another successful fintech, GoCardless.

Monzo is expected to enjoy another year of substantial growth. The question is, why are these challenger banks growing so fast, and should the “big banks” be worried?

Having followed the Monzo journey from reasonably early days, one of the things that has struck me is the strength of it’s community, built around it’s core message — “It’s time for a new bank”. The community is an engaged one, with it’s most passionate members logging on and contributing daily. I met a previous Community Manager there, who told me that some of their users spend more time on the Community Forum than the Monzo employees who run it (in fact, Monzo team members frequently post and answer queries on the forum, from CEO through to product and customer service team members — which customers love and strengthens the brand and feeling of togetherness between company and customer).

Another refreshing change is that Monzo hold transparency in high regard. Their Trello product roadmap and feature updates are out in the open, and the app has been built — and continues to be built — with the feedback of it’s users.

It’s of no surprise that some of Monzo’s customers are ridiculously passionate. When was the last time you heard a Natwest or Santander customer talking like this about their bank? It’s just unheard of.

With their funky orange debit card, and features like the “golden ticket” (evoking Charlie & the Chocolate Factory — type memories) which are released to users every so often, enabling them to refer Monzo to a friend and skip the waiting list, it’s easy to see why Monzo is something people want to be a part of.

Features currently include a free UK bank account (free to open and no monthly charge), real-time spending notifications (handy), budgeting tools (e.g. the “pots” feature) and their quick, easy overdrafts. You can also take your card abroad and use it with no added fees (they use the Mastercard exchange rate), with nothing charged for the first £200 withdrawn per month and 3% thereafter; as a comparison, Revolut offers the same (using the Interbank FX rate) withdrawal per month, with 2% charge above £200.

Another crucial aspect is Monzo’s customer service. You can message for help 24/7 through the app, and you’ll get quick and friendly support (with emojis!) within minutes. Monzo’s “COps” (customer operations team) work around the clock, and they are really helpful. Though I am not a user, online reviews suggest that Starling Bank’s customer service is also very good.

No more waiting on the phone, annoying hold music or bang-your-head-against-a-wall automated messages. No need to physically go to a branch. With these banking apps, support is readily available from the palm of your hand in minutes.

Monzo’s vision is to be a global financial centre serving a billion customers. They have a long way to go, but with smart features, a strong community + customer-centricity, with a mission that millennials want to be a part of, one can’t rule out Monzo’s potential. Let’s remember that Monzo is only one of these challenger banks changing the landscape.

So, should the big banks be worried?

My guess would be yes. Whilst it’ll take a lot more to overcome these juggernauts completely, there are an array of predators chomping at their heels, and edging closer to the belly of banking.

Watch this space. The challengers are coming.

by Jasraj

Sunday 4th February, 2018