It is a truly unusual thing a bank young people are excited about. But while its speed and ease of use are impressive, there is a problem its not making money

A letter from the bank tends to arouse fright. In these mainly paperless periods, it usually means you’ve gone overdrawn again or the interest rate on your savings account has moved even closer to zero. Best not open it now; stay it on the heap for later-slash-never. But when my new Monzo bank card landed on the doormat one morning, I felt a frisson of excitement. Perhaps it was the six-week waiting list: there used to be 66,000 people ahead of me in the queue when I utilized. Perhaps it was just the hot pink debit card, the millennial’s answer to the black Amex.

Monzo, a smartphone-only “challenger” bank, has this impact on a lot of people. In its first round of crowdfunding, in March 2016, it created PS1m in 96 seconds, the fastest crowdfunding campaign ever. In a more recent campaign, the vocalist Tom Odell and Kevin Systrom, co-founder of Instagram, came on board as investors and the company elevated PS70m. Wired magazine asked if Tom Blomfield, Monzo’s 32 -year-old British founder and chief executive, would become” the Jeff Bezos or Mark Zuckerberg of banking “.

It’s not easy to say why Monzo inspires such ardour. Unlike many banks, the startup does not offering you a cash incentive to join.( Instead it gives customers one” golden ticket”, which they can pass on to a friend to jump the queue to join; these do brisk business on eBay .) Furthermore, you don’t receive interest on the money you keep with it. Monzo offers attractive savings on spending abroad, but it’s hard to believe that this alone has brought in nearly half a million UK customers, who have invested more than PS800m, since it was launched in 2015.

” There’s a group of very rational people who know about it, but don’t get it ,” Blomfield confess, over a coffee in Monzo’s office, only off the Old Street roundabout in eastern London. If the Monzo story ever gets the Social Network therapy, Ryan Gosling would be a shoo-in for the Blomfield role.” Typically bankers, accountants, lawyers or sometimes investors, they say,’ Why do people like this? Why are you developing so fast? What’s potential benefits ?’ And when they say what’s potential benefits, they mean the benefit for a purely economically rational person:’ What do I get ?'”

How does Blomfield convince them? “Well,” he responds,” the answer for them, frankly, is that you get free foreign exchange. And they run,’ Ahhh, I get it .’ But that’s altogether missing the level. For something like 90% of our patrons, the free foreign exchange is nice, but they might go on holiday once or twice a year. They are living on an average salary and it’s about visibility and control. It’s the help feeling that:’ With my old bank I never knew how much fund I had at any point and I’d invest over a weekend and on Monday morning all the charges would reach my report and I’d realise I’d overspent and it induced me nervousnes and stress .'”

Monzo believes it can restyle banking for the digital age. Its strapline is:” We’re building the various kinds of bank that you’d be proud to call your own .” It applies a lot of emojis in the present communication. Along with other app-based challenger banks, such as Starling and Atom, it thinks it can offer a different, more intuitive and personal experience than the 5 big banks- Lloyds, Barclays, HSBC, the UK arm of Santander and Royal Bank of Scotland- that predominate more than 80% of the current-account market in the UK.

So far, Monzo has made a particularly effective landgrab in the youth sector. Half of its customers are under 30, and a further one-quarter are under 40. It started out offering a prepaid debit card that updated purchases instantly and sorted them into helpful categories( eating out, groceries, transport and so on) on the app on your smartphone. In recent months, it has begun to switch patrons over to a full-blown current account.

” Monzo can’t be for everyone, but I think it’s for about 90% of people ,” says Blomfield.” It’s for people who live their life on their mobile phone, that’s the primary unifying factor. So if you really really are glued to this thing”- he holds up an iPhone-” then it’s an app that’s designed in the same lane that WhatsApp, Citymapper, Uber and Amazon are. It merely operates the lane they expect. And it gives you real-time visibility and control. It’s one of those home-screen apps: you have five or six apps you use to live your life and Monzo is one of those things .”

Not long ago, Blomfield claimed that if Monzo kept growing at the same rate it would have a billion patrons by 2023. Today, he backtracks, but merely a couple of steps.” This is a 20 -year project ,” he clarifies,” but a billion consumers, yes, that is our mission .”

The exact form it will take is up for grabs; Blomfield wants to keep Monzo fluid.” What we’re trying to build is a web platform. Something like a Facebook or a Google, almost an Amazon even or a Twitter. A marketplace bank, where we don’t offer all of the products to our patrons but we are the interface between them and their fund. So “theyre using” Monzo to visualise and control their fund wherever it sits, and that might be in a Barclays savings account or their HSBC mortgage or their pension or their Isas or whatever. So all the products aren’t necessarily provided by us. In fact, most of them are not .”

Banking has, historically, changed at a speed only a little faster than glacial. The big banks all give a very similar range of products and dominate the financial scenery. Overwhelmingly, we open a current account with one of them as children or young adults and that becomes our bank, often for the rest of “peoples lives”. Before a switching service was introduced in 2013 ,~ ATAGEND on average we would stay with our bank for 17 years. The typical wedding in Britain, meanwhile, lasted 11 years, seven months.

This situation, nonetheless, is set to receive a shake-up. From 13 January 2018, open banking will force the UK’s nine largest banks to share their data with licensed startups( subject to the approval of account holders ). One simple benefit of such changes is that, at last, we will be able to coordinate transactions from various banks in one place, such as a Monzo app. More intriguing, though, is what use can be made of the data; in theory, putting aside obvious privacy fears, it is appropriate to lead to a personalised bundle of service and products. Maybe it will automatically switch your gas and energy to ensure you’re always on the best rate.

Open banking has been called ” the Uber moment” for the finance industry by Antony Jenkins, the former chief executive of Barclays who now runs 10x, a financial services data firm. And the assumption is that the banks will be unable to keep pace with the fleet-footed startups.

Monzo
Monzo has had thousands of customers on a waiting list for its cards. Photograph: Alex Hern for the Guardian

Blomfield admits that he has basically no banking experience and he mainly utilizes people who haven’t worked in the field either:” We really value naivety, being able to approach a problem from first principles .” His early years were spent in Hong Kong and Singapore, where “his fathers” was a civil engineer. He went to a grammar school in the home counties and then investigated law at Oxford. After graduating, he slipped into management consulting:” The career for people who don’t know what they want to do with their job .” He has since set up and worked on a bunch of startups- and had a six-month spell at Monzo’s competitor Starling, which he can’t talk about for legal reasons- but settled on Monzo because he believes it can be” a world-changing corporation “.

Open banking, Blomfield insists, will trigger a revolution, but its impact will not be felt immediately. He cites the proverb coined by the American futurist Roy Amara:” We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run .”

” With open banking, people are expecting a tidal wave of something ,” says Blomfield.” I think it won’t happen in January next year, but the notion behind it has the potential to revolutionise retail finance totally. There is just so much valuable data sitting in these bank accounts. I don’t think banks are doing it malevolently, they are not applying it for nefarious purposes, they are just incompetent. They merely can’t get it out. And if customers are able to unlock that data and use it for their own benefit it will create entire new industries .”

Martin Lewis, the writer who created moneysavingexpert.com, agrees that we should prepare for interruption, but he is wary of writing off the major banks just yet.” The play is changing and Monzo is at the forefront of it, but I wouldn’t necessarily say it’s a huge outlier with everything else that’s going on ,” he says.” Monzo is an app-based bank that is doing it well. But Monzo has neither invented the app , nor has it invented the bank. It would be stretching it to say it’s going to be an Amazon; to be honest it’s stretching it even to say that it might become a Nationwide. It would be lucky to be on the Nationwide scale .”

This is not” a slag “, Lewis explains. Nationwide has an enormous customer base and billions of pounds under management. But Lewis takes a different position from Blomfield on why people are reluctant to change their bank.” A lot of people actually- and we know this from surveying- are fairly happy with their bank account ,” he says.” It’s a bit like changing your computer or changing your operating system. That’s a big deal, it’s a fus and I think some of the inertia is due to relative customer satisfaction. And that’s difficult to get over .”

Monzo has certainly had some developing aches in its short life. In October, it announced that it would cap overseas ATM withdrawals from 18 December( now postponed until January 4 ): PS200 a month will be fee-free, but further withdrawals will incur a 3% accusation( spending by card abroad in stores, inns and so on will remain free of charge ). The difficulty, Blomfield says, is that it started off expensing about PS6 per patron- which Monzo swallowed- but it became so popular with a small number of users that the bank was paying an average of PS17 per client per year.

” The style we address those things is just through revolutionary transparency ,” says Blomfield.” We lay out exactly what the ATMs are costing us and how the usage has changed and people can really look under the cover-ups and move,’ Oh, OK, here’s a problem and that’s a answer .'”

Then there was the smaller topic of the PS7. 9m pre-tax annual loss that Monzo announced for the financial year ending in February.” The loss this year is likely to be much, much higher ,” says Blomfield, smiling.” I don’t say that with any hilarity, but it’s very weird how, specially the tech press, in almost a single breath will report the great news of a fund round and then the devastating news of a loss.

” We have just elevated PS70m ,” he goes on,” that will give you an indicator of the size of the losses over a year or two. We wouldn’t elevate that much fund if we weren’t going to lose it .”

There’s a quiet confidence to Blomfield; he describes himself as” highly caffeinated, very, very direct and driven “. But there are no guaranties.” The investors who have thrown their fund in Monzo know that they’re taking a big risk for an outsized return ,” he says.” Our valuation moved up two and a half days in 12 months. So if you invested in January, your investment is now worth approximately two and a half times what it was in 12 months. That is not risk-free, clearly. We hope it will multiply in value over the next few years, potentially many, many times in value …”

He pauses.” But there’s a really big chance you’ll lose everything .”

Eight more finance apps

MONEYBOX
Enables you to set up an Isa from your phone in just a few minutes. There are various options for determining your monthly deposit, but the most unique is that the app will round up any acquisitions made from your linked bank account to the nearest pound and sediment the difference in your Isa. You can also select the level of risk to which you would like to expose your investment.

CHIP
Another saving app. Once linked to your bank account, the app’s algorithm will discover how much you can afford to save each month. Your initial interest rate is 0 %; this increases by a percentage point for all the persons you cite who likewise signs up( to a maximum of five ).

CURVE
Do you have a wallet stuffed with plastic? This service enables you to merge them all into one Curve card, then select which account to debit from your smartphone on a use-by-use basis. Features low costs on overseas transactions and also permits business users to sync with accounting app Xero.

PLUM
Like Chip, this app utilizes an algorithm to learn how much you can save. It invests your fund in RateSetter, a peer-to-peer lender. The nature of peer-to-peer lending intends the interest you receive may differ from the average rate of 3 %. Communication with the service is conducted through Facebook Messenger.

STARLING
Offers a full-featured mobile-only current account with overdrafts, direct debits and so on. Additional features include zero ATM costs abroad, the ability to analyse your spending by sector( feeing out, for instance) or seller( Pret a Manger ), and the option to create “goals” to save for a specific purpose. Safeguarded by the Financial Services Compensation Scheme’s PS8 5,000 savings guarantee.

BUD
Currently in beta stage, this app and website describes itself as” your money platform” – you can feed in data from all your various accounts, cards and investments to keep track of them in one place. The app will then make suggestions for fiscal products and services it reckons will interest you.

TANDEM
Currently a Mastercard only available to the startup’s 11,000 “founders”. But Tandem lately acquired Harrods Bank and, if the bargain is confirmed by the banking authorities, it will gain a licence to offering current account to all. Tandem likewise plans to offer report aggregation and money-saving recommendations generated by algorithms.

ATOM BANK
In 2015, Atom was the first digital-only bank to be granted a licence by the Bank of England. Offers savings account and mortgages through brokers, has plans to offer current accounts in 2018.

Read more: https :// www.theguardian.com/ technology/ 2017/ dec/ 17/ monzo-facebook-of-banking