U.K. challenger bank Monzo aims for U.S. charter in broad stateside push

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Monzo, the challenger bank launched in 2015 that is adding roughly 200,000 users a month and now has 2 million customers, officially launches in the U.S. on Thursday.

Tom Blomfield, the company's CEO and founder, said it is hoping to bring some of the innovations here that it made in Britain, including offering a feature that blocks compulsive gamblers from using their cards at casinos, and making bank accounts available for homeless people.

He said the firm is already pursuing a bank charter, and expects to be approved in the near future.

"We’ve been working in the background with the regulators for some time," he said in an interview, noting that there have not been many new charters granted during the past decade. "That's changing. I think they will grant new charters imminently; I think we'll be among the first wave to get them."

Blomfield started the payments company GoCardless 10 years ago, worked at a New York startup outside of financial services, then returned to the U.K. and worked at another challenger bank, Starling, for about six months before forming Monzo. He’s bringing an enthusiasm for customer service and financial inclusion to the U.S. venture.

Following is an edited Q&A about Monzo's plans for the U.S.

Two million customers seems like a lot, given that Britain is not that big a country.

TOM BLOMFIELD: No, you run out of people sometimes. Which is why we’re coming to the U.S.

When you look back over the past four years, to what do you attribute your success, especially versus Starling or Revolut in the U.K.?

It’s an obsessive focus on the things our customers care about in their day-to-day lives. We’re not focused on building a massive balance sheet or originating mortgages. We’re laser focused on providing that day-to-day customer interface, whether it’s the brand or the customer service, which is rated No. 1 in the U.K. for all banks now, or the app functionality that helps you stay in control of your money.

Can you think of anything specific you’ve done that stands out from competitors?

Marrying a great digital experience — you can sign up for the card in minutes, you can manage your account through the app — combined with amazing human customer service. We’re not trying to minimize cost there. We happily invest to have 600 people in our customer service team offering 24/7 support. So I don’t think it’s one or the other.

The second is we’re looking to build a transaction hub, and around it were going to plug in third party products and services. So we’ll have savings accounts from our partner banks or mortgage switching by brokers or loans or investments. We’re becoming much more of a platform bank.

And that was Starling’s idea, too.

Yes, and N6 are fairly similar.

Have you already plugged in partners?

Yes. We have TransferWise for foreign exchange. We have three partner savings banks. Then we offer mortgage switching through a broker, and gas and electricity switching. Gas and electricity is this whole weird U.K. thing where in the U.S. you have a state provider, in the U.K., we have different providers. The idea is to be a hub and plug in spokes rather than getting all your products from a single bank.

Do you plan to create a marketplace hub here?

In time. To start with, it will be the debit card and the app. Quickly we hope to add that marketplace around it.

What steps have you taken in the U.S. so far?

We’ve taken a two-pronged approach. We’ve been working in the background with the regulators for some time. We’re working on a bank charter. We don’t have that yet in the U.S. ... I think they will grant new charters imminently, I think we’ll be among the first wave to get them.

Are you looking for a national bank charter from the OCC?

Exactly. OCC, and FDIC-insured.

In parallel, we’re working with Sutton Bank in Ohio to get a debit card, have FDIC insurance, an account number, a routing number, contactless tap-to-pay technology, and the full Monzo app including customer service that comes with it.

Why do you need the bank charter?

In time, it gives you a lot more flexibility. Sutton is a great partner, and it’s a good way to get started. Ultimately with any of these partnerships you end up being limited by the partner bank. We saw that with Simple and I think Chime is reaching the limits of what it can do. We started in the U.K. with a partner bank, then got our own charter and moved everything to our technology. We built a core banking system from scratch, which is hosted in the cloud, and we built the card processor, a Mastercard-certified card process from scratch. We can run this ultra-efficient technology because we’ve written it all from scratch.

What kind of U.K. sensibility can you bring to the U.S. that might be different from the challenger banks we already have here?

A lot of people recently have been focusing on really high interest rates or ultrahigh cash- back offers. I don’t think it’s sustainable. The way we’ve approached it in the U.K. I think well replicate in the U.S., and that is to really tailor the product to meet customer needs. So rather than assuming what we have in the U.K. will work, just transplant it here, instead we’re going to launch with community in-person events, where a bunch of people around the country come to our event and talk to us about their money, try an early app, and give us feedback. We’ll run an iterative process to quickly build the kind of app that helps people live their lives.

Are you going to start in the U.S. with a blank slate?

We’ll start with what we have in the U.K., with the acceptance that quickly it can diverge. We’ll have a real focus on the details of each financial transaction, how you as a customer interact with it. So telling you you’re 50% of the way to your budget or when you pay at a restaurant, suggesting what a tip should be, or splitting money with friends Venmo style. Or putting money aside in a segregated jar so you can’t see it anymore.

The second part is customer service. We’re big admirers of USAA, which has an amazing customer-centric brand and service. If you can marry an amazing digital experience with world-class human customer service, you can get something really special. The third part that’s really important for us in the U.K. is our social mission.

This idea that we need to earn our right to exist by contributing back to society. The way we do that in the U.K. is by supporting homeless people and refugees to get bank accounts. We’ve done a lot of work over the last few months working with people with gambling problems to introduce functionality that allows people to self-exclude. If you want to stop gambling, Monzo can turn off those transactions and there’s a cooling-off period before you turn them back on. We’ve seen 100,000 people enable these gambling blocks and we’ve seen a 70% reduction in their gambling behavior.

Together with gambling charities we designed functionality in the Monzo app, where someone can go to the app and say they want to stop gambling. When we detect the card is being used at a casino or a gambling website, we decline the transaction.

I could use that for online shopping.

We could do that on purchases.

You could block Ann Taylor and Banana Republic.

We’re working with mental health charities to block large transactions late at night. That compulsive spending habit is large purchases between 11 p.m. and 6 a.m. Or you could nominate someone that has to authorize all transactions over a certain amount.

Has this worked in the U.K.?

Massively. I was at Buckingham Palace two weeks ago and was given an award by Prince Charles for the work we’ve done on financial inclusion.

The regulators in the U.K. have said, big banks, you ought to do this. But it will take them two years. It’s something we’re able to build because we have modern technology. We have a team dedicated to vulnerable customers. That team built this in a couple of weeks. It’s the power of technology to iterate to really meet the needs of today’s consumers.

So you expect to bring that quickly here.

And the next versions. Banking has a lot of work to do to earn its right to exist in society, I think it’s been seen as rent-extracting for too long, I think it’s really tarnished its reputation through the financial crisis. People are asking, why are these banks allowed to do this kind of stuff? What are they contributing? It’s an important question for any company today.

I think accounts for homeless people have been a challenge in the U.S. because of the requirement to verify address on new bank accounts.

We work hard to understand exactly what the regulation requires and then other ways we can meet the regulatory obligations. We would have to scrutinize U.S. regulation. In the U.K., banks have obligations around financial inclusion. They say you must do things to combat terrorism and money laundering, you’ve got to weigh that against the need to include millions of people in the financial system. So we’ve been able to take asylum seekers’ cards as proof of identity. We don’t have to take proof of address under U.K. law.

We can afford to be socially conscious, almost altruistic, because we can provide a bank account for the cost of an email account. There’s no reason everyone can’t have one.

Are you moving here or are you sending a team?

Sending a team. I’m not moving here yet. We’re hiring a U.S. CEO; that’s the last big step before we file our charter. We’re recruiting right now.

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