Monzo and Starling: meet British mobile banks to show the United States how this is going

Monzo and Starling are banks you've probably never heard of if you're outside of the UK, but they've led a quiet revolution to challenge traditional banks to do better – and it worked. Both banks live on your phone via apps on iOS and Android, without physical locations or employees at the counters. At Monzo's head office in London, employee dogs mingle with engineers, support staff and other workers in a typical Silicon Valley startup environment.

The exclusively mobile banks represent a totally new approach to banks in the UK, with the ability to see real-time transactions as they happen, to easily split bills with friends and to use maps abroad without charge. All of these features, and more, have brought millions of Britons to trust Monzo and Starling with their hard-earned money. With just word-of-mouth and little publicity, these two banks are showing the biggest UK-and US-banks how 21st-century banking is really done.

Starling and Monzo both offer very similar cards and bank accounts that are quickly becoming popular among Millennials in the UK. Monzo recently crossed 2 million customers and claims to add 200,000 more each month, and Starling has more than 550,000. You can easily track your usage patterns in their mobile apps and see instantly when a payment is made via mobile notifications. In the UK, most banks take days to process card payments. So you never really know what your current bank balance is. The applications of Monzo and Starling are both in real time. So you know if you can make such a purchase or not. Applications are also very well designed and easy to use, unlike most cumbersome applications created by the big banks.

Features such as the easy sending of money to friends or free spending abroad also help to raise awareness of these mobile banks. Starling even offers protection against location-based fraud. Thus, transactions are blocked if they do not match your mobile position. Monzo was able to quickly adapt his systems to protect customers from a ticketmaster breach last year. You can also block withdrawals at ATMs, online payments, contactless payments (pay to pay), payments for cash games and even traditional magnetic stripe payments with Starling. It's a lot more control over your card than in the big traditional banks.

All this is made possible by the fact that these mobile banks are new and rely on cloud-based technology, while the mainstream banks have not reviewed their back-end systems. "When we started, you could not really host these technologies in the cloud," says Anne Boden, CEO of Starling, in an interview with The edge. Boden and his team have spent years asking regulators to embrace cloud and mobile banking. Starling was founded in 2014, before obtaining its banking license and launching full bank accounts in May 2017.

Boden is a veteran of the banking sector, but she first studied computer and chemistry after growing up in Wales. She began her career at Lloyds Bank, where she helped build CHAPS, Britain's first real-time payment system. Boden also worked at Standard Chartered, USB, RBS and ABN AMRO, before dropping big banks to start new business.

"In January 2014, I decided we needed to start over with new technologies," says Boden. "I had come to the conclusion that there were so many technologies available that could be used and that it was possible to create a bank with a very different culture."

Starling is therefore very focused on technology and engineering and aims to "bank as a service". The goal is to open up its own technology and APIs so that other companies can use their payment services. Even other financial companies can rely on Starling technology to avoid having to create a complete system themselves. Starling has been very successful here and even the UK Department of Labor and Pensions uses its technology.

This approach is very different from Monzo, which focuses solely on retail banking. Although many features are similar, Starling feels more like a traditional adult bank, while Monzo is more community and hip oriented and regularly hosts events to listen and interact with customers. From my own experience of using both cards, Starling is at the forefront of technology and features, but Monzo draws his talent from his instantly recognizable bright coral card, from his best person payouts. to anyone and its excellent customer service.

You can register for both cards with the help of a mobile application and verify your identity by requesting a copy of your username as well as a video of your holder. Even creating joint accounts is as simple as sitting next to the person you want to open a joint account with, and none of that is talking to anyone or going to a physical bank.

Monzo was founded in 2015 by Tom Blomfield and the map was launched in October 2015 under the name of Mondo, before a name change. This was originally a prepaid card on which you had to load funds, before moving to a full bank account. Blomfield previously co-founded Starling with Boden before Monzo. After reporting tensions between the two, Blomfield left Starling and took with him members of the team to train Monzo. Although the features of the map have always been a step back from Starling, the attention paid to Monzo's customers has captured the hearts of people and spread it to millions of people. "We had about a million and a half customers without really advertising," Blomfield said in an interview with The edge.

Monzo achieved most of these goals through word of mouth. I often see people use their brightly colored Monzo cards to pay for their purchases in London, and the company has created a loyal following at community events and crowdfunding efforts. Monzo is now launching a TV advertising campaign and posting posters on London's buses and subway system, which will certainly help him to recruit millions of additional customers.

These two cards have been able to spread so quickly thanks to their radical difference from traditional banks and the way the UK banking system is ahead of the US in terms of less sophisticated technology and regulations at the federal and international level. federal. In the United States, barely 3% of cards are contactless (pay to pay), according to a report published in 2018 by AT Kearney, against 64% in the United Kingdom. The disparity has obvious reasons, in particular because the United Kingdom is much smaller than the United States, but Transport for London (TfL) took charge of contactless payments in 2014. The city of New York has recently caught up last month and retailers are still struggling to even deploy smart card readers in the United States. It will be years before contactless payments are widespread in the United States.

Monzo and Starling have also been able to leverage Apple Pay and Google Pay to allow you to use an app and your phone only to manage your entire bank account and make purchases. Personally, I use an Apple Watch for the vast majority of my payments and rarely use my card. However, species are still widely used in the United States, while UK consumers are more accustomed to using a debit card for their regular transactions.

Attaching customers to these cards, however, is only one aspect of the complex banking puzzle. Although Monzo and Starling are attractive because of their low or nonexistent fees and their outstanding mobile apps, they generate revenue by offering services in addition to a bank account. Starling offers overdrafts, loans, mortgage offers, insurance and savings offers through a marketplace in its application. The company generates benchmark revenue on these, but it seems to focus the bulk of its revenue efforts on its banking offering as a service.

Monzo also offers overdrafts, loans and similar offers. There is even a Monzo Plus card that includes travel insurance and the ability to withdraw up to £ 400 free every 30 days in another country. Monzo was forced to withdraw his free withdrawals at his ABMs abroad, as this card became a popular way for Britons to trade or withdraw foreign money.

These two mobile banks must also convince UK consumers to transfer their entire bank account. There is a fast switching service to make this easier. Thus, your salary, your regular payments and your bills are all switched, but trust is an important element. Personally, I still use a large bank as the main current account, despite the fact that both Starling and Monzo are covered by the UK Financial Services Compensation Program which covers you up to £ 85,000 in the event of a collapse.

While the big UK banks have been slow to react to Monzo and Starling, they are successful. NatWest has developed a cash withdrawal feature that allows you to withdraw money without a card at ATMs. Santander has also developed a Wallet mobile application that allows you to analyze your expenses closely. Halifax has recently gone further by unveiling a new brand identity. It is clearly inspired by Monzo and Halifax even seems to have used Monzo's card as a template and forgot to remove Monzo's Bank Identification Number (BIN) from its design. "It's great to see your brand identity updated, but it seems like you forgot to update [a] two things, " joked Blomfield on Twitter, highlighting Halifax's embarrassing mistake.

Boden also sees the banks rushing to catch up with Starling. "They will copy everything we do, but they will be a few years behind," she says. "They will copy it to their existing infrastructure … so when they copy something that Starling will add to their costs instead of removing it." Boden thinks the costs of updating their old banking systems will delay them, newcomers can be more agile and create new technologies without having to maintain older technologies. "The big banks will have a big challenge of profitability. The big banks are nervous, they wonder what they will do in response to the new fintechs. "

One of the popular answers from the big UK and US banks is to launch new sub-brands that can attract customers because they can not reorganize their existing systems. "Because they can not transform the tanker, they have an outboard to go faster and get into the competition," says Boden. "Transferring all tanker customers to the outboard is very, very difficult and will take years, and it's very risky." We found that the risk had indeed risen when the TSB computer upgrade left 1.9 million people without access to their bank accounts in the UK last year.

In the United States, there are fewer competing banks that are reducing the market. "I think the US financial system is ten years behind Europe," said Blomfield, Monzo's CEO. "It's very difficult to send money from one US bank account to another." In the UK, a faster payment service (FPS) has been in place since 2008 and allows you to transfer from one account to another. another in a few seconds. A similar service, Zelle, was only launched in 2017 in the United States and this is a gap that allowed Venmo and Square Cash to take off. However, Venmo fought against fraud and security, and was forced to settle with the FTC last year.

The Simple Bank is probably the closest to Monzo and Starling in the United States in terms of mobile banking features, but it was bought by BBVA, a large bank based in Spain, in 2014 and it does not have a precise idea of ​​the number of customers who actually use their services. a service. Chime Mobile Banking is part of US Bancorp, the parent company of US Bank, and T-Mobile's new Money Account is managed by BankMobile. Even Square Cash does not have a banking license and depends on Sutton Bank to operate. Simple offers FDIC insurance so that deposits are protected up to $ 250,000, but many other mobile offers like Square Cash do not offer this protection.

Monzo is now interested in the United States, but it is much more difficult to obtain a banking license in the United States than in the United Kingdom, partly because of the 2008 financial crisis. is not necessarily that regulations are more stringent … it's the approach used to allow new entrants to the US … there has been more or less a total ban on new banks in the US over the past 10 years, "says Blomfield. "There has been virtually no new licensed bank in the United States because it emerged from the financial crisis in a very different position from the UK, where it had about 10,000 banks and credit unions, and tried to consolidate to control them. . "

As regulators start licensing new banks in the US, Monzo is joining Sutton Bank for the first time, which will offer the FDIC's important deposit insurance. "At the same time, we will ask for an American bank charter and hope to get everyone on our own license," says Blomfield.

Monzo also brings his community spirit to the United States. "We are going to launch a similar program in the UK, with a series of community events in person across the country," said Blomfield. Launch events will be held in Los Angeles, New York and San Francisco in the coming weeks, allowing people to sign up before Monzo is no longer widely available in the United States. The majority of Monzo's existing features will be available in the US, including payment notifications and contactless payments. "The main thing that will be removed is the loans," says Blomfield. "We are not a bank [in the US]we will not lend money to customers. "

The beginnings of Monzo's efforts in the United States are in their infancy, and Starling is not yet talking about plans for the United States or Europe. Starling recently launched a bank account in euros, allowing the British to send and receive euros for free. If Monzo can get a US banking license and pursue his ambitious plans, his experience of serving 2 million customers and counting in the UK will certainly help him meet US demands. This is not an easy task, especially to navigate the complex network of US state and federal regulations, but Monzo could help us usher in a more modern banking era that the British have been used to for years.