Fintech Investments

Europeans Trust Mobile Banks Over Traditional FIs

Millions of customers across Europe are placing their money with challenger banks over traditional financial institutions.

According to The New York Times, favorable regulations in the region and a rise in investor funding have helped boost business for mobile banking companies like Monzo, a British startup that offers checking accounts and ATM cards without a physical branch. Instead, all transactions are done through its app.

Last year, Monzo became one of the first challenger banks to receive a license allowing it to hold customers’ deposits on its own, something no startup in the United States has achieved so far.

“Our regulator is pretty forward-thinking,” said Tom Blomfield, the co-founder and chief executive of Monzo, referring to Britain.

In fact, U.K. authorities have introduced policies such as a “regulatory sandbox” which allows challenger banks to test new financial products and receive feedback from regulators before releasing them to the public.

This type of support has helped more mobile banks enter the market throughout the region, as well as create a new experience for an increasingly cashless society. For example, in the future customers won’t need to visit branches because they can simply text a customer service representative. That lack of retail space — as well as tellers — will enable these firms to keep costs down, which will lead to lower fees.

“The internet lets you run these traditional businesses at a fraction of the cost,” Blomfield said.

However, like most of these startups, Monzo still needs to figure out how to turn a profit. Last year, its losses quadrupled to £33.1 million. While it generates some income from overdraft and ATM charges, Monzo is developing a marketplace where customers can shop for financial services offered by other firms, with Monzo collecting a fee. It might also start offering short-term loans of up to £1,000.

Sources also reported that Monzo plans to raise about £100 million, at a valuation of more than £1 billion, later on this year, and will use the funds to enter into the U.S.

But don’t count traditional banks out just yet. Many big names are adapting to the competition, including JPMorgan, who is testing a mobile-focused banking service called Finn, and Goldman Sachs, which has launched Marcus, an online savings and lending product with more than 1.5 million customers.


Latest Insights: 

Facebook is a giant in the ad game, with 2.3 billion active monthly users and $16.6 billion in quarterly advertising revenue. However, its omnipresence makes it a honeypot for fraudsters. In this month’s Digital Fraud Report, PYMNTS talks with Rob Leathern, Facebook’s director of product management, on how the site deploys automated systems and thorough advertiser vetting to close the lid on fraudster attempts.


To Top