“If we do our job right, we will make some of the high street banks extinct”: Monzo CEO Tom Blomfield on the future of the banking industry

By Alara Basul | 21 February 2017

In 2013, Tom Blomfield was recognised as one of the top five entrepreneurs under 30 by the European Commission, following the success of his start-up direct debit solution GoCardless. Two years later, he co-founded Monzo, a ‘smart’ bank aimed to help consumers strategically manage money and keep track of their finances. In February 2016, Monzo set the record for the quickest crowd-funding campaign in history, raising £1m in 96 seconds via Crowdcube.

Businesses and the way we approach our finances are changing, a fact that Tom is extremely aware of. With Monzo only being founded two years ago, the smart bank works with a range of providers to create an intelligent banking hub for your financial life. In a short period of time it has already made a significant impact on the way millennials manage their finances from their smartphones. Bobsguide spoke to the entrepreneur to find out more about his background, developing fintech start-ups, and what is the next stage on Monzo’s global conquest blueprint.

What’s your background?

I started building websites when I was 14. I studied law at Oxford, and I built a bunch of websites with my teams during my time there. I started my first real start-up there called Boso.com – buy or sell online. It was a student marketplace that ran for a few years and I left before it was sold to a Canadian media company. I finished my law degree, became a management consultant for a few years, which was a very bad idea, and then started GoCardless in 2012. I had never really worked in finance before; my partners and I basically got the direct debit manual from the UK payments scheme with the thinking that we could probably write software to make it work better. And that’s what we did.

Why do you think Monzo is so successful?

We’ve been delighted to see the growth of Monzo. We rolled out the prepaid cards about 14 months ago; we only anticipated 5,000-6,000 being handed out and we have just hit 100,000 in the last month, so we have really exceeded our expectations on that front. Fundamentally, we’ve been really open and transparent with our users with what we’re building, what the mission of the company is, and why we’re trying to solve the problems that we are attacking.

We think banking is broken and doesn’t work for the interest of customers, so we wanted to build something better. We’ve released a product that customers can use, with transparency as one of its core principles. By releasing this app into the market at quite an early stage of development we gave the initial users an opportunity to engage with the app, give their feedback, and actually see the product change over time. The feedback they gave was genuinely incorporated into the app, and as a result the product has improved a lot over the last year or so. Listening to our customers and being transparent has really helped us in the market.

And we’re just getting started. For the last two years we’ve been building the bank, and we’re very close to launching a current account, so that is really exciting for us.

You previously founded GoCardless, how has the process of launching Monzo been different?

As a second-time founder, raising capital was easier. We went back to the same investors that had invested in every round with GoCardless, and they wrote the first checks for Monzo. I think having the confidence to accelerate through some of the early obstacles that companies might encounter and fundamentally go after a bigger problem is easier second time around. As a first-time founder it’s difficult not to obsess over the little issues, but as a second or third time founder you’re able to take bigger swings.

Apart from the Monzo app, what apps do you personally use?

I’ve really got into home automation recently. I just bought a Google Home which I use a lot. I use Sonos every day. What I really like at the moment is a piece of tech that is not just an app, but also has a real world output device. I can turn my lights off with my voice, I set an alarm, I turn my music on and off through an app. It’s the crossover between the digital and physical worlds which I love at the moment. Uber is a great example of that, you tap a button and a car arrives.

Is Monzo a threat to traditional, high street banks?

I think if we do our jobs right, it will make some of the high street banks extinct. The traditional business model of a high street bank is basically focused around attracting customers at a young age, often through incentive-driven marketing schemes. And then you give those customers student loans, and a credit card, and a car loan, and a pension, and an ISA, and a mortgage – you cross-sell them all these products and you rely on keeping them ‘locked in’ as a customer.

There’s this awful phrase called ‘customer ownership’. Because banks feel like they own the customer they can easily flog them their own products. And they’ve never offered their best products universally because they reserve them for the newest customers to attract new customers through the door.

The whole loyalty system is broken. I think what we and several others are trying to do is the opposite of what traditional banks have been adopting as their strategy for years: Rather than have a full-service bank where we rely on customer locking to sell a Monzo mortgage: We won’t even have a Monzo mortgage. Instead, what we want to provide is almost like a comparison site in an app, that works like a financial control centre. Whatever you want to accomplish, we’ll help you go out to the market, find the best product or service, buy it and manage it all through the Monzo app. So you know you’re always getting the best price and that customer service, even though it’s not Monzo branded.

I also think PSD2 will crack open the whole industry and give much more visibility around what each product is really costing.

What are Monzo’s the most useful features? What’s your favourite feature?

I lose my card very often, so freezing my card is great. It’s got to be a bit of joke how much I actually lose it. So freezing and unfreezing is awesome. For me, the lack of hefty foreign exchange fees is also really useful.

What’s next for Monzo?

We’re pretty close to opening up our current account service, which you’ll see later this year. We’re just getting our full licence and getting the all restrictions lifted. We’re testing current accounts internally right now and will be rolling them out to our customers in the next handful of months.

For us, it’s getting more of the prepaid card onto the current account. We’ll start doing overdraft lending, and that’s the starting line. It’s kind of been building up to this point for two years. These changes will mean the Monzo app will do everything you’d expect a normal bank to do.

What about a savings account?

This comes back to the marketplace strategy of the Monzo mortgage. What we’re really good at is giving people behavioural tools to put money aside. We’ll help you budget, we’ll help you save money so that you won’t spend it, but we probably won’t offer a Monzo ISA. Once we’ve helped accumulate the cash we can then help you move it into an investment portfolio such as Nutmeg. So we’re much more about the in the moment control than selling a bunch of financial products. We can then help you get the financial products from other people.

Is your audience targeted at millennials or those who are more aware of budgeting?

I think it’s for anyone who lives their life on their smartphone. I think it would be lazy for us to describe our customers all as millennials, people who live their lives on their smartphones expect everything to happen in a single tap, and that happens to be the younger generation. Increasingly it’s everyone.