Broken Britain: A warning from challenger bank Monzo boss

By Madhvi Mavadiya | 31 August 2016

Should we expect to see the death of the incumbent bank post-Brexit? Tom Blomfield certainly thinks so.

Technologically bankrupt Britain

In conversation with the Press Association, the 31-year-old challenger bank CEO Tom Blomfield spoke about how bleak he expects the future of finance to be in the UK after the vote to leave the European Union. Due to the “technologically bankrupt” nature of the traditional bank, Blomfield highlighted that incumbent banks could diminish and would make way for newer, more innovative financial services, like recently renamed Monzo.

With Brexit and the spectre of negative interest rates they [the banks] have retrenched. I have heard that many of these digitisation projects have been cut. It’s just back to being inward looking and focusing on staying solvent,” he said. He continued to say that banks who have an innovation team or a digital lab only do so for show and when funding gets cut, will only concentrate on “getting the basics right”.

Blomfield hopes that Monzo’s launch in six months will fill this gap now that the challenger has been granted a banking license (with restrictions). The smartphone only bank will start with around 150,000 customers and offer them user friendly current accounts at the beginning of 2017 with a model that is far from what he refers to as the “broken” retail banking systems that snap up young customers.

On the other hand, Chris Gledhill, CEO and co-founder of Secco Bank, stated that the Brexit should be viewed as an opportune second chance. “I believe it is time we started treating a Brexit as an opportunity, not just for UK fintech but for the UK as a whole. It’s like a choice myself and a good few people in the London Fintech scene have made – do you continue working for a large incumbent organisation or quit and join a startup.

“Well I believe it’s time the UK started acting more like a startup and less like an employee of Europe,” Gledhill said.

Mechanical regulation

In order for services like Monzo to be successful, Blomfield wants regulators to offer a formal small bank license that would allow startups to launch, despite not having millions of pounds in finance. Attempts that have been made in the past by regulators have just been too mechanical and customers who switch bank accounts might have the same problems at their new bank, Blomfield said.

He mentioned that the biggest obstacle for banks, old and new, is obtaining and retaining customers and he offered a solution to the problem. “What would really help is if you could start a new bank and cap it at 50,000 customers and £10 million worth of deposits. Once you have reached that cap you have shown you have overcome the biggest problem, which is acquiring customers.

Then you can go through the next hurdle, where you have a big bank licence with much more governance in place and risk management. So allowing lots of small banks to flourish to get the one or two real gems is a much better approach than putting you through a two-year wringer,” Blomfield said.

According to the Financial Times, Christopher Woolard, Director of Strategy and Competition at the Financial Conduct Authority said that “finance is an established industry with many rules that pre-date smartphones, let alone blockchain or biometric identifiers. We recognise that there may be regulatory uncertainty if something is not established market practice.”

The Brexit trigger and unanswered questions

I think there is space here to build a company the size of Google or Facebook in personal finance. That is our aspiration,” Blomfield stated, but this could prove to be difficult in a post-Brexit Britain where different challenges have emerged and need to be dealt with as soon as possible.

Investors are also being increasingly difficult as they are not sure whether or not challenger banks will have access to the bank passporting system. “We are going out now and talking to investors who are asking questions about Britain’s future in the EU and no-one has a good answer. So does our banking license now operate across 500 million people or 60 million people? No-one has the answer to that.

Last month, Azimo’s founder and CEO Michael Kent made it clear that if the UK’s position in the EU continues to be uncertain, the online money transfer business will relocate. “Whilst we are regulated out of the UK at the moment, we’re talking to regulators in other jurisdictions about changing that, because we have hundreds of thousands of customers in continental Europe and we’re not about to give up on them,” Kent said to Reuters.

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development