Monzo plans crowdfunding push to deepen ties with customers

By Hannah Murphy for Financial Times

Banking app Monzo is planning to launch one of the UK’s largest crowdfunding efforts next year to give customers in the fast-growing bank what it calls “a greater share of ownership”. Tom Blomfield, chief executive, said the start-up, which raised £71m in a private equity fundraising earlier this month, intends to make a further cash call of between £10m and £30m in 2018.

The group wants to expand its 200-strong team to between 300 and 400 people next year to prepare to offer more retail banking services, he told the Financial Times. However, the main driver of the crowdfunding push would be “to enable the customer base to own part of the bank”, Mr Blomfield said, adding that crowdfunding created a “genuine sense of ownership”.

The challenger bank, which was founded in 2015, offers pre-paid cards that monitor users’ spending to help people to manage their finances. It is now in the process of rolling out current accounts to its half a million customers after receiving a full banking licence in April this year, and aims to close its pre-paid cards business next year.

It is among a number of app-based fintech companies such as Revolut, Starling and Atom, that have gained banking licences recently. Monzo completed a more traditional funding round of £71m earlier this month from existing investors including Passion Capital and a number of new US backers such as Goodwater Capital, Stripe and venture capitalist Michael Moritz, through his charitable investment vehicles.

The round valued the company at £280m. While Monzo did not give an exact date for its crowdfunding launch, the move reflects continued appetite among some growth stage companies for alternative and often lightly-regulated mechanisms for raising capital. Crowdfunding allows ordinary investors the chance to buy shares in unlisted companies via online platforms.

The UK’s largest single crowdfunding to date stands at £19m, raised by brewer and pub chain BrewDog in 2016. In 2016, UK start-ups raised about £63.3m across more than 17,500 crowdfunding campaigns, according to data from tracking website The Crowdfunding Center.

The average raised per project stood at £14,227. Mr Blomfield said Monzo was preparing a formal prospectus for the latest crowdfunding campaign, in order to comply with EU rules around larger raises using the mechanism. The digital bank has already raised about £4m in total via the crowdfunding route, he added.

The absence of a secondary market has been one of the major downsides to equity crowdfunding to date, with investors being required to hold their shares in a start-up until it lists on the stock market or is bought out. Mr Blomfield he expected the company to float on the stock market in the next three to five years.

Over time, Monzo plans to provide additional services, from discounts at shops to mortgages offered by third parties. However, it has experienced several operational hiccups in recent months, including system failures.