How Monzo brought Silicon Valley’s ‘wild ideas’ to Britain’s staid banking system

via CNBC

Monzo CEO Tom Blomfield perches himself on a chair, leaning back on it playfully. He’s just returned from a friend’s wedding in Guatemala and looks refreshed.

“The weather was great, it was absolutely lovely,” Blomfield says. “Back to Earth with a bump now.”

He’s sat in a glass meeting room at the app-based bank’s London headquarters, which is within walking distance of two competitors, Starling and Monese. Along with another London-based peer, Revolut, they’re one of several start-ups taking on the financial giants of the city.

Walking into the firm’s offices, you’re likely to be greeted by its in-house pet dog, a cockapoo named Bingo. It might now have over 1,500 employees worldwide, but its HQ is a stark contrast to that of a bank like HSBC or Barclays.

Life in the Valley

Blomfield co-founded Monzo in 2015. Its bright coral pink cards are a common sight in London’s younger, trendier areas, and they’re now rolling out across America.

But before he started Monzo, Blomfield was in Silicon Valley at the start-up accelerator Y Combinator, setting up a different fintech, or financial technology, business called GoCardless with two college friends.

“I went to Y Combinator through that company and got to know the team there relatively well,” Blomfield recalls in an interview. “Y Combinator really shaped my experience.”

The “sheer optimism and ambition” that embodied the culture of the Valley was “infectious,” he says. Investors there would welcome “wild ideas” — like that of starting a bank from scratch.

Blomfield worked in California for five months in 2011, helping to build GoCardless, an online payments processor for what he called the “antiquated system” of direct debit — recurring transactions that are taken directly from a person’s bank account.

“That for me was really foundational,” he says. It taught him that the nuts and bolts of payments wasn’t as “complicated” or “mystical” as he once thought.

“All of the annoying processes that banks have — I assumed at least were there for a reason. There’s got to be some underlying complexity. And it’s just not true actually, most of them are relatively simple systems. They just don’t have good technology,” he added.

It was a formative experience for the British entrepreneur, but neither he, nor his GoCardless colleagues, would stay in the Valley. They took the lessons from the world’s best-known tech hub and brought them back to their home country.

Starting Monzo

After leaving GoCardless in 2013, Blomfield worked at Grouper, a dating site in New York, and then went on to do a stint at future rival Starling with co-founder and CEO Anne Boden.

It was at this point that Blomfield approached Passion Capital — a venture capital firm he knew through its investment in GoCardless — to discuss plans for a new start-up.

“Tom came to us with the suggestion that he was going to do what he wanted to do,” says Passion founding partner Eileen Burbidge. “We were of the view that, whatever he was going to set his mind to doing, we were going to back him.”

Passion was actually going to invest in Boden’s Starling before Blomfield pitched a “diversion on approach.” He left Starling, started Monzo and won the investment from Passion.

The rest was history. Monzo — originally named Mondo until it faced a copyright claim — started issuing prepaid bank cards in 2015 before obtaining a bank license two years later. Since then, it’s been able to expand into credit products like loans and overdrafts.

“We are first and foremost a regulated bank,” Blomfield said. “We were once a start-up, we were once a fintech — we are now a bank. And I think, rightly, we are subject to stringent regulations.”

Last year, Monzo held £1.2 billion ($1.6 billion) in customer deposits. It now has 3.8 million registered customers and says 40,000 are signing up every week.

‘Storefront for your money’

Luckily for Blomfield, the Valley never really left him. U.S. payments giant Stripe — itself the product of European entrepreneurs leaving for San Francisco — invested in Monzo twice, first in 2017 and again in 2019. Last year also saw Y Combinator throw its weight behind the fintech firm, in a funding round valuing it at $2.5 billion.

But like many start-ups in the Valley and beyond, Monzo faces an existential question: can it build a sustainable business that customers can trust with their money for years to come? The firm lost £47.2 million on revenues of £9.1 million in the fiscal year ending February 2019.

It’s a question even Blomfield has struggled with. “Getting to self-sustaining profitability is really important, and so for us that means picking the two or three things that will help us get a step change in revenue generation to get to profitability,” he said.

To get its accounts in the black, Monzo plans to expand into business banking as well as paid accounts, after it ditched its premium account brand “Monzo Plus.” It’s also set to launch a feature that lets users see all their credit cards within its app, in an effort to attract people to the platform more often.

But the company also intends to work with alternative financial services providers on products that it can’t offer alone. For instance, Blomfield says, the app could in future recommend users switch to a certain mortgage or car insurance provider.

“We started Monzo because it’s a pain in the ass to have your finances spread across 15 apps,” he said. “I think bringing it into one place and bringing some simple automation rules … can make that management of your money much simpler.”

Blomfield said his company has a good shot at being the “winner” in Britain, despite a host of competitors. Revolut, which also operates elsewhere in Europe, was recently valued by investors at $5.5 billion and said it has over 10 million users.

Monzo is said to be lining up another £100 million in funding as an extension to last year’s £113 million financing round. Blomfield said the firm’s “ideal plan” is to go public in the future, though he admits this is not likely to happen in the next three years. “As long as we’re not profitable, we are reliant on external capital,” he added.