Meet Monzo, the app that’s got the banks worried

By Alex Wood 25 June 2015

Can an app replace a bricks and mortar bank? One tech company believes it can and has caught the attention of high-profile investors. Alex Wood finds out more.

Are you fed up with your current account? Tired of your bank’s poor excuse for a mobile app?

Millions are unhappy with their banks. Serial entrepreneur Tom Blomfield looked at the state of Britain’s ageing banks and saw an opportunity to build a brand new one, fit for the digital age.

Mondo is a bank designed for the world we live in today.

Expectations have changed. Experiences like Uber that offer first class service at the touch of a button without the need for bricks and mortar buildings and legacy systems have become the norm.

At the heart of Mondo lies a mobile app that’s designed around the needs of the customer and not systems created by a bank.

It offers the experience of private banking delivered through technology.

Traveling to New York for business? Mondo will welcome you as soon as you land and ask how long you’ll be in town for. No more having your card blocked every time you travel.

Forgot to tap out on London’s underground? Mondo will send you a push alert (pictured above) and give you a button to contact Transport for London for a refund.

The 15 strong team see this venture as much more than just an app.

With the backing of some of London’s smartest investors, and a full banking licence on the cards from the UK’s Financial Conduct Authority (FCA), Mondo is a challenger brand to watch.

Ahead of beta trials this summer, The Memo took an early look at the bank and sat down with co-founder Tom Blomfield to find out the inspiration behind the startup business everyone is talking about.

Alex Wood: What’s inspired you to build Mondo? Are you a frustrated bank customer?

Tom Blomfield: Oh my god yes! I think everyone is a frustrated bank customer. A current account is a utility, everyone has to have one to get paid or pay rent and live your life.

But they are awful. So so awful. I’ve been enormously frustrated with them.

The only communication I get from my bank is an email saying pre-notification of charges, telling me that I’ve gone over my overdraft limit not today, but two weeks ago, and by the way here are a bunch of charges that you now owe us.

They could have told me not two weeks ago, but three weeks ago, that I was approaching my overdraft limit and that something was going wrong.

The problem is their whole business model is built around these punitive fees and charges and it is absolutely scandalous. It means it is in their interest to let you slip up, which is hugely immoral.

We’re trying to build a bank that keeps you informed, keeps you in control and has no hidden fees or charges.

When you hit zero on your account with Mondo, you can turn it off and not spend any more. And that will seem revolutionary to a lot of bankers.

But you will also offer overdrafts?

We absolutely will. But it’ll always be the customer’s choice.

We’re inspired by the bolt-on concept used by mobile phone companies. If you run out of data in your allowance before the end of the money, you simply opt to buy another pack to tide you over until your next bill.

With our account, imagine three days before you approach zero in your account, we push an alert to you telling you you’re on a downwards trend and give you a simple choice.

If you want to borrow money, we already know when your next payday is, we know on average you will need £300 to keep you going till that date, and our overdraft rate will be let’s say 19% (based on a mid-range typical rate) which will cost you about 75p. Mondo will then ask if the customer wants to buy this, if they decide not to the account will stop at zero.

So as a customer you have a fair choice, total visibility and control.

Mondo monitors you finances and alerts you when something isn't right.

There’s been a trend towards banks charging a subscription fee for current accounts. How can you afford to keep Mondo free?

Many of the high street banks spend billions on maintaining their IT systems plus hundreds of millions on their high-street branch networks. They have a huge legacy cost base and have to make the numbers work somehow.

We’re running at 1-2% of the cost base of a traditional bank. We don’t have any of those legacy issues and we plan to make all the money we need from fair and transparent overdraft charges.

In the future will we see Mondo branches on the high street?

Mondo will not be right for everyone. There are some customers out there that need the face to face service only a branch can offer.

The advantage for big banks is this gives them a huge customer base, but to keep them they have to maintain physical branches and support systems like cheque payments.

So who is Mondo for?

Mondo is aimed at people who live their lives in their iPhones. It’s the kind of person who wants to be able to do everything in five seconds in just one click. That is our customer.

The challenge is for us to communicate that. If you join us as a customer we will not give you access to a branch or a chequebook. If that’s not for you, there are plenty of other great options on the high street.

Will you offer more than just a current account?

More than 82% of British consumers have accounts with more than one bank. We’re focussed on building the best current account in the world.

Our long term vision is working with other providers and becoming the central point for all of your finances.

Imagine if at the end of the month you have some money left, Mondo offers you the option to invest it through an ISA or even Funding Circle (a peer-to-peer platform for investing in small businesses) in just one tap.

The government is now forcing the banks open up all of their systems, making these sorts of collaborations possible for the first time.

How well have other banks reacted to you so far?

[Blomfield laughs] It splits roughly in two.

When some hear we’re launching a current account they think we’re mad because they seem them as costly, hard to differentiate and unprofitable.

But when we explain we’re building the experience of private banking driven by technology, about half of them start to see the future.

It seems like science fiction to them sometimes, but many bankers now understand the future is about rich data, insights and automation through technology. The potential is huge.

Mondo tracks transactions in real time.

Can’t the banks just copy you and catch up?

There’s an elephant in the room for the big banks. Their systems cannot support this kind of technology.

Their systems were put in place in the 1980s. To give that a sense of context, the current iPad would be in the top 20 supercomputers of that time. The banks are running on systems that were built for that time, they’ve tried to patch updates on but fundamentally it’s a monster full of ancient systems.

It’s nuts. I know people in banking that want to deploy the kinds of features we’re working on, but Natwest for example can’t display card transactions for 2 days. We can do it real-time, which is frankly what customers expect today.

The banks are full of talented and bright people with amazing intentions who are constrained by their technology. Almost every feature we’re looking at, someone in a bank has come up with before, they just haven’t been able to implement it.

That’s what is so amazing about Mondo. The banks have customers but are burdened by legacy systems, we can build things in a day, but our challenge is finding new customers.

Is the UK welcoming to upstart banks?

There’s a really interesting trend happening in the United States compared to our home market.

In America there are thousands of  small banks and the regulator is trying to shut them down and consolidate the market because there are too many to regulate.

In Europe, it’s the opposite. The banking crisis and the boom period the proceeded it resulted in a lot of mergers between banks and a lack of competition.

To tackle this the European and UK regulators are now encouraging competition by lowering the barriers to starting new banks.

Assuming your next meeting with the regulator is successful, how quickly can you launch?

If our meetings with the regulator go well, that kicks off a 6 month application process where they will support us to make sure we have all the right policies in place.

After this if they are happy with our application they will then grant us a restricted license allows us to open accounts with the Bank of England for bank transfers, get our own sort code and approach investors for further capital.

We’ll be limited to maximum deposits of £50,000 until we can get further restrictions lifted.

Won’t being disconnected from your customers for months be dangerous for a young business?

In 3 months time we’re planning to roll out a branded Mastercard debit card which will work with our app, based on another bank’s license.

We’ll be able to open our doors to a few thousand customers where we’ll be able to provide the interface through our app and another bank will ensure their funds are safe while we focus on developing the product.

The Memo will publish a review of the new Mondo app later next month. Subscribe to the Daily Memo to be the first to read it.