UK Challenger Bank Monzo Plans to Break Into the US Market

Monzo has a unicorn evaluation and two million UK customers. Will its success transfer across the pond?

18.06.2019 | by Reve Fisher
Photo by Monzo
Photo by Monzo

UK challenger bank Monzo has officially announced its plans to expand into the US market. The company hit unicorn status in 2018 and has over two million users throughout the UK. If the expansion is successful, it would be one of the few banks chartered in the US since the global financial crisis of 2008.

“We did a TV campaign last month that went really well, and now, we believe, is the right time to start our first steps towards internationalisation,” Monzo CEO Tom Blomfield told The Verge.

However, Monzo realises that its current list of features may not automatically appeal to US customers.

In line with its focus on community, the company will hold in-person events in major cities throughout the US.

“This will let us meet and speak to our early users, and gives you a chance to meet the people behind the product,” as quoted on the company’s blog.

Until the company receives a US banking charter, it will have a partnership with Ohio-based Sutton Bank to serve its user base. In this meantime, this will limit Monzo offerings to US customers, particularly lending.

Monzo plans on launching a “light version” of the app this summer, at least until it becomes a full-fledged US bank. Some of the features include instant spending notifications, person-to-person payments, savings pots, personable human customer service 24 hours a day and fee-free international spending.

According to the CEO, 60 percent of Monzo UK users are long-term active and make at least one transaction weekly. However, he also told TechCrunch that less than a third of Monzo users that pay their salary—at least £1,000 per month by bank transfer—into their Monzo accounts, implying that most UK customers don’t use Monzo as their main account.

Like any ambitious project, Monzo’s US expansion comes with a fair number of sceptics. Not only will the bank eventually need to face competition from UK-based Revolut, German N26 and Israeli Pepper, but it will need to undergo various obstacles just to operate on US soil.

“The US to outsiders looks like this massive opportunity, a big market,” Ronit Ghose, head of banks analysis for Citigroup, told the Financial Times. “Outsiders are super excited about getting into the US, but the challenges tend to be much harder than new entrants expect.”

He also explained that regulatory concerns in the US might pose challenges that challenger banks are not forced to confront in the UK.

“The UK is more advanced in the whole idea of open banking and APIs (application program interfaces) to link bank accounts and products, that makes it easier for new entrants to come in,” Ronit explained.

Similarly, Pradip Patiath, a partner at McKinsey, said that companies looking to break into the US retail banking market were on a “fool’s errand.”

“[To believe they’ll succeed] you have to believe that banking is not a sticky business, unfortunately, it is,” Pradip stated. “You have to believe that they [US customers] are being vastly underserved today, they’re not.”

Nevertheless, the Monzo CEO believes that his company has something special to offer. To reach the US, he told the Financial Times that the company will focus on “building a brand that people love, that’s responsive to their needs, provides great customer service and works with them to build a bank they would be proud to call their own.”

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