UK-based digital bank Monzo announced it will launch in the US market to take on US banking giants.
Success in the UK will help Monzo in US venture
Monzo is one of the UK’s fastest growing digital banks, with an average of 40,000 new accounts opening every week, according to its website.
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Currently the start-up has over two million existing users in the UK. Monzo is one of the first UK and European challenger banks to try its chances in the US, beating rivals N26 and Revolut to the mark, despite both these apps serving larger volumes of customers.
Investments totalling $268m from investors including Stripe and venture capital firms Accel and General Catalyst will help introduce the bank to US consumers. However, the transition may not be as simple as first thought.
Much work is required before Monzo can be a US success
Monzo has yet to be granted a banking license in the US and has had to form a partnership in order to fully FDIC-insure customer funds. The bank plans to apply for a US banking license in the long-term, until then US customers may be discouraged to join a bank that isn’t officially licensed and regulated in the United States.
Moreover, the bank has yet to generate any profit, reporting a pre-tax loss of £33.1m ($41.8m) in the financial year ending February 2018.
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By GlobalDataAlthough this is common with most companies during expansion, it makes entry into the US difficult, causing the firm to rely on funding from investors.
US regulatory authorities are less likely to grant Monzo a banking license if it is unable to be profitable. However, Monzo is scheduled to release its next annual report in the coming months which could reveal a recovery of profits which could have encouraged its move to the US.
Entering US is made harder by intensity of competition
As well as competing with giant multinational banks in the US, Monzo will also have to compete directly with other digital banking applications such as Chime and Aspiration having similar success in the US as Monzo has in the UK.
The British digital bank is unique in that it has a strong community-focus, regularly holds events to listen to and engage with customers and has more advanced person-to-person payments, while Chime and Aspiration have a focus on saving and investment products.
Attracting new customers with simplified app will not be easy
Monzo intends to release a simplified version of its app in the US, limiting its products to international spending without fees, 24/7 access to customer service, person-to-person payments, immediate spending notifications, and Saving Pots.
Although this was planned with the intention of allowing customers to collaborate with the bank to tailor its services to the US market, customers are likely to prefer to open accounts with fully featured contenders who offer more to their account holders.
