London millennial entrepreneurs are challenging the status-quo of traditional banking.
What’s the first thing that comes to mind when thinking of traditional banks?
Inefficient dull queues, long processing periods and slow customer-service: in a nutshell, a service that isn't living up to our 2017 expectations. These issues underscore the motivating factors which set into motion the companies Loot and Monzo. These two companies offer a similar service: a highly efficient and effective digital current account detailing spending insights and supplying personalised features, all of which takes the form of a well-built mobile app.
The team behind Loot consists of 32 millennials and is being led by CEO and founder Ollie Purdue. In November, 2016 Ollie spoke to Business Insider, stating, "Out of the challenger bank world, we've got the most functionality. We've got our own sort code and account number system so any user can make a payment to anyone in the banking network. We use Faster Payments. We've got direct debits. We've got savings accounts that are built-in. We call it Loot Goals, you add a savings goal and then we'll tell you how much money you need to put in each day to reach that goal." (Williams-Grut, 2017)
Similarly, the Monzo team is comprised of virtually all youngsters. They have documented their start-up journey since February 2015 on https://monzo.com/about/. Both companies are capitalizing on their millennial mindset and are finding success by providing services traditional banks do not.
What do these services deliver that traditional banks do not? What would make someone want to switch banks?
The first advantage to using these services over traditional banks - these companies have taken everything digital. Neither Loot nor Monzo offer physical branches. Unlike traditional banks, these companies can cut down their fees because their operating costs are so much lower. Because these services operate remotely, and from one main headquarters, both companies can cut costs usually spent hiring employees for each individual bank. What does that translate to for customers – lower fees!
The second advantage is speed. With Loot and Monzo, everything is instantaneous; notifications, transactions - they all take place in a matter of seconds. Both services operate through their highly efficient, optimised iOS/Android apps. These apps provide increased functionality and greater user control over personal finances. This translates to increased customer satisfaction and a more manageable, user-friendly interface.
The third advantage provided by these applications is ZERO FEES (even abroad!). You don’t pay to Skype with your friends across the world, so why should you pay for managing your money? This is the millennial mind-set that lies at the core of both these companies. Today’s youth are supporting more modern approaches to banking by signing up and forcing traditional banks to take notice. Below you can view Monzo’s growth throughout 2016 and how significantly their community changed within that period:
Figure 1. 2016 in Numbers (Monzo.com, 2017)
Other features worth mentioning:
- Quick & responsive customer support;
- Smart, in-app tools for managing users’ budgets;
- Ability to close and re-open your card at any time.
While both apps seem to offer identical services, there is a slight difference as of August 2017: the Monzo card currently works merely as a prepaid card (on a top-up basis), whereas the Loot card has all the functionalities of a debit card, including account number and sort code. Monzo opted to acquire a banking license whereas Loot’s services are made possible via Wirecard - a global internet technology and financial services provider, listed on the German stock exchange and headquartered in Aschheim, Munich. Nevertheless, Monzo is poised to catch up by the end of 2017.
“Monzo have spent millions on getting this [banking] licence that doesn't give them any extra functionality than we've got and probably can't go through Europe. It's pretty crazy.” Purdue said to Business Insider. (Williams-Grut, 2017)
Will these start-ups get acquired by some big names in the financial sector?
These companies are at the beginning of their journeys’ and pioneering a new wave of modern banking. Like everything that’s new and innovative, the traditional banking establishment has taken notice and there is a chance these companies will be acquired by some bigger financial players. Whether this occurs or not, consumers benefit from companies such as Monzo & Loot putting pressure onto the larger players in the financial sector. These small fintch outsiders push big banks to modernize their services, and put customers back at the centre of their businesses.
Full of drive and enthusiasm, Tom Blomfield, co-founder of Monzo, told The Finanser: “The next goal, really, is a million customers. I think below that, we’re subscale, we don’t matter. At a million customers, the banks, the big banks, will sort of sit up and start to take notice” (Skinner, 2017), underlining the impact that small youth-led SMEs can truly have on the old established.
Header Image Courtesy of: CafeCredit.com
This post was written by guest contributor Eduard Vasilescu. Eduard is currently studying business at Coventry University in the UK and is a regular contributor to the Ye! Community Blog.