This conversation got started when Rob mentioned Monzo here -
Without knowing what you value and who you use for your banking @PGood, that’s a hard question to answer.
And sure, Monzo isn’t for everyone, in the same way that an account with Hoare’s isn’t. But Monzo isn’t like a legacy bank in several crucial ways.
First, they are building the bank literally from the ground up. Systems, processes, and product. This frees them from the expense and headache of supporting patchwork legacy systems and adapting products that we as customers want and will expect into systems from the 80s and 90s. This approach affords a level of agility that legacy banks do not possess. It allows far greater scalability. It also means they are able to push the innovation envelope, and at lower cost too. Cf. RBS hiving off development to a separate silo’d entity for their challenger bank project.
Second, they represent a shift in thinking into how we use financial services. Their core banking product, a current account, will act as a conduit to a whole universe of financial services by leveraging some of the big changes coming to banking (GDPR, PSD2).They refer to this as the Marketplace. With an in depth understanding of your financial situation, you’ll be offered products suitable to your needs, goals and risk appetite, via third party providers. Of course, this isn’t without risk, you’re only as good as the quality of these providers, but if executed properly, it will be game changing. Monzo isn’t a bank as in so much as it becomes a banking platform. The real beauty will be if Monzo can pull off a seamless integration between the core product and quality third party providers. The business will derive revenue from a commission paid for each conversion to a third party service.
Third, their cost base is much much lower. Which is good for both customers and investors. It means their product can remain low cost, rather than low quality. They have no costly branch network to staff and maintain, and ditto back end systems driving the business. Connected to this, and my point above is the rather revolutionary idea that the bank’s model wont be based on it’s balance sheet, but rather the technological assets and IP the business holds. Why tie up capital in a costly, potentially risky manner to comply with capital ratio regs, when that capital could be deployed to produce a better core product and drive more innovation?
Fourth, as @Vlad points out above, another difference is ‘Community’. Monzo directly engages with their customers, not just from a customer service point of view, but also in the design and development of their product. They are open, and for the most part transparent where regulations and strategic business sense permits. Ever tried having a chat with the product development team at HSBC? Or dropping Doug Flint a line to discuss the bank’s strategy? Whilst it’s not all rainbows and lollipops, it’s a most refreshing approach.
Fifth, and related to the above point, Monzo and some of their peers are cracking something the legacies have not or can not do, and that’s engagement with their millennial customers (and others who have been locked out of owning certain assets and excluded from certain financial participation). Increasing financial inclusion is essential if we want to have a fighting chance at addressing the widening inequality gaps and the associated resulting discord this brings.
Perhaps none of this is relevant to your banking needs, and that’s absolutely fine. But for a lot of people Monzo, Freetrade, Revolut, Holvi, etc are speaking directly to them in a way that the others are not, and that can only be a good thing.
From an outsider’s point of view, it seems that Freetrade understands not just the shift in financial services but also the enormous unserved potential market, and as both a potential customer, investor, believer in humanity that is hugely exciting.
That summarises it pretty perfectly! Still some way to go, but it’s good to be an early adopter!
Cheers @Rob14 - bit of a ramble!
Monzo definitely have a long way to go.
I think there’s some disconnect between customer expectation and product at the moment. For some customers it doesn’t make sense at this stage to fully commit. Their model represents a real paradigm shift in personal banking, and so without the marketplace in beta at least, it doesn’t make for a complete picture for their current and potential client base. This may come to hurt them as they push to scale.
Yeah I agree, I don’t think a lot of Monzo customers understand what it’s really up to! Certainly friends outside of Financial Services who use it (and have invested in it) aren’t aware, but do understand that it’s cool and has very high potential.
Customers are loyal, so it’s likely to hurt them only to an extent. It’s going to get very competitive with foreign start-ups aiming to launch in the UK like N26, Raisin etc.
That’s why Freetrade looks so good right now, without major fintech competition!
In non-fintech circles I often hear about using Monzo for their budgeting tools. Non-technical use cases like this are great for organic growth.