OBSERVATIONS FROM THE FINTECH SNARK TANK
In my extensive travels around the United States, I get a chance to talk with many Americans. Although we are the “land of plenty,” I like to ask my fellow citizens: “What don’t we have enough of here in America?”
Almost unanimously, the answer is “Banks.”
We need more banks like we need a hole in our heads. The only people who want to see more banks in the US are banking industry pundits eager to prove that existing banks are ripe for extinction. And European-based entrepreneurs like Monzo’s management team.
If you’re anywhere near my age, you might think the answer to the question “What’s a Monzo?” is “a Chevrolet from the mid-1970s.” Wrong. That was a Monza.
Monzo is the name of a UK-based challenger bank. According to CNN:
Monzo, founded in 2015, has more than 2 million users in the United Kingdom. It says it’s adding 200,000 more each month. The company is valued at nearly $1.3 billion. Known across the UK for its signature bright coral cards, [Monzo] said Thursday that it’s planning launch events in Los Angeles and other major US cities.”
MONZO’S SUCCESS FACTORS
Why does Monzo think the US is such a hot opportunity? Monzo CEO Tom Blomfield told The Verge:
“The US financial system is a decade behind Europe. It’s very hard to send money from one US bank account to another.”
Nothing could be further from the truth. In fact, the primary driver of deposit displacement is the ease of moving money between accounts.
Easy money movement in the US is actually what enables Monzo to even have a shot at being successful in the US. It isn’t going to become many Americans’ primary bank–but it might become a secondary account for some. To do so, the challenger bank must deliver on one or more of five factors.
1) Can Monzo Deliver a Better Customer Experience?
Fintechs generally offer a better user interface on their mobile apps than legacy banks and credit unions do. And they definitely offer a better digital application process (mostly because so few US banks and credit unions offer any digital application process).
But don’t confuse a superior user interface with a superior overall customer experience.
A study by S&P Global Market Intelligence looked at 15 “advanced” mobile banking capabilities, i.e., features beyond the standard ones like branch/ATM locator and check balance. How does Monzo stack up? Bank of America and Wells Fargo each offer 14 of the 15 features. Citi offers 12, and JPMorgan Chase’s mobile app has 11 of the features. Monzo’s app has eight.
According to iSky Research, a Hong Kong-based digital banking intelligence firm that tracks banks’ digital offerings around the globe, the strengths of Monzo’s mobile app include:
- Alerts and notifications. Monzo alerts users when payments are processed, advising on the amount and how much has been spent in relation to budgets for the month.
- Payments. Monzo’s app enables domestic and international payments via Transferwise, and, according to iSky, its ability to split payments combined with shared tabs is “one of the better set of payments features launched by any bank of late.”
- PFM. Customers can setup and track budgets and enter future spending and income in order to receive cashflow advice in the app. According to iSky, “these tools stack up well due to the simplicity and ease of use.”
Even if there are a couple of unique features on Monzo’s app, the US market has shown that one or two unique features isn’t sufficient to generate interest among a significant number of consumers. Just ask Simple, who offered the unique “safe to spend” feature.
2) Can Monzo Provide Superior Product Features?
US-based challenger banks have learned the hard way that Americans don’t want to do business with a bank simply because it doesn’t have branches. Why do they open accounts with digital banks, then? According to research from Cornerstone Advisors, there are three primary reasons (which vary by generation):
- 20-something Millennials want better financial management tools than they get with their primary bank.
- 30-something Millennials are nearly evenly split between those looking for better financial management (versus account management) tools, better debit card rewards, and better interest rates.
- Gen Xers and Baby Boomers are predominantly looking for better interest rates than they get from their primary bank.
It’s not clear if Monzo is promising any of these benefits. If it doesn’t, it will have to succeed on the basis of one of the three remaining factors.
3) Can Monzo Provide a Better Value Proposition?
Value proposition is a bit of a squishy term, but for argument’s sake, let’s say it involves: 1) Provide a similar level of value that competitors provide for a lower cost; 2) Provide a higher level of value for the same (or lower) cost; or 3) Provide a significantly higher level of value for a premium price.
In the UK, Monzo touts its low or nonexistent fee structure. It seems a good bet that it will focus on that aspect here in the US, as well, and attack the big banks who have largely eliminated free checking accounts from their lineup.
Or have they?
According to Cornerstone’s research, a third of Millennials have a checking account with monthly fees associated with it. But just 7% of Millennials actually pay monthly fees, as the others with a fee-based account avoid the fee by maintaining minimum balances, racking up debit transactions, or keeping some number of accounts open with their bank.
Credit unions, who largely continue to offer free checking, have barely made a dent in the megabanks’ share of the Millennial market. Monzo shouldn’t deceive itself into thinking that low or no fees will get that many consumers to switch.
4) Can Monzo Do Marketing Better?
It’s feasible that Monzo could offer no better a customer experience, no better product features, and no better value proposition and still succeed in attracting with superior marketing.
But Monzo appears to eschew marketing.
According to MarketingWeek:
[Monzo head of marketing Tristan] Thomas doesn’t want to get to the point where Monzo is reliant on paid advertising. It’s current split is around 80% word of mouth and 20% paid and while he concedes that in some months when it is pushing paid this will shift to a more 50/50 split, it won’t ever be the reverse. “We’re very keen we don’t become a company that is hooked on advertising and that drives 90% of customers through paid acquisition because I think it’s quite an unhealthy way to build a business… and is just about shouting loudly,” he says.”
It doesn’t appear that Monzo even wants to succeed on the basis of superior marketing.
5) Can Monzo Create Affinity Among Consumers?
The Verge article states:
Monzo comes across as more hip and community-focused, regularly holding events to listen to and engage with customers.”
There could be something here.
I asked my Twitter followers to educate me on what market advantages Monzo might be bringing across the pond, and one responded “Creating a culture of financial discipline.”
Competing on the basis of this dimension seems like an uphill battle in a market like the US, but I’m not dismissing it as a possibility.
THE BOTTOM LINE
Megan Caywood, Managing Director and head of digital strategy of Barclay’s in the UK, tweeted last week:
So we have @monzo and @n26 ‘imminently’ launching in the US. American banking is about to start heating up!”
Caywood has some serious street cred. Prior to joining Barclay’s at this beginning of the year, she was Chief Platform Officer at Monzo competitor Starling Bank. An American by birth, she also did stints in product marketing for Silicon Valley tech firms.
But when you consider that US-based challenger banks like Simple, Moven, Varo Money, Aspiration, BankMobile, GoBank, and even Chime (who claims to have three million customers) have failed to “heat up” the US market, it’s hard to see how Monzo is going to be the one to do it.
It’s momentum and success in Europe isn’t relevant in the US. Success in Europe might translate to success in the US for music and fashion–but not banking.
To gain a foothold in the US, Monzo must deliver on some combination of the five factors described above. It doesn’t look favorable for the company in four of the five.