Monzo and Starling are banks you’ve probably never heard of if you’re outside the UK, but they’ve been leading a quiet revolution to challenge traditional banks to do better — and it’s been working. Both banks live on your phone through apps on iOS and Android, with no brick-and-mortar locations or clerks at desks. Instead, at Monzo’s headquarters in London, employees’ dogs commingle with engineers, support staff, and other workers in the buzz of a startup environment you’d typically find in Silicon Valley.
Mobile-only banks are a totally new approach to banking in the UK, with the ability to see real-time transactions as they happen, easily split bills with friends, and use cards overseas with no fees. All of these features, and more, have led millions in Britain to now trust Monzo and Starling with their hard-earned cash. With just word-of-mouth and very little advertising, these two banks are showing bigger British banks — and the US — how 21st century banking is really done.
Both Starling and Monzo offer very similar cards and bank accounts that are quickly becoming popular with millennials across the UK — Monzo recently crossed 2 million customers and says it’s adding 200,000 more each month, and Starling has more than 550,000 customers. You can easily track your spending habits in their mobile apps and instantly see when a payment occurs via mobile notifications. Most other banks in the UK take days to process card payments, so you never truly know what your actual bank balance is. Monzo’s and Starling’s apps are both in real time, so you know whether you can make that big purchase or not. The apps are also very well designed and easy to use, unlike many of the cumbersome apps that have been built by big banks.
Features like easily sending money to friends or fee-free spending abroad are also helping spread the word of these mobile banks. Starling even offers location-based fraud protection so transactions are blocked if they don’t match your mobile location, and Monzo was able to quickly adapt its systems to protect customers against a Ticketmaster breach last year. You can also block ATM withdrawals, online payments, contactless (tap to pay) payments, gambling payments, and even traditional magstripe payments with Starling. It’s a lot more control over your card than you’d normally find with the traditional big banks.
This is all made possible because these mobile banks are new and rely on cloud-based technology, while the bigger traditional banks haven’t overhauled their backend systems to keep up. “When we started, you couldn’t actually host these technologies in the cloud,” explains Starling CEO Anne Boden, in an interview with The Verge. Boden and her team have spent years challenging regulators to embrace the cloud and mobile banks. Starling was founded in 2014, before obtaining its banking license and launching full bank accounts in May 2017.
Boden is a banking industry veteran, but she originally studied computer science and chemistry after growing up in Wales. She started her career at Lloyds Bank where she helped build CHAPS, Britain’s first real-time payments system. Boden has also spent time at Standard Chartered, USB, RBS, and ABN AMRO, before giving up on big banks to start something new.
“In January 2014, I decided we had to start from scratch on new technology,” Boden says. “I had come to the conclusion that there were so many technologies now available that could be used, and it was possible to build a bank with a very different culture.”
Starling is very technology- and engineering-led as a result and has its sights set on “banking as a service.” The aim is to open up its own technology and APIs so that other businesses can use its payment services. Even other financial companies could rely on Starling’s tech so they don’t have to build out an entire system on their own. Starling has seen a lot of success here, and even the UK’s Department for Work and Pensions is using its technology.
This is a very different approach to Monzo, which is focused purely on consumer banking. While a lot of the features are similar between the two, Starling feels like more of a traditional grown-up bank, while Monzo comes across as more hip and community-focused, regularly holding events to listen to and engage with customers. In my own experience using both cards, Starling is ahead in tech and features, but Monzo has the draw of its instantly recognizable bright coral card, better person-to-person payments, and great customer service.
You can sign up for both cards using a mobile app, and both verify your identity by asking for a copy of your ID along with a video of you holding that ID. Even creating joint accounts is as simple as sitting next to the person you want to open a joint account with, and none of it involves speaking to anyone or heading to a physical bank.
Monzo was founded in 2015 by Tom Blomfield, and the card originally launched in October 2015 as Mondo, before a name change. It was originally a prepaid card that you had to load funds onto, before transitioning to a full bank account. Blomfield previously co-founded Starling with Boden before Monzo. After reported tensions between the two, Blomfield left Starling and took some team members with him to form Monzo. While the card features have always been a step behind Starling, Monzo’s customer focus has won over the hearts of people and helped spread its card to millions. “We got to about a million and a half customers without really doing any advertising,” says Blomfield in an interview with The Verge.
Monzo has achieved most of this through word-of-mouth. I often see people tapping their brightly colored Monzo cards on readers to pay for things in London, and the company has created a loyal following through community events and crowdfunding efforts. Monzo is now running a TV ad campaign, and has posters on buses and London’s Tube network that will undoubtedly help it sign up millions more customers.
Both of these cards have been able to spread so quickly thanks to being radically different to traditional banks, and the way the British banking system is ahead of those in the US both in terms of technology and less complex regulations at state and federal levels. Just 3 percent of cards in the US are contactless (tap to pay) according to a 2018 report from AT Kearney, compared to 64 percent in the UK. There are obvious reasons for the disparity, particularly as the UK is far smaller than the US, but a key step was Transport for London (TfL) supporting contactless payments in 2014. New York City only just recently caught up last month, and retailers are still struggling to even roll out chip card readers in the US. It will be years until contactless payments are widespread in the US.
Monzo and Starling have also been able to take advantage of Apple Pay and Google Pay, so you can use an app and just your phone to manage your entire bank account and make purchases. I personally use an Apple Watch for the vast majority of my payments, and rarely use my card. Cash is still widely used in the US, though, while UK consumers are more used to using a debit card for transactions regularly.
Getting customers hooked to these cards is just one part of the complex banking puzzle, though. While Monzo and Starling are both appealing due to low or nonexistent fees and their great mobile apps, they both make revenue through offering services on top of a bank account. Starling offers overdrafts, loans, mortgage offers, insurance, and savings deals through a marketplace in its app. The company generates referral revenue on these, but it seems to be focusing the bulk of its revenue efforts on its banking as a service offering.
Monzo also offers similar overdrafts, loans, and offers. There’s even a Monzo Plus card that includes travel insurance and the ability to withdraw up to £400 free every 30 days in another country. Monzo was forced to scrap its free ATM withdrawals overseas, as the card became a popular way for Brits traveling across Europe to make transactions or withdraw foreign cash.
Both of these mobile banks also have to convince UK consumers to move their entire bank account over. There’s a fast switching service to make this easier so your salary, regular payments, and bills are all switched over, but a big part of this is trust. I still personally use a big bank as my main current account, despite the fact that Starling and Monzo are both protected by the UK’s Financial Services Compensation Scheme that covers you for up to £85,000 if they collapse.
While the big UK banks have been slow to react to Monzo and Starling, they’re catching on. NatWest has developed a “get cash” feature that lets you withdraw cash without a card at ATMs, and Santander has developed a Wallet mobile app that lets you closely analyze your spending. Halifax recently went one step further, unveiling a new brand identity. It’s clearly inspired by Monzo, and Halifax even seems to have used Monzo’s card as a template and forgotten to remove Monzo’s bank identification number (BIN) from its design. “It’s great to see your updated brand identity, but it looks like you forgot to update [a] couple of things,” quipped Blomfield on Twitter, highlighting Halifax’s embarrassing mistake.
Boden also sees banks racing to catch up with Starling. “They’ll copy everything we do, but they’ll be a couple of years behind,” she says. “They’ll copy it on their existing infrastructure … so when they copy something Starling does they’ll add to their costs rather than take it away.” Boden believes the costs needed to update their legacy banking systems will ultimately hold them back, while upstarts can be more nimble and create new technology without having older tech to maintain. “The big banks will have a big profitability challenge. The big banks are nervous, they’re figuring out what they’re going to do in response to the new fintechs.”
One of the popular responses by big banks in both the UK and US is to launch new sub brands that can attract customers because they can’t overhaul their existing systems. “Because they can’t transform the oil tanker, they have a speedboat to go faster and engage with the competition,” explains Boden. “Migrating all the customers from the oil tanker to the speedboat is very, very difficult and it will take many, many years, and it’s very, very risky.” We saw that risk played out when TSB’s botched IT upgrade left 1.9 million people without access to their bank accounts in the UK last year.
Over in the US, there are fewer challenger banks making a dent in the market. “I think the US financial system is a decade behind Europe,” says Blomfield, Monzo’s CEO. “It’s very hard to send money from one US bank account to another.” In the UK, a Faster Payments Service (FPS) has existed since 2008, and it lets you transfer from one account to another in seconds. A similar service, Zelle, only launched back in 2017 in the US, and it’s a gap that has allowed Venmo and Square Cash to take off. However, Venmo has struggled with fraud and security, and was forced to settle with the FTC last year.
The bank Simple is probably the closest to Monzo and Starling in the US in terms of mobile banking features, but it was acquired by BBVA, a large bank based in Spain, in 2014 and isn’t transparent about the number of customers actually using its service. The mobile bank Chime is part of US Bancorp, the parent company of US Bank, and T-Mobile’s new Money account is backed by BankMobile. Even Square Cash doesn’t have a banking license, and relies on Sutton Bank to operate. Simple offers FDIC insurance so deposits are protected up to $250,000, but many other mobile offerings like Square Cash do not offer this protection.
Monzo is now setting its sights on the US, but it’s far more difficult to obtain a banking license stateside than in the UK, partly thanks to the 2008 financial crisis. “It’s not necessarily that the regulations are more stringent … it’s the approach to authorizing new entrants in the US … there has been more or less a blanket ban on new banks in the last 10 years,” Blomfield says. “There have been approximately zero new banks licensed in the US, because they came out of the financial crisis in a very different position to the UK where they had basically 10,000 banks and credit unions, and were trying to consolidate to get on top of them.”
While regulators are now starting to license new banks in the US, Monzo is initially partnering with Sutton Bank to get started, which will offer the all-important FDIC insurance for deposits. “In parallel, we will be applying for a US banking charter, and in time we hope to transition everyone onto our own license,” says Blomfield.
Monzo is bringing its community spirit to the US, too. “We’ll be launching in a similar way to the UK, with a series of in-person community events around the country,” says Blomfield. Launch events will take place in LA, New York, and San Francisco in the coming weeks, allowing people to sign up before Monzo is more broadly available across the US. The majority of existing Monzo features will be available in the US, including things like notifications for payments and contactless payments. “The main thing that will be removed is lending,” says Blomfield. “We’re not a bank [in the US], so we won’t be lending customers money.”
It’s early days for Monzo’s efforts in the US, and Starling isn’t talking about any plans for the US or Europe just yet. Starling did just recently launch a euro banking account, allowing Brits to send and receive euros for free. If Monzo can obtain a US banking license and push ahead with its ambitious plans, its experience of serving 2 million customers and counting in the UK will certainly help it scale to the demands of the US. It’s no easy task, particularly navigating the complex web of state and federal US regulations, but Monzo could help usher in a more modern era of banking that Brits have been used to for years now.