Digital Banking: UK-based Neobank Monzo Applies for Banking Charter in the US

UK-based digital bank Monzo has been planning to enter the US market for a fairly long time. A beta launch in the US was announced in late 2019. The banking challenger, which has been valued at over $1 billion, has managed to almost double its client base during the past year.

Monzo reportedly had 2.2 million UK-based clients in June of last year, when it first revealed its plans to expand its banking operations into the United States.

The neobank noted in its application:

“We are delighted to have this opportunity to apply for a national bank charter, and hope that this will allow Monzo the opportunity to bring its products and services to the US market.”

Monzo added:

“We believe that Monzo will be able to provide American consumers with better banking and financial products than current offerings in the US market, with lower fees and charges, better customer service, and a superior digital app experience that consumers now expect.”

Monzo says it intends to become profitable within three years after launching its banking operations in the US.

The digital bank also mentioned that whatever the level of impact of the Coronavirus (COVID-19) pandemic might be, the organizers feel that Monzo has a unique product offering that satisfies key requirements of US-based consumers, and which may be appealing to clients in “a range of economic conditions.

The organizers hope that most of the Coronavirus-related disruption will have subsided when Monzo prepares to officially launch its banking operations in the US.

As reported by the Telegraph, Monzo’s banking application process could take anywhere between 18 months to two years to complete. It may take even longer.

In the US, aspiring digital banks frequently partner with an already approved bank to provide banking services prior to receiving a bank charter (if one is pursued at all).

This year has been a bit of a challenge for all Fintechs due to the Coronavirus. The COVID-19 outbreak has forced the neobank to make various adjustments and changes to its UK and US-based operations.

In March 2020, Monzo started taking up to 175 furlough applications in its customer support department, and up to 120 from other parts of its UK-based digital banking business.

The neobank’s executives and board members have reportedly decided to take a 25% pay cut.

Tom Blomfied, CEO and co-founder at Monzo, confirmed that he will forgo his entire salary for the coming year.

Monzo has also decided to close down its business office in Las Vegas, which had 165 customer support professionals on its payroll.

Monzo joins several other Fintechs in pursuing a bank charter. Digital bank Varo Money is also currently in the process of acquiring a US banking charter. LendingClub took a shorter path by acquiring an already chartered bank- Radius.

According to sources, Varo Money may have already spent $100 million in order to make the changes needed to acquire a banking charter in the US.

In February 2020, Varo Money was approved by the FDIC to offer deposit insurance. The Office of the Comptroller of the Currency (OCC), the main bank regulator in the US, gave Varo its blessing for preliminary approval for a bank charter in September of 2018. The digital bank still has a few steps remaining before its compliance odyssey is completed.

The application process for acquiring a banking charter isn’t always straightforward and can get complicated at times. Beyond a convoluted regulatory process, intense lobbying from traditional finance is said to be taking place behind the scenes to stall the competition. Old banks will have to pick up their game once digital banks hit their stride unencumbered by expensive brick and mortar locations.

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