9 ms·

Y Combinator’s growth fund to back challenger bank Monzo

91 points by Peroni 8y ago

tmp12938 8y ago
Really interesting to see the re-rise of challenger banks. IIRC Simple was one of the first and did OK never hit the valuation that these new ones are getting. My hunch is that these are doing comparatively better outside the US because basic banking elsewhere is relatively worse than here. In my experience with at least Chase and Capital One the "big banks" have invested pretty heavily in their UI/UX and I haven't had any issues getting CX questions answered when I need to.
- geden 8y ago
  Banking in the USA is a nightmare compared to the UK and Europe. Inter-bank transfers are instant and free in the UK. You use cheques. I rest my case.
  - ac29 8y ago
    Almost no one I know routinely uses checks in the US, possibly with the exception of businesses. Interbank transfers are free & fast enough (24-48 hours). Apps like Venmo give them a nice enough UI.
    - eropple 8y ago
      Possibly with the exception of business. The property management company my girlfriend runs fields literally thousands of checks a month and sends hundreds a week. This is the norm in the United States when actual money is involved.
    - justincormack 8y ago
      24-48 hours is not "fast enough". A few minutes max is normal.
    - geden 7y ago
      48 hours!? There's no excuse for a transfer not being subsecond in 2019. Introducing a 48 hours delay to knowing if someone has actually paid you or not when they said they have... adds a ton of pain to running a business. I regularly transact with US companies in the music & media world and their first payment choice is often a cheque.
- lol768 8y ago
  >My hunch is that these are doing comparatively better outside the US because basic banking elsewhere is relatively worse than here. In my experience with at least Chase and Capital One the "big banks" have invested pretty heavily in their UI/UX and I haven't had any issues getting CX questions answered when I need to. Would completely disagree with this. I suspect, in the UK, they're doing better because regulators have recently become much friendlier towards challengers. The UK has also generally been pretty good with encouraging new technologies - faster payments, CASS, open banking, cheque imaging etc have all been launched with varying degrees of success. It's well known that banking technology is generally worse in the US -- you only have to look at the roll-out of EMV and contactless to see how slow-moving things have generally been there. As far as I know there's no direct equivalent to the UK's Faster Payments scheme, either [1]. Do any of your banks even support 3-D Secure? Companies like Monzo are able to differentiate on _much_ more than just UX and customer support. The tech stack has been designed from the ground up, so payments and notifications are (at least to a human observer!) instant. You have novel services like Monzo.me that allow external people to pay into your current account ("checking account") via debit card instantly. [1] - No, same-day ACH doesn't count.
- george_morgan 8y ago
  My understanding was that basic banking in the US lags most of Europe; contactless infrastructure is poor, mobile payments non-standardised, charges for basic accounts & general fees are all more common, more barriers to current (checking?) account switching (this is standardised in the UK by BACs & the current account switch service). It is a better environment for the challengers outside the US because there is better infrastructure & standardisation which allows them to compete with bigger incumbents.
- shafyy 8y ago
  Banking in the US is definitely worse than banking in Europe. People still use checks, are you kidding me?
  - lol768 8y ago
    >People still use checks, are you kidding me? Checks, magstripe transactions and signatures on their card receipts..
    - realusername 8y ago
      That's a pretty big contrast from Europe... I've never seen a transaction using magstripe personally, I don't think magstripe was available even in the 90s, that sounds much older than VHS tapes.
      - shafyy 8y ago
        Haha. Magstripes were still common in the early 2000s I would say.
        realusername 8y ago
        Really? I've never seen anyone using one, I mean they were still on the card in the early 2000s as a legacy part of the card but no place I know would have accepted that at the time.
        shafyy 8y ago
        My experience is related to Switzerland - possible that other European countries get rid of them earlier.
  - davidmr 8y ago
    I just moved from the USA to the UK. It was shocking how much better the consumer banking system is here. With 10 seconds of typing on my phone, I set up my standing rent payment to my landlord (which would have been too much money to use Chase's QuickPay at home). I gave my gym and utilities my account number and sort code and they can (with my permission, which I can revoke any time without talking to them) bill me regularly. I recorded a little video of me holding my passport and a scan of it, and that was sufficient ID for them to give me a new account. For everything under £30, I just tap my wallet on the little terminal. For everything over, they bring a terminal to me and I type my PIN. I never have to give up my card to anyone for any reason. It's a pretty low bar to get over, but Monzo is definitely the best bank I've ever had. The US consumer banking system sucks by comparison.
- TazeTSchnitzel 8y ago
  The UK, where Monzo is from, has (from what I can glean as someone who has not lived in the US) a much better banking experience than the US. Cheques are rarely used by most people because bank transfers are instant and free,d there is a functional Direct Debit system for automated variable-amount billing, most bank accounts are free with the every-day services (payments, bank transfers, ATM withdrawals, cash deposits) also being free, EMV “Chip and PIN” payments have been the default for well over a decade, contactless is widely deployed, etc. The difference from the US is probably that there are less institutional hurdles to establishing a new bank.
- dflock 8y ago
  > these are doing comparatively better outside the US because basic banking elsewhere is relatively worse than here That's.. the opposite of true - it's not even wrong. Banking in the US is stuck in the '70's, compared to Europe.
spking 8y ago
Monzo, Revolut and N26 (backed by Peter Thiel) are all splashing down around the same time in the U.S. to vie for the Challenger/Neo-Bank crown, where they will compete with: -Simple/BBVA (https://www.simple.com/ https://www.simple.com/) -Varo (https://www.varomoney.com/ https://www.varomoney.com/) -Qapital (https://www.qapital.com/ https://www.qapital.com/) -Aspiration (https://www.aspiration.com/ https://www.aspiration.com/) -Empower (https://empower.me/ https://empower.me/) -MoneyLion (https://www.moneylion.com/ https://www.moneylion.com/) -Acorns (Spend) (https://www.acorns.com/spend/ https://www.acorns.com/spend/) -Chime (https://www.chimebank.com https://www.chimebank.com) -Zero (https://zero.app/ https://zero.app/) -Point (https://trypointbank.com/ https://trypointbank.com/) -Finn/Chase (https://www.chase.com/personal/finnbank https://www.chase.com/personal/finnbank) -Marcus/Goldman Sachs (https://www.marcus.com/ https://www.marcus.com/) -Greenhouse/Wells Fargo (https://www.wellsfargo.com/greenhouse/ https://www.wellsfargo.com/greenhouse/) -GoBank/Green Dot (https://www.gobank.com/ https://www.gobank.com/) -Square (Cash) (https://cash.app/ https://cash.app/) -PayPal -Apple (https://www.apple.com/apple-card/ https://www.apple.com/apple-card/) -(Maybe Amazon soon)? (edit: links)
- benbristow 8y ago
  In the UK there's also: - Starling Bank - https://www.starlingbank.com/ https://www.starlingbank.com/ - B / Clydesdale & Yorkshire Bank - https://www.youandb.co.uk/ https://www.youandb.co.uk/ - Monese - https://monese.com/ https://monese.com/ - Metro Bank - https://www.metrobankonline.co.uk/ https://www.metrobankonline.co.uk/ Loads more too - https://en.wikipedia.org/wiki/Challenger_bank https://en.wikipedia.org/wiki/Challenger_bank
  - C1sc0cat 8y ago
    Metro seems to be having some problems
    - jasoncartwright 8y ago
      Yes. https://www.bbc.co.uk/news/amp/business-47609539 https://www.bbc.co.uk/news/amp/business-47609539
mattnewton 8y ago
I wonder who the initial sponsorship bank is. I imagine any very large bank is going to see the kinds of differentiators that Monzo is offering (whatever they will be) as things they should just clone, rather than grow a partnership with a competitor over, but I really have no idea how this industry works. Anyone have insight from the peanut gallery?
- londons_explore 8y ago
  Barclays
dwighttk 8y ago
what is a challenger bank?
- okmokmz 8y ago
  https://en.wikipedia.org/wiki/Challenger_bank https://en.wikipedia.org/wiki/Challenger_bank
cm2012 8y ago
I use Azlo for business checking, very happy with them so far. I think they are backed by BBVA. Best thing is I could sign up online without ever having to go to a branch. I think they are the only business checking account that allows that.
twic 8y ago
Just imagine how many more microservices they'll be able to deploy now!
westiseast 8y ago
What shocks me about this is... Monzo to me (a regular user of about a year) is just a normal bank card without a branch and with a basic app. Are established banks so incredibly ossified they can’t keep up with that?
- mprev 8y ago
  There’s a lot of appeal in a product that lets you signal that you’re taking a different path.
- noneeeed 8y ago
  As someone with a Monzo account, but whose main accounts are with Barclays and Nationwide, I find the hype around the "challenger banks" in the UK a bit unexpected. I'm not really sure I understand what they are offering that is so revolutionary. I still think it's great they exist as competition is overdue in the UK banking sector, and I hope they do well. I find Monzo works well for what I use it for, which is tracking my daily small item spending (getting lunch, buying a coffee etc), while the Barclays and Natwest apps work well for the "grown-up" banking. Between the latter two I have 4 bank accounts, two credit cards and two mortgages, and the apps (combined with Faster Payment's awesome transfer time) make it ridiculously easy to manage my finances. Monzo app is definitely very nicely done, and there are some neat features, but for my day-to-day banking I have absolutely no issue getting everything done with the Barclays and Nationwide apps. Both could do with a bit of UX work and decluttering, but they are perfectly fine. Are the rest of the main banks just really awful compared with Barclays and Nationwide?
  - westiseast 8y ago
    Agreed. I have a fancy colored debit card now, which is cool. Tend to use my HSBC for direct debits and bills, and Monzo for daily life/luxury/fun items. It just seems like the legacy banks are awful rather than Monzo is breaking boundaries. I have a Chinese bank card and I get opt-in text notifications for my spending and have done for years.
- subjectHarold 8y ago
  Most UK banks offer apps, Monzo is not doing anything particularly new. Their success has been in convincing investors that the competition is "ossified" whilst dropping tons of their money and failing to actually gather deposits. You can buy £400bn of deposits with Lloyds for £40bn (and get paid 5%/year for the pleasure). Or you can pay £1bn for a loss-making company with £100m in deposits...it is pretty simple.
writepub 8y ago
From October 2018 to April 2019, what exactly changed with Monzo? If you were to objectively take the 2X-ing of valuation, you'd assume their revenues and profits (if any) doubled in that time frame. Hard to believe doubling of real KPIs (like GAAP revenues) in 6 months, I hope YC isn't contributing to the unreasonable doubling of valuation without actual KPI changes.
- exolymph 8y ago
  By startup heuristics, user growth would be the important thing. Idk if those apply well to banks or not
- Peroni 8y ago
  The timing of this funding round is also the biggest surprise for me. Their last round was in November last year and they raised a significant amount of money. It's genuinely taken me aback that five months later they are raising funding again.

91 points by Peroni 8y ago

Really interesting to see the re-rise of challenger banks. IIRC Simple was one of the first and did OK never hit the valuation that these new ones are getting. My hunch is that these are doing comparatively better outside the US because basic banking elsewhere is relatively worse than here. In my experience with at least Chase and Capital One the "big banks" have invested pretty heavily in their UI/UX and I haven't had any issues getting CX questions answered when I need to.

geden 8y ago
Banking in the USA is a nightmare compared to the UK and Europe. Inter-bank transfers are instant and free in the UK. You use cheques. I rest my case.
- ac29 8y ago
  Almost no one I know routinely uses checks in the US, possibly with the exception of businesses. Interbank transfers are free & fast enough (24-48 hours). Apps like Venmo give them a nice enough UI.
  - eropple 8y ago
    Possibly with the exception of business. The property management company my girlfriend runs fields literally thousands of checks a month and sends hundreds a week. This is the norm in the United States when actual money is involved.
  - justincormack 8y ago
    24-48 hours is not "fast enough". A few minutes max is normal.
  - geden 7y ago
    48 hours!? There's no excuse for a transfer not being subsecond in 2019. Introducing a 48 hours delay to knowing if someone has actually paid you or not when they said they have... adds a ton of pain to running a business. I regularly transact with US companies in the music & media world and their first payment choice is often a cheque.
lol768 8y ago
>My hunch is that these are doing comparatively better outside the US because basic banking elsewhere is relatively worse than here. In my experience with at least Chase and Capital One the "big banks" have invested pretty heavily in their UI/UX and I haven't had any issues getting CX questions answered when I need to. Would completely disagree with this. I suspect, in the UK, they're doing better because regulators have recently become much friendlier towards challengers. The UK has also generally been pretty good with encouraging new technologies - faster payments, CASS, open banking, cheque imaging etc have all been launched with varying degrees of success. It's well known that banking technology is generally worse in the US -- you only have to look at the roll-out of EMV and contactless to see how slow-moving things have generally been there. As far as I know there's no direct equivalent to the UK's Faster Payments scheme, either [1]. Do any of your banks even support 3-D Secure? Companies like Monzo are able to differentiate on _much_ more than just UX and customer support. The tech stack has been designed from the ground up, so payments and notifications are (at least to a human observer!) instant. You have novel services like Monzo.me that allow external people to pay into your current account ("checking account") via debit card instantly. [1] - No, same-day ACH doesn't count.
george_morgan 8y ago
My understanding was that basic banking in the US lags most of Europe; contactless infrastructure is poor, mobile payments non-standardised, charges for basic accounts & general fees are all more common, more barriers to current (checking?) account switching (this is standardised in the UK by BACs & the current account switch service). It is a better environment for the challengers outside the US because there is better infrastructure & standardisation which allows them to compete with bigger incumbents.
shafyy 8y ago
Banking in the US is definitely worse than banking in Europe. People still use checks, are you kidding me?
- lol768 8y ago
  >People still use checks, are you kidding me? Checks, magstripe transactions and signatures on their card receipts..
  - realusername 8y ago
    That's a pretty big contrast from Europe... I've never seen a transaction using magstripe personally, I don't think magstripe was available even in the 90s, that sounds much older than VHS tapes.
    - shafyy 8y ago
      Haha. Magstripes were still common in the early 2000s I would say.
      - realusername 8y ago
        Really? I've never seen anyone using one, I mean they were still on the card in the early 2000s as a legacy part of the card but no place I know would have accepted that at the time.
        shafyy 8y ago
        My experience is related to Switzerland - possible that other European countries get rid of them earlier.
- davidmr 8y ago
  I just moved from the USA to the UK. It was shocking how much better the consumer banking system is here. With 10 seconds of typing on my phone, I set up my standing rent payment to my landlord (which would have been too much money to use Chase's QuickPay at home). I gave my gym and utilities my account number and sort code and they can (with my permission, which I can revoke any time without talking to them) bill me regularly. I recorded a little video of me holding my passport and a scan of it, and that was sufficient ID for them to give me a new account. For everything under £30, I just tap my wallet on the little terminal. For everything over, they bring a terminal to me and I type my PIN. I never have to give up my card to anyone for any reason. It's a pretty low bar to get over, but Monzo is definitely the best bank I've ever had. The US consumer banking system sucks by comparison.
TazeTSchnitzel 8y ago
The UK, where Monzo is from, has (from what I can glean as someone who has not lived in the US) a much better banking experience than the US. Cheques are rarely used by most people because bank transfers are instant and free,d there is a functional Direct Debit system for automated variable-amount billing, most bank accounts are free with the every-day services (payments, bank transfers, ATM withdrawals, cash deposits) also being free, EMV “Chip and PIN” payments have been the default for well over a decade, contactless is widely deployed, etc. The difference from the US is probably that there are less institutional hurdles to establishing a new bank.
dflock 8y ago
> these are doing comparatively better outside the US because basic banking elsewhere is relatively worse than here That's.. the opposite of true - it's not even wrong. Banking in the US is stuck in the '70's, compared to Europe.

spking 8y ago

Monzo, Revolut and N26 (backed by Peter Thiel) are all splashing down around the same time in the U.S. to vie for the Challenger/Neo-Bank crown, where they will compete with: -Simple/BBVA (https://www.simple.com/ https://www.simple.com/) -Varo (https://www.varomoney.com/ https://www.varomoney.com/) -Qapital (https://www.qapital.com/ https://www.qapital.com/) -Aspiration (https://www.aspiration.com/ https://www.aspiration.com/) -Empower (https://empower.me/ https://empower.me/) -MoneyLion (https://www.moneylion.com/ https://www.moneylion.com/) -Acorns (Spend) (https://www.acorns.com/spend/ https://www.acorns.com/spend/) -Chime (https://www.chimebank.com https://www.chimebank.com) -Zero (https://zero.app/ https://zero.app/) -Point (https://trypointbank.com/ https://trypointbank.com/) -Finn/Chase (https://www.chase.com/personal/finnbank https://www.chase.com/personal/finnbank) -Marcus/Goldman Sachs (https://www.marcus.com/ https://www.marcus.com/) -Greenhouse/Wells Fargo (https://www.wellsfargo.com/greenhouse/ https://www.wellsfargo.com/greenhouse/) -GoBank/Green Dot (https://www.gobank.com/ https://www.gobank.com/) -Square (Cash) (https://cash.app/ https://cash.app/) -PayPal -Apple (https://www.apple.com/apple-card/ https://www.apple.com/apple-card/) -(Maybe Amazon soon)? (edit: links)

benbristow 8y ago
In the UK there's also: - Starling Bank - https://www.starlingbank.com/ https://www.starlingbank.com/ - B / Clydesdale & Yorkshire Bank - https://www.youandb.co.uk/ https://www.youandb.co.uk/ - Monese - https://monese.com/ https://monese.com/ - Metro Bank - https://www.metrobankonline.co.uk/ https://www.metrobankonline.co.uk/ Loads more too - https://en.wikipedia.org/wiki/Challenger_bank https://en.wikipedia.org/wiki/Challenger_bank
- C1sc0cat 8y ago
  Metro seems to be having some problems
  - jasoncartwright 8y ago
    Yes. https://www.bbc.co.uk/news/amp/business-47609539 https://www.bbc.co.uk/news/amp/business-47609539

mattnewton 8y ago

I wonder who the initial sponsorship bank is. I imagine any very large bank is going to see the kinds of differentiators that Monzo is offering (whatever they will be) as things they should just clone, rather than grow a partnership with a competitor over, but I really have no idea how this industry works. Anyone have insight from the peanut gallery?

londons_explore 8y ago
Barclays

dwighttk 8y ago

what is a challenger bank?

okmokmz 8y ago
https://en.wikipedia.org/wiki/Challenger_bank https://en.wikipedia.org/wiki/Challenger_bank

cm2012 8y ago

I use Azlo for business checking, very happy with them so far. I think they are backed by BBVA. Best thing is I could sign up online without ever having to go to a branch. I think they are the only business checking account that allows that.

twic 8y ago

Just imagine how many more microservices they'll be able to deploy now!

westiseast 8y ago

What shocks me about this is... Monzo to me (a regular user of about a year) is just a normal bank card without a branch and with a basic app. Are established banks so incredibly ossified they can’t keep up with that?

mprev 8y ago
There’s a lot of appeal in a product that lets you signal that you’re taking a different path.
noneeeed 8y ago
As someone with a Monzo account, but whose main accounts are with Barclays and Nationwide, I find the hype around the "challenger banks" in the UK a bit unexpected. I'm not really sure I understand what they are offering that is so revolutionary. I still think it's great they exist as competition is overdue in the UK banking sector, and I hope they do well. I find Monzo works well for what I use it for, which is tracking my daily small item spending (getting lunch, buying a coffee etc), while the Barclays and Natwest apps work well for the "grown-up" banking. Between the latter two I have 4 bank accounts, two credit cards and two mortgages, and the apps (combined with Faster Payment's awesome transfer time) make it ridiculously easy to manage my finances. Monzo app is definitely very nicely done, and there are some neat features, but for my day-to-day banking I have absolutely no issue getting everything done with the Barclays and Nationwide apps. Both could do with a bit of UX work and decluttering, but they are perfectly fine. Are the rest of the main banks just really awful compared with Barclays and Nationwide?
- westiseast 8y ago
  Agreed. I have a fancy colored debit card now, which is cool. Tend to use my HSBC for direct debits and bills, and Monzo for daily life/luxury/fun items. It just seems like the legacy banks are awful rather than Monzo is breaking boundaries. I have a Chinese bank card and I get opt-in text notifications for my spending and have done for years.
subjectHarold 8y ago
Most UK banks offer apps, Monzo is not doing anything particularly new. Their success has been in convincing investors that the competition is "ossified" whilst dropping tons of their money and failing to actually gather deposits. You can buy £400bn of deposits with Lloyds for £40bn (and get paid 5%/year for the pleasure). Or you can pay £1bn for a loss-making company with £100m in deposits...it is pretty simple.

writepub 8y ago

From October 2018 to April 2019, what exactly changed with Monzo? If you were to objectively take the 2X-ing of valuation, you'd assume their revenues and profits (if any) doubled in that time frame. Hard to believe doubling of real KPIs (like GAAP revenues) in 6 months, I hope YC isn't contributing to the unreasonable doubling of valuation without actual KPI changes.

exolymph 8y ago
By startup heuristics, user growth would be the important thing. Idk if those apply well to banks or not
Peroni 8y ago
The timing of this funding round is also the biggest surprise for me. Their last round was in November last year and they raised a significant amount of money. It's genuinely taken me aback that five months later they are raising funding again.