Bank to the future: Monzo CEO Tom Blomfield shares his vision of the future of banking

This article was originally published in Payments [R]Evolution magazine, which is available for download here

Monzo, described as ‘the bank of the future’, is a vision that was created by Tom Blomfield and his co-founders in 2015. Two years later, the smart bank has £35m in funding under its belt, over 200,000 users and has broken the world record for the quickest crowd-funding campaign in history, raising £1 million in 96 seconds via Crowdcube.

Alara Basul sat down with Tom to discuss the bank’s new current accounts, the road to a billion users, and his vision for the future of banking.

What makes Monzo stand out from your competitors?

The most obvious example is that we don’t have branches; we’re available on the mobile phone, on Android and iOS. You can download the app, get a card and can get started straight away. Our focus in the long term is solving customer problems rather than selling financial products. If you’re a big high street bank then you may care a lot about your mortgage rate, or your savings accounts and credit cards; basically, optimising these financial products to make them profitable. We’re much more focused on solving customer problems day to day.

We’re almost questioning, as a bank, what problems are we best placed to solve? Should we be helping you budget, or collect loyalty points, or pay friends back for dinners, rather than a continual focus on selling mortgages.

You recently had your restricted banking licence lifted, what’s next for Monzo?

We received our restricted banking licence in August 2016, and in April this year the restrictions were lifted so we’re a full unrestricted bank now. We can now offer full current accounts with account numbers and sort codes. The next step is to transition all of our users who currently have prepaid cards over to current accounts. The current accounts are currently in a testing phase using a small group of customers before we move over the bulk of customers later this summer.

What will the current accounts offer?

Everything the app currently offers will be available on the current account: You’ll get instant notifications when you spend, you’ll be able to put money into budgeting pots, and see where all your money is being spent. If you lose your card you’ll be able to freeze it, if you go abroad you’ll be able to spend money in any currency with no fees or charges. In addition, you’ll get an account number and sort code, so you can get your salary paid into the account, you can pay direct debits and standing orders such as rent and mortgage payments. And if you want to, you can borrow, we’ll extend overdrafts subject to credit checks.

“People have come to us saying they want be part of something bigger, this vision of re-shaping banking”

With the roll out of current accounts, what will be the main difference between Monzo and traditional banks?

Very few of our customers have come to us saying: “I really want a prepaid card.” People have come to us saying they want be part of something bigger, this vision of re-shaping banking, and that is what attracted them to Monzo. More recently, Monzo has become an app that helps people control their money, budget, and give users visibility and control. I don’t think that will change with the current accounts at all.

The existing customers do want a different way to do their banking and I think that will continue, but through a current account product which is the mechanism of how they want to bank.The main reason why customers today want a Monzo account is purely because all their friends have one. The product users has transitioned from the early adopters into the mainstream, the demographic of people who don’t like to be the first to try an app, but once ten friends have it the app becomes necessary to split bills and pay peers back. I don’t think banks have done these social features of finance well at all.

How important are referrals for your customers?

Viral word-of-mouth growth is extremely important to us. Our new customers are probably over 90% via referrals and we have almost zero paid acquisitions. This is the way that consumer tech companies grow exponentially for free today. Paid acquisition tends to scale in a sublinear way; broadly speaking the more users you get, the more expensive each acquisition becomes. A viral acquisition network doesn’t work like that; it scales exponentially well.

There are two aspects; the first is simple word-of-mouth referral, some financial services such as Metrobank have done this really well. When you have a great product that people love, they tell their friends about it because they just want to share the good news. This is powerful. But
when you combine this with the network effect, where the product becomes more valuable the more users there are, this is accelerated further.

Skype is a great example of this: The more of your friends that use Skype, the more people you can call, so it’s better for you as a consumer to bring more people on. Real network effect is very powerful because you have a selfish incentive to bring people on. That’s what we’re trying to do with concepts such as bill splitting, and sending and receiving money. And in time we’ll introduce shared pots, where a group can pay into a pot to pay for a joint holiday, or shared accounts for students or flat sharing. All of these things will generate network effect which helps us to continuously grow exponentially for free. That’s the plan for getting to a billion customers.

Is reaching one billion customers your goal?

Eventually! We’re growing about 4-5% a week at the moment. If we continue to grow about 3-4% a week, we’ll hit around 50 million customers in three years, and we’d hit a billion in about six years. The billion customers objective is a North Star for us. It’s a method that we use internally to evaluate the way we do things, for example: “How would X work if we had a billion customers?”

How will your strategy of putting the customer at the core of everything you do be affected with this rapid growth?

To parrot a phrase from Apple: “You build a product that just works.” There are huge scale effects, but as a software engineer or designer you have to remember that if you create something that just works, it just works for a billion people as well as it does one person. For us that means we have to invest heavily in design and technology to produce a service that just solves people’s problems.

For example, I think there is a place for human interaction, but sometimes that model doesn’t scale as well. For simpler processes such as changing an address, a human interaction is unnecessary and will hinder scaling.

What is the next phase of development for Monzo after the current account is fully launched?

The future of banking, as we’ve said a lot before, is a marketplace, and we want to be the platform of marketplace for other people’s products. We don’t want to roll out a Monzo mortgage or a Monzo loan, because we don’t think we’re the best at doing that, to be frank. What we are great at is delighting customers through interfaces, technology, and APIs that are enabled to be plugged together.

There are law changes that are coming into force over the next year or so which means that banks will have to open up all their data, which really helps aggregate all your accounts into one place. Monzo’s aim is to be the aggregator, so that eventually when you want a mortgage you can take all of your Monzo data, and the data from your ISA or savings account, and bring it all together and ask your mortgage broker which type of mortgage you can get. With very little manual intervention you will be able to accomplish the goals you want, and Monzo is the facilitator of that.

Finally, what is the ultimate mantra you live by at Monzo?

I think if someone says “this is the accepted best practice at a bank”, or “this is the way it’s always been done”, then it is a good rule of thumb to not necessarily feel constrained to doing it like that. The banking industry is in a pretty bad place right now, so I think for us there’s huge value in starting from first principles, almost naively.

So we focus on not having a preconception of what the solution looks like, and instead just coming into a problem from scratch and looking at the source legislation, looking at the technology and talking to customers and understanding what they need and synthesising a solution that actually works for people. Rather than saying we need two proof of addresses and a driving licence to open an account because that’s what everyone else does, for example. It’s really starting from scratch and figuring out what you’re trying to achieve.

Related reading