Tom Blomfield, Britain’s youngest bank chief executive at 31, believes the British banking system is broken, warning that customers will also lose out as the Brexit vote forces major lenders to scale back their innovation investment and focus on staying afloat.
He said: “I think many of the big incumbents right now will die. They have not kept up to date and they are technologically bankrupt. That will catch up.”
“With Brexit and the spectre of negative interest rates they [the banks] have retrenched,” he added. “I have heard that many of these digitisation projects have been cut. It’s just back to being inward looking and focusing on staying solvent. Each of the banks has an innovation team or a digital lab, but they are kind of for show. When things get a bit rocky or serious, they get their funding cut and they go back to getting the basics right.”
Blomfield is hoping that Monzo, which was recently granted its banking licence with restrictions, will help shake up the industry when it officially launches in six months’ time.
The start-up bank, which was recently rebranded from Mondo, has no branches and encourages customers to manage their accounts on a smartphone. It aims to steal a march on the big banks by offering customers greater control over their money by alerting them when they are close to going overdrawn, allowing them to freeze their card at will, and automatically detecting when they have travelled abroad without having to call up a branch.
The challenger will start with about 150,000 customers when it begins rolling out current accounts in spring 2017. It aims to make money by charging customers a small fee for loaning them money when they go beyond their overdraft limit. But in the long term, Monzo will also look to drive up revenues by operating as a marketplace for financial products and taking referral fees.
Blomfield said its model will be a departure from a “broken” retail banking system where lenders look to snap up customers at a young age before cross-selling their own products for the next 20 years, even if they are not competitive. He said some of the attempts by regulators to improve competition in the industry have been “too mechanical”, focusing on switching customers to another bank which may have the same problems.
Instead, he wants the regulators to focus on offering a formal small bank licence, which would allow more start-up lenders to launch without facing the insurmountable challenge of raising tens of millions of pounds in finance.
“What would really help is if you could start a new bank and cap it at 50,000 customers and £10 million worth of deposits,” Blomfield said.
“Once you have reached that cap you have shown you have overcome the biggest problem, which is acquiring customers. Then you can go through the next hurdle, where you have a big bank licence with much more governance in place and risk management. So allowing lots of small banks to flourish to get the one or two real gems is a much better approach than putting you through a two-year wringer.”
Blomfield said the bank was eyeing a million customers by the end of 2017, but has no ambition to scale up the lender for an initial public offering.
“I think there is space here to build a company the size of Google or Facebook in personal finance. That is our aspiration,” he added.
However, he said the bank was facing some challenges triggered by Brexit, as it looks to secure £20m in venture capital funding before launch. He said some investors were driving a harder bargain because it was no longer clear whether challenger banks will have access to the bank passporting system if Britain leaves the single market.
“We are going out now and talking to investors who are asking questions about Britain’s future in the EU and no-one has a good answer. So does our banking licence now operate across 500 million people or 60 million people? No-one has the answer to that.”