Upstart banks

Banking, seldom a byword for excitement, is getting interesting. In recent years, a throng of “neo-banks” has sprung up, operating through smartphone apps. Brands such as Monzo, with its distinctive coral-coloured cards, Revolut, Atom and Starling are in the vanguard.

Just 15 months after it started offering current accounts, Monzo has about a million, or one in seven of those being opened in the UK. That’s impressive. But given there are around 70m in total, there’s a good chance these achievements will have passed many people by. Monzo is furiously popular among 20- and 30-somethings who do everything from their phones and rarely set foot in a bank branch. But for their parents, it remains little-known.

In theory, that might not change. Monzo offers a limited (if growing) range of products and remains loss making; perhaps neo-banks will run out of money and disappear. Old hands in banking used to say that app-only start-ups would burn shareholders’ money by targeting the least profitable customers: young people.

But you don’t hear that much nowadays. Instead, the big names are launching their own “mobile-first” banks, notably RBS/NatWest, which has just set up an operation named Bó. Even if the upstarts disappear, we will all ultimately discover the joys of mobile-only banking.

Tight regulations on banks have delayed their e-commerce moment, but it is looking imminent now. The pain on UK high streets shows how tough it is for companies with costly physical stores to compete with upstarts that can live on thin air. In retail, lower overheads and modern technology have enabled slick online services to devastate established brands that failed to move with the times. Banks that aren’t already adapting should be very afraid.

Can the old banks evolve quickly enough? Perhaps, but it will be challenging. It can be easier to start from scratch with new technology than to transform an institution with hundreds of branches into a mobile-first operation.

Monzo does not have all the answers—some will still want to talk to bank staff, so there will remain more to banking than apps. But for all the caveats, the Day-Glo upstart and its like show us where retail banking is going.