Digital challenger banks are gaining popularity in Britain. Monzo has signed up more than 400,000 customers since it was founded in 2015 and says it is increasing that total by 5% a week, reports Reuters.
The latest funding round is the bank’s biggest yet, almost four times the GBP 19.5 million raised in February and doubles its valuation to GBP 280 million. Monzo said it attracted strong interest from the US, including investments from venture capital firm Goodwater Capital and payments company Stripe.
However, Britain’s new breed of app-only banks does face challenges, chiefly how to translate popularity among users into profitability. Monzo reported a pretax loss of GBP 7.9 million pounds for the year to end-February and has said that each new user is costing it about GBP 50.
Digital banks such as Monzo have yet to expand into full-scale mortgage and consumer lending, the traditional way banks make money alongside charging fees for their services.
Monzo’s fundraising comes ahead of new regulation aimed at boosting competition in the UK banking sector by cracking open the dominance of the big players and helping smaller financial technology companies to vie for customers.
Monzo said it would use its fresh funding to hire more staff, improve its product and expand its user base, which now stands at 470,000.
Monzo, which has offered a coral-colored pre-paid card since October 2015, secured a full banking license in April and is currently in the process of rolling out current accounts. It also plans to build a “marketplace” on which other firms will be able to offer their services to users.
The funding campaign also raised capital from Crankstart Foundation -- a charitable investment vehicle run by Michael Moritz, the head of Sequoia Capital and follow-on investments from Passion Capital, Thrive Capital and Orange Digital Ventures, which backed Monzo in previous rounds.
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