The UK’s banking sector, largely like the world’s, has largely been unchallenged for the last few hundred years. The likes of HSBC, Lloyds, Natwest and Barclays have held a tight grip on the nation’s finances with their gigantic stash of assets making it a near impossible market to enter for new banks. Even those banks that do try to challenge generally come from another country and bring an already established reputation.
The idea of a startup disrupting the UK’s banking industry was, for a long time, pretty crazy. But after years of low confidence due to bonus scandals and the emergence of online banking bringing increased cases of bank fraud, change should maybe not be that big of a surprise.
The change came in abundance with the emergence of app-based banks swapping physical stores for digital presence. One of the best exponents of this strategy was Monzo Bank, but how has a 9-year-old startup wrestled the custom of 14% of the UK adult population in a space dominated by long-established behemoths?
Monzo is a London-based, digital bank that launched in 2015. Despite attempting to compete in one of the most long-standing, impenetrable industries, in less than 10 years Monzo has gone from launch to a $5bn valuation.
Unlike traditional banks, Monzo doesn’t have branches or physical stores. According to the Monzo website, the funds saved from not operating physical stores can be invested in other areas such as customer service and new features.
The absence of a physical presence is also in line with the changing behaviours of a more digital-savvy world. While digitality was once used to attract a younger audience, nothing highlights the changing nature of the world more than the fact that 70% of 65-69-year-olds use online banking in some way.
Therefore, it would seem that Monzo and other online-only banks have disrupted the banking sector by simply providing what consumers wanted: less physical and more digital.
It can be hard to innovate in an industry as traditional and established as banking. For many years, most probably thought it couldn’t be done. But Monzo, and similar apps, have proved that innovation doesn’t always have to be through the product or service itself.
For example, Monzo allows their users to carry out many of the same tasks as traditional banks: depositing funds, paying bills and sending money to contacts to name a few. So why were they able to disrupt such a settled industry so quickly? It would appear that the answer lies in user experience.
Monzo identified that whilst traditional banks had taken their offering online, they hadn’t necessarily done so in the most user-friendly way. And while room for innovation in banking was limited, innovation in online banking was somewhat untouched.
An interesting feature available to Monzo users is the ability to send money without having the bank details of the person receiving the funds. Monzo allows users to simply send a link which can be followed to claim the amount determined by the sender.
While it may not seem revolutionary, Monzo brings age-old piggy banks to their digital world. Monzo pots allow users to keep money in separate locations without opening up new separate accounts.
Users can store money in regular pots or savings pots. Regular pots are used to separate money used for everyday expenditure. For instance, a user may put a set amount into a ‘phone bill’ pot on the 1st of every month, and then do the same for rent, petrol and electricity. This helps to ensure that your main balance never goes below the level you need to pay for essentials.
Savings pots work the same but earn interest depending on how much money is in the pot.
Younger generations love personalisation. Monzo taps into this by allowing users to customise their Monzo app. This includes being able to customise their Monzo dashboard by choosing which features and information are visible.
As an app-based digital bank, Monzo generally does a better job when it comes to creating user interfaces. Young savers seem particularly fond of the clean transaction feed which does a nice job of simplifying a user’s income and outgoings through colour and imagery.
A common feature of digital banks is the ability to round payments up and add the excess into a savings pot, a bit like putting your loose change into a piggy bank. For instance, if you spend £10.69 on a t-shirt, Monzo round-ups give the option to round this payment up to £11 with the extra 31p going into your savings. This helps users save money without even realising.
The new generation of banks aren’t just great at showing us how much money we’ve got, but where and how we’ve spent it. Monzo Trends provides users with detailed insights into their spending habits and is made up of balance, spending and targets.
Targets give users a budgeting tool where they can set monthly spending targets and even set targets for individual categories.
Monzo isn’t the only digital bank that has successfully disrupted the UK’s banking scene. This new generation of banking has been brought about by a surge of new banks operating without a physical existence.
Their disruption to the UK’s banking industry brings new ways to compete too. Where the big four may compete on interest rates and overdraft limits, this new group of banks appeal to a younger audience through brand, marketing and app usability.
Founded a year earlier than Monzo, Starling can be considered Monzo’s longest-standing competitor. It’s also one of the most similar online banks to Monzo in terms of its offerings and features.
Starling, like Monzo, focuses on money-saving, easy-to-use features such as roundups and pots, which they term Starling Spaces.
Since being founded in 2015, Revolut has gone on to become Europe’s most popular online bank. The UK-based bank is particularly popular with travellers due to its abroad-friendly features.
Revolut allows users to convert their balance into 36 different currencies meaning users can go about their business without having to constantly work out exchange rates making it easier to manage your money in foreign countries. Revolut also offers free ATM withdrawals abroad up to a certain limit.
It’s worth noting that Revolut has been hit by a wave of scams recently, leaving many customers looking for Revolut scam refunds.
Chase Bank is owned by American investment bank, J.P. Morgan but launched their online-only bank in the UK as recently as 2021.
Their instant success is largely due to their generous cashback scheme which has attracted customers young and old. Chase offered its customers 1% cashback which has now been capped at £15 a month.
In the UK, over a third of the population now uses a digital-only bank, a statistic that highlights just how much consumers demand, and value, efficient digital services in 2024. It may also represent the changing sentiment towards traditional banks which most would expect to now fight back by improving their online offerings. It remains to be seen whether trust has now been placed in digital-native banks for good, or if long-established traditional banks can wrestle back their lost market share.
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