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Small but mighty challenger banks in Britain

Monzo has opened its API to Moneybox, enabling users to round up and invest the spare change from their everyday purchases. It reminds us of the growing number of British challenger banks and how they are changing the market.

Moneybox’s app helps customers invest their spare change in simple tracker funds by rounding up transactions. Moneybox interacts with over 1 million transactions every week. Open banking in the UK will encourage this practice to grow as young people become more educated and inspired to adopt financial innovations.

Monzo is a challenger bank in the UK which has achieved almost ‘cult’ status, suggests the Economist. The Open Banking environment in the UK encouraged the popular new kid on the block to open its API to new third party providers. Monzo only launched its current account service in 2017 and its banking licence since April.

The UK’s FCA and open banking model has provided a healthy ecosystem for challenger banks.

This ecosystem has allowed banks like Monzo to develop healthily and fast. Open banking came into force in the UK in January. It is Britain’s version of the PSD2. The new regulatory scheme allows customer data to be collected from several banks to target customers with relevant online financial services. As a result, multi-banking will probably rise.

  • Starling Bank is an app only bank. On Feb 13 they announced partnerships with 4 fintechs, showing a healthy, collaborative fintech ecosystem.
  • Metro Bank is taking a different approach, opening 55 brick and mortar branches. It is looking to turn a profit after its first year nonetheless.
  • N26, the German smartphone bank, will open in America in 2018. Monzo is also eyeing the US.
  • Revolut is like Monzo ‘near-cult.’ It is applying for a european banking licence.
  • TransferWise is another successful British fintech which was early on the scene.

While these challenger banks seem incredibly popular, more than 70% of current accounts are with only four banks: Barclays, HSBC, Lloyds Bank and the Royal Bank of Scotland, reported the Economist. Lloyds Bank is pursuing the digital angle also, setting aside GBP 3 billion over 3 years for digital development.

The upstarts chasing the incumbents remain small. Maybe some will merge like Starling to gain power in the industry. Regardless of their size next to the UK’s banking giants, confidence is high among the new comers.

By Grace Appleford, Research Analyst.

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