The banking sector brought the economy to a standstill in 2008. Its annual IT spend is collossal. Yet what has all its wealth and massive investment in computing ever done for the average consumer? Tom Blomfield, CEO of startup challenger bank Mondo, recalls going into his local savings bank as a child and watching the clerk write his deposit into a passbook that recorded each deposit and withdrawal.
The sum total of innovation in banking has been to take that list of credits and debits and see it on a screen — but still three or four days out of date.
It doesn't have to be this way, he believes, which is what has driven him to found the cloud-native startup to launch a new kind of bank.
I use Google maps. I use Uber. I use Amazon. I use WhatsApp. I use Slack. All of these things live on my home screen and make my life better, and it feels like I'm living in the future, and that feeling is amazing.
I can't even remember the last time I opened my bank app. How is it possible, that all of these amazing services can exist, and my bank can't tell me what my balance is, up-to-date?
[I feel] real anger that ... 60 million people in this country are being forced to use such a crap service. It should be so much better.
That impatience is widely shared, most notably by the hundreds of UK investors that rushed to crowdfund a £1 million ($1.35m) round in a record-setting 96 seconds in March. But with £8 million ($11m) under its belt so far, the company, which is being forced to change its name after a trademark challenge, will still have to raise another £15-20 million ($20-27m) before British regulators grant it a full banking license.
Mobile banking experience
The appeal to customers is based on offering a much more immediate banking experience through the mobile app. Blomfield demonstrates integrations to Transport for London and to Uber, in which the bank's app can show information about current journeys and costs. When you pay at the supermarket, it automatically registers your loyalty card. When you arrive in a different country, the mobile app is instantly aware and shows you the current exchange rate for that country. Other capabilities might include splitting bills with friends, filing business expenses or monitoring energy spend for possible savings, says Blomfield.
I think a lot of the other challenger [banks] are using the mobile phone as a cheaper way to sell mortgages. Taking a pretty standard, off-the-shelf piece of core banking software, and distributing by the mobile phone because it's cheaper than sending letters, and go and try to sell mortgages and a slightly lower interest rate.
I think what we're trying to do is take a generational leap forward in terms of the product and functionality. All of those painful things you have to do in your life with your money, that you wish you didn't have to think about, which kind of make them just work.
The company currently offers a pre-paid payment card and has 180,000 people on its waiting list for when it starts to offer full banking services. Blomfield expects to get a restricted license soon and is targetting Q1 next year to launch with a full banking license.
Banking in the cloud
The startup's progress has been helped by the regulator's support for banks to be able to use cloud computing, issued in draft last November and finalized just a few days ago.
Although other challenger banks have followed the guidance and are already using the cloud for core banking services, Mondo is on track to be the first to run its own native core banking in the cloud, using Amazon Web Services. That brings significant advantages, Blomfield believes.
A lot of people have taken existing core banking software and deployed it to the cloud. I think we probably will be the first to have written it from scratch and deployed it to the cloud.
Taking a monolithic software package and sticking it on Amazon, you lose a lot of the benefits of containerization and enormous scale of infrastructure.
Established banks carry too much historic complexity to be able to start with a clean sheet, compounded by a lack of technology savvy after the outsourcing craze of the 1990s, he believes.
You've got the combination of really, really old systems that no one understands anymore, and a total lack of technical capability in the banks, and really complex operations.
You could get a computer science undergrad to design you a better ledger than the bank's using, but the banks don't do just that ... [their] complexity is mind-boggling. Whereas we have one current account, delivered by mobile phone, which lists your credits and debits and sums to a balance. Which is trivial, frankly.
Of course there's also all the security, risk management, availability, and other requirements that the regulator imposes. A lot of what Mondo has to do is simply built into the Amazon infrastructure, says Blomfield. The rest comes from the startup's own processes and management, which includes people with banking industry experience as well as technologists who previously worked on the Hailo taxi booking app.
Scaling to millions
The business plan is to make money from offering overdrafts to its customers, says Blomfield.
We basically take deposits, and you lend the deposit out to the people that need to borrow. It's short term overdrafts, charged very competitively.
The key, really, is our relative costs. The existing high street banks are spending billions of pounds a year on their IT infrastructure. We spend a million, maybe? It's two or three orders of magnitude difference. We also have wealthier customers, which helps.
Later on, the gameplan is based on scaling up to millions of customers and using that volume to strike deals based on the bank's command of its data.
What we're building is fundamentally a data platform. This sort of balance-sheet lending is crucial to our business in the short to medium term. The long term for us is a data platform.
I think you'll find this is an area where the big platform players haven't made inroads yet. I think there's huge value that can be created for the consumer.
We can make your foreign exchange free. Use this anywhere in the world, at Mastercard interbank rates, and there are no other fees or charges. That's huge value we've generated for the customer.
We can help you budget and save. That data platform works worldwide, and I think the integrations tend to get better with scale. At a million customers we can go and strike certain deals with retailers. At 100 million customers we can strike better deals with retailers on behalf of our customers. It's a business that really benefits from scale, in a way that balance-sheet lending doesn't necessarily.
This is strong example of what I mean by frictionless enterprise — using the technology to completely rethink how to deliver better outcomes by connecting what previously couldn't be joined up. There's a ways to go before this venture proves itself, but I wish them well.