Challenger U.K. Bank Mondo Asks Customers to Help Fund Openingby
Startup seeks to raise £1 million from crowd-funding platform
London venture group Passion Capital provides other £5 million
Mondo, a startup that hopes to open one of the U.K.’s first mobile-centric banks, will seek to raise 1 million pounds ($1.4 million) through fellow London-based fintech startup CrowdCube to supplement money raised from traditional venture capital firm backers, the company said Monday.
The business, awaiting approval for its banking license from British regulators, also said it has secured 5 million pounds from Passion Capital, a London-based firm that specializes in early round financing. Passion Capital had previously invested two million pounds in Mondo in June 2015.
Mondo’s chief executive, Tom Blomfield, who helped start high-tech direct debit processor GoCardless before forming Mondo in 2011, said the startup wanted to ensure that its potential customers could also share in any future success.
"We had offers for the remainder from other institutional investors," Blomfield said in a telephone interview Monday. "But this is a continuation of our philosophy that from day one we want to be super open and transparent with our customers and the only way we can do this is if we open it up to the public."
A few thousand people have been testing Mondo’s user interface and mobile platform using Mondo-branded prepaid debit cards. Many of these people had asked to become investors in the company, Blomfield said.
He also said that Mondo hopes to have its full banking license granted this year. At that point, Mondo will begin offering current accounts, electronic payments, direct debits, standing orders and loans.
U.K. retail banking has been a notoriously difficult market for newcomers to penetrate. The four largest retail banks -- Barclays Plc, HSBC Holdings Plc, Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc -- collectively control 77 percent of the U.K.’s personal checking accounts. Despite high levels of customer dissatisfaction showing up in surveys, few customers switch banks. The government has been encouraging new entrants, in part by simplifying and speeding up the process for applying to become a bank, and George Osborne, Chancellor of the Exchequer, has called on the Bank of England to grant as many as 15 new banking licenses in the next five years.
Mondo is one of a growing number of companies trying to disrupt retail banking in the U.K. Metro Bank, which now has 40 branches across greater London, received a banking license in 2010, at the time the first new retail bank in the U.K. in more than 100 years. Tandem, which like Mondo is aimed at providing mobile banking for younger digitally-savvy customers, received a banking license late last year. Virgin Money bought the former accounts and branches of Northern Rock, which was nationalized during the 2008 financial crisis. And Tesco has begun offering banking services through its retail shops. Despite the collection of challenger banks now operating in Britain, they still control only about 10 percent of the market for personal checking accounts.
Blomfield said he is optimistic that Mondo will be able to take share from the entrenched incumbents. "I think something has changed in the past four years and it is driven by the smartphone," he said. Younger consumers, he said, expect to be able to do everything -- including set up a bank account and make payments -- at the touch of a button.
He also said traditional banks have not capitalized on the power smartphones offer. For example, a customer landing in New York should not have their bank account cut off by an errant security protocol when they try to use their debit card. Instead, he said, a good banking app should know that they’ve landed in New York, send them a message welcoming them to the city and offer them the latest currency exchange rates.
Mondo’s fundraising round will start on March 1. Along with shares in the bank, investors will get a "Mondo Investor" branded prepaid MasterCard debit card and access to Mondo’s iPhone app, skipping a waiting list that Mondo says is currently 30,000 people long.