Monzo, the digital bank, said it would enter the race to win a chunk of £775m in funding that has been set aside to boost competition in the UK business banking market.
The online-only lender has so far focused on consumer banking and says about 800,000 active customers use its digital current account, which has become known for its coral-pink debit card. However, Tom Blomfield, chief executive, said Monzo planned to launch a product for small and medium-sized companies that had been “mistreated” by larger lenders.
Monzo said existing business account offerings from traditional banks were “riddled with confusing fees” and “hard to access without a good credit history”.
Mr Blomfield said Monzo hoped to launch a business account that integrated with payroll systems and accounting software, which would primarily be aimed at digital businesses that did not process large amounts of cash. Monzo would be less likely to refuse to open an account for a business without a good credit history, he added. “Any business that is newly incorporated has no credit history,” said Mr Blomfield, adding that banks that refused to open accounts for this reason were “acting as a brake on entrepreneurs”.
The move by Monzo comes as Royal Bank of Scotland and Lloyds deal with the fallout from historic claims that they ripped off small business customers during the financial crisis. Monzo said it hoped to bring its business account offering to market more quickly by winning grants from a £775m pot of cash that has been hived off from RBS. The “remedies package” is being made available by RBS to satisfy an EU condition of the lender’s bailout during the financial crisis and is designed to boost competition in business banking.
Recommended At Home with the Monzo co-founder banks on cool credentials RBS had originally planned to hive off hundreds of its branches into a standalone challenger bank called Williams & Glyn, although the plan proved unworkable due to concerns over the new lender’s sustainability.
Monzo intends to apply for a grant of up to £50m from the remedies package well as a share of funds that have been set aside to entice customers to switch from existing providers. However, it is not clear that Monzo would be eligible for the switching funds, given that they are intended for banks that already have a business account offering and the deadline for applications is the end of this month.
Mr Blomfield said Monzo intended to launch its business product next year if it won a grant. “The funding would certainly accelerate the launch. It is something we were planning to do over the next several years, but this would let us address it sooner.” It is expected to face stiff competition for the grants from other contenders, including Nationwide, Santander, CYBG, MetroBank and Starling.
Last month, Monzo raised £85m in a fundraising that valued the digital bank at £1bn, which it said it would use to launch new products and double its headcount. London-based fintechs such as Monzo and Revolut have raised hundreds of millions of pounds from investors with a promise to disrupt traditional banking, although they have yet to become profitable.