App-Only Banks Rise in Europe and Aim at Traditional Lenders

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Monzo plans to announce in coming weeks that it is raising about £100 million, at a valuation of more than £1 billion, according to two people familiar with the deal. The deal will make it one of the biggest start-ups in Europe, and Monzo will use the funds to help enter the United States as early as next year.

Revolut, another banking start-up, has more than 2.75 million customers across Europe, and it is adding 7,000 each day. After raising $250 million in April, it, too, wants to offer services in the United States.

Government policies there are more constraining, however. As a result, most fintech firms in the United States have focused on payment services like Square, and mobile money transfers like Venmo, though companies including Chime have entered partnerships with licensed lenders to offer banking accounts more like Monzo.

Still, investors in Europe have been won over. A record $1.2 billion has been pumped into banking start-ups globally so far this year, 70 percent of which has gone to European companies. That is more than double last year’s figure, and a tenfold increase on the amount invested in 2014, according to CB Insights, a market research firm.

Martin Mignot, a partner at Index Ventures and a member of Revolut’s board of directors, said TSB’s systems failure this year encapsulated the issues traditional banks face: costly retail space and slow, legacy computer systems. Revolut and others are more nimble than their older, larger competitors. “It’s a different mind-set,” he said.

Even some who once felt that app-based banks were a gimmick have been won over.

“I was a bit skeptical, but I’m definitely a convert,” said Sinead Loftus, a legal assistant in Ireland who joined Revolut after growing frustrated with her local bank’s fees. “I’ve convinced my mom to get one, I told all my co-workers to get one, I got my boss one.”

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