They way we spend money is changing. Less people use hard monetary currency than ever before and more transactions happen digitally every day. Does this mean the end for money?
Current accounts aren’t ‘cool’. People don’t wait excitedly outside a Natwest branch to receive their cash ISA. In fact, quite the opposite: normally the only time you see a queue outside a bank is after a financial disaster.
Nevertheless, over 14,550 people are waiting in a digital line for their Monzo Bank card at the time of writing this. And everywhere you look Monzo’s eye-catching “Hot Coral” coloured cards have been appearing in people’s wallets. Seemingly every time someone whips one out to buy a coffee, Monzo gets another bank-convert.
‘It’s a very mission-driven app and bank,’ says Tom Blomfield, 31, co-founder and CEO of Monzo Bank. Monzo is a challenger bank for the smartphone generation. Rather than investing in physical branches, this bank just has an app that sends you notifications with emojis for each transaction, letting you know when you’ve spent too much on all those millennial coffees.
The overriding emotion people feel when they talk about money is anxiety, because it’s just numbers on a screen and they don’t really know how much money they have,’ Blomfield says, explaining the science behind the emojis. ‘What Monzo gives to those people is a feeling of visibility and control.’
But this isn’t really a tech start-up interested in artificial intelligence and fintech solutions. ‘Innovation is not the goal or purpose,’ says Blomfield. ‘We are pissed off with our banks and we would like a service that we can use everyday that doesn’t piss us off so much.
“The overriding emotion people feel when they talk about money is anxiety, because it’s just numbers on a screen and they don’t really know how much money they have.” — Tom Blomfield
‘There is this weird gap between the apps we use every day like Uber, WhatsApp and Spotify, which work really well, and the service we get from banks, which seems to exist just to make our lives harder.
‘Most of us hadn’t worked in banking before, so we were able to just take a naïve approach and say: “What do we as consumers find really annoying about our banks?” And it turns out banking isn’t really very complex,’ he adds, grinning.
Blomfield created a bank that’s fit for the smartphone way of life. Every day he and his team post videos from inside the office explaining candidly what their plans are for the future. ‘Five years ago they wouldn’t have let someone like me, a 31-year-old who had never worked in a bank before, start a bank. At that point Metro Bank was the first retail bank in 100 years and it was started by experienced career bankers with £100+ million in capital. We’ve managed to start with just £35 million in capital.’
‘Everyone wants to increase competition and the reason is pretty straightforward,’ Blomfield explains. ‘In 2008 the market was hugely concentrated in four banks and when two went bankrupt people said: “Shit, they are literally too big to fail”, so the taxpayer bailed out RBS for £43 billion. The solution is to have smaller banks so if one goes bankrupt they can allow it to fail. That’s the motivation: to decrease systemic risk across the financial industry.’ That’s exactly what Monzo’s done.
If you ask him to explain exactly how to start a bank, you’ll be there for a long time. Outside of the Bank of England there are few people who know as much as Blomfield does about the process — he literally helped to put together their handbook on the subject. ‘It is the hardest thing I have ever done by a very, very long way,’ he adds. ‘You start with Number 10 [Downing Street], then the Treasury at a policy level, and finally really get going at the Bank of England and the Financial Conduct Authority (FCA). There is clearly a load of complexity around regulation, security and reliability to make sure it always adds up to the right number and ensure bad guys can’t get in. It’s not easy.’
Two years on and Monzo has only just got its banking licence, allowing them to offer a current account. ‘A banking licence is like consent from the government to take people’s life savings and lend them to other people, at risk. If you invented it today it would be illegal because it sounds like a crazy idea,’ he adds, laughing. ‘So it’s right that it takes time and that there’s a lot of regulation around it.
‘But I spent a load of time in Silicon Valley,’ he adds, ‘and the idea that you would spend two years just building before you had any customer feedback is insane. How do you know you haven’t just been smoking crack all day and been totally deluded making a product that people don’t even want?’
It turns out Blomfield needn’t have worried. ‘We thought maybe we’d roll out 6000 copies of our prepaid cards because it wasn’t a full current account — it didn’t have a sort code and you couldn’t do direct debits. So we just assumed nobody would be interested. We are now at 165,000 cards,’ beams Blomfield, admitting he and his team were wrong.
Moreover, Blomfield and Monzo are showing no signs of slowing down. In the weeks since Blomfield quoted this number to me, Monzo Bank has surpassed 200,000 customers, who have collectively spent more than £250 million — myself included.
Now of course there is a new player on the field — or rather the biggest player the game has ever seen.
In a recent product launch in Cupertino, CA, Apple announced their un-tentative first steps into the world of financial services. It is probably the first time since the arrival of Instinet electronic trading terminals in 1967, that both banks and tech companies beaded up with a cold sweat of fear.
CEO Tim Cook even described Apple’s new numberless credit card as the most significant change to card payments in 50 years.
The Apple Card on the face of it is nothing new. It is a digital first credit card designed for use on mobile devices. Apple pay has been around for a number of years and has prioritised spending through third party apps and banking providers — such as Monzo.
However, what is new about Apple’s card is that it will be adding enhanced privacy, security and transparency to the way we currently use our credit cards.
In an age where money is far more regularly seen (and actually is) just numbers on a screen, it is hard to distinguish between our spending habits and privacy data. But Apple, who are desperate to prove that they aren’t just a front for big data, have promised they won’t be using the card to track payment data. As part of the deal the card’s banking partner, Goldman Sachs, have promised (or been legally compelled) not to sell or share any essential data collected with third parties for advertising purposes.
“The unique security and privacy architecture created for Apple Card means Apple doesn’t know where a customer shopped, what they bought or how much they paid,” said Apple.
“Every purchase [via Apple Pay] is secure because it is authorised with Face ID or Touch ID and a one-time unique dynamic security code.”
Whether you are an avowed American Express user (like me) or just not a fan of Apple products, this is an interesting offer — chiefly because nobody else in the industry so far has kicked up quite such a stink about offering this level of privacy so far.
Seeing how other market players react will be telling. If, for example, all the other old-bulky and heavily regulated banks can quickly announce similar offers of privacy, it will be clear that Apple aren’t offering anything special. If, however, the banks can’t match Apple’s privacy it will be hard to turn down their offer.
That said, not everyone is impressed by Apple’s offering.
Speaking to Yahoo! Finance’s Ethan Wolff-Mann, Ted Rossman, an analyst at CreditCards.com said, “People will sign up for it, but that will be mostly because they love Apple, not because this card is better than anything that already exists.”
Rossman added the Apple Card won’t actually be offering best rewards available on the market — even when using Apple Pay. As he points out, the U.S. Bank Altitude Reserve Visa Infinite card, gives three percent cash back on mobile wallet spending which is “really interesting,” he says, “a U.S. Bank offer[ing] better Apple Pay rewards than Apple”.
Regardless, Apple Pay has changed the way we spend. According to estimates by by Loup Ventures analyst Gene Munster, 31 percent of people have made a purchase using Apple’s digital wallet, up from 25 percent last year. Now an estimated 252 million people regularly make payments using Apple Pay.
It is safe to say that this number will only go up when Apple release their card. And, while this may not be the absolute death of cold, hard cash it will definitely mean that a lot more of it is going to end up in the already full digital ‘Bank of Apple’.
[su_divider top=”no” style=”dotted” size=”2″ margin=”5″] This article was written by Henry Tobias Jones and was published on Medium. Henry is a freelance journalist and editor in London, UK. Follow him on Twitter and Instagram here.