UK neobanks Monzo and Revolut are going global

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In Q1 2019 alone, challenger banks secured a total of $704.6 million in funding, and now two of the world’s largest neobanks are expanding to markets overseas:

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Monzo is launching in the US. UK-based Monzo is reportedly imminently launching in the US, according to Business Insider, which would mark the neobank’s first expansion outside of the UK. It’s welcomed 2 million UK customers so far and is eyeing a valuation of $2 billion for its next funding round. In the US, Monzo enters a $7 trillion financial services sector; however, succeeding in it will likely be a challenge. There are both federal and state laws in the US that Monzo will have to navigate and comply with. Additionally, unlike in the UK where the neobank holds its own banking license, Monzo partnered with Ohio-based Sutton Bank for its license; however, it’s aiming to get its own banking license in the future.
Revolut is expanding outside of Europe for the first time. Revolut, which is currently present in all European countries, is rolling out its services in Australia, according to TechCrunch. During its beta release in the country, Revolut will aim to onboard new users gradually, and already has 20,000 people on the waitlist. However, Revolut is only releasing a stripped version of its services in Australia for now: While users will be able to open an account, get a Revolut card, and send and receive money, they won’t be able to use the neobank’s cryptocurrency exchange, metal cards, or business accounts.

Here’s what it means: Consumer awareness of neobanks is still lacking, and these companies should be careful not to spread themselves too thin.

Neobanks still lack the awareness they need to become real threats to incumbents’ deposits. In the US, only 9% of consumers are keen to switch to an online bank with no branches, and in Australia the four largest banks have 85% of the market share, making it difficult for new entrants to establish themselves. Additionally, both countries scored below the global average on EY’s fintech adoption index, and Monzo has also struggled to attract its users’ deposits, with only 20% of its users having their salaries paid into the neobank.
And big expansion means more regulatory hurdles to overcome. Two neobanks, Revolut and N26, have already dipped into regulatory hot water, when concerns over security and customer service, respectively, arose. Expanding into new markets and onboarding more customers come with increased challenges in ensuring compliance. Hence, neobanks need to focus on meeting regulatory standards and fraud or money laundering protection to increase customer satisfaction and ensure future success.

The bigger picture: As neobanks expand into more markets, awareness will likely increase — which should start to worry incumbents.

While there’s still time for incumbents to catch up with neobanks, they need to act quickly — and it all depends on attractive fees and rates.Just last week, JPMorgan Chase’s digital challenger brand Finn shut down after the bank deemed it unsuccessful.

This failure has been linked to lack of focus on Finn, as well as the brand not having any appealing offers that would push people to switch banks. Neobanks, on the other hand, are known for their attractive fees, which is one of their key differentiators to incumbent offerings. Hence, if incumbents want to catch up with neobanks, they need to ensure that their digital projects don’t only have easy-to-navigate interfaces, but also include attractive offerings for users.

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