Through a complete coincidence I had an interview scheduled with Jaidev Janardana, CEO of Zopa Bank, as well as lunch with a global head of payments at an incumbent bank on Monday this week — the very day Monzo released their annual report revealing that they had finally hit profitability.
Monzo gets a lot of love in the UK fintech community. With a fresh buzzy, experienced entrepreneur founder in the form of Tom Blomfield, hot coral cards, and customer-friendly features (the card freezing feature is so beneficial and simple it makes me angry incumbent banks didn’t think of it first), Monzo was the bank for the “cool kids”.
There is a path many other challenger banks in the UK fintech space have taken. Move from current accounts to credit products and business banking. Replace the charismatic founder with a more conventional CEO. And now, in this post-pandemic, higher interest rate environment where traditional forms of funding are scarcer than ever, profitability now seems to be prized over so-called “hockey stick growth”. (Listen to the latest episode of The Banker exchange — “A new era for fintech profitability” now.)
Despite hitting many of the above characteristics, Zopa Bank has had an interesting history. It came onto the scene, not as a hipster-friendly payment card, but from the ashes of a failed one. In 2005, the team behind unsuccessful internet banking company Egg came together to launch the world’s first peer-to-peer lender, which allows people to lend or borrow money from one another, via a platform, without going through a bank.
The reason Zopa started with lending is “it is how you make money”, says Janardana. “We were very focused, even before people started talking about profitability, about creating a business that was financially sustainable and focusing on lending and savings was the best way to achieve that.” Zopa gained a banking licence in 2020 and ceased its P2P business in 2021 to focus solely on the banking activities.
During our discussion where we talked about Zopa’s move into offering current accounts, which is being tested internally and is expected to be launched to the public at the end of this year, one nugget during our conversation stood out to me. (No, not on whether Zopa plans on an initial public offering any time soon.)
Janardana mentioned that many customers today receive their salaries in an incumbent bank — such as HSBC or Barclays — but they use the app from a challenger bank or a fintech company for other activities such as everyday spending. (I’m one of these customers.)
I started to think whether, as we enter an age when the newer, digital-first banks are entering profitability, are we paying enough attention to this type of multi-bank experience?
Much is made of the creepy concept of owning the customer, and many organisations — banking or not — are looking to dominate market share by offering a better, shinier, more attractive consumer product. However, my global head of payments lunch date commented that “15 years ago” most fintech companies were predicting an end to traditional banks, a total market disruption. Banks, for the most part, are still around.
Are incumbent banks factoring in for this customer-led, multi-bank experience? As open banking and finance advance around the globe, and we all wait for the third iteration of the Payments Services Directive to arrive, that smorgasbord of banking services may be a reality sooner than we think.
I wrote ages ago, taking aim at the overused quote from Bill Gates, where he supposedly said, in 1994, “Banking is necessary, but banks are not”. I believe in the future we will need banks. But despite all the protestations to the contrary that fintech entrants and incumbent banks alike are led by the customers, no one really understands or is prepared for how people will use those banks and banking services going forward.
