Forget the whizzy features of challenger banks and flashy colours of their cards. What if the real disruption in fintech is creating an ethical company that stays that way even when it scales — and even if the founder leaves.
That’s what Monzo’s co-founder and CEO Tom Blomfield hopes to achieve, but ensuring the fintech startup can focus on social responsibility in the years to come depends on profit, corporate structure, and resisting investor pressure – after all, even Google’s “don’t be evil” line in its company code of conduct was eventually dropped. Gazing out a glass-walled conference room over Finsbury Square, Blomfield explains that Monzo is looking for ways to embed social responsibility into the company permanently. “I have the best intentions today, but I might get hit by a bus or turn evil – I hope not – or the whole company might have a whole new set of people in 20 or 50 years,” he says.
Step back from the kerb for a moment, and from that rather dark image. Right now, Monzo is the picture of health, with plenty of room to develop ethical banking. The London-based fintech has more than two million users, is expanding into the US, and been valued at more than £2 billion after its latest round of funding. And while it wins headlines for features such as processing salary paydays early, at the core of many of Monzo’s tools is the idea of encouraging better habits through simple behavioural nudges, such as making it easy to invest in an ISA so more people sign up and or making it just a bit harder to get at your own savings.
Perhaps the most successful example has been the gambling block, which lets Monzo users ban themselves from using the card at bookies or online casinos. The block can be lifted, but takes 24 hours, a bit of friction that can help people avoid addictive behaviour. Blomfield, who will speak at the WIRED Smarter event in October, says he answers customer support calls once a month, and that’s how he knows it works for some, at least. “A lady called in saying she’d turned it off at 2am the night before, because she had the urge to gamble,” he says. She was contacting customer service the next day, asking the bank not to turn off the block after reconsidering in the morning. “That bit of positive friction is really powerful.”
The block is used by about 140,000 of Monzo’s two million user base, and fewer than five per cent of those who enable the block turn it off. “We’ve seen about a 70 per cent reduction in gambling behaviour from people who do turn it on,” he says, though he notes not everyone with the tool enabled necessarily have gambling problems. Other banks have also implemented the idea, including rival challenger bank Starling, with high street bank Barclays following their lead last year, and Lloyds, Santander and RBS adding the tool earlier this year.
Of course, gambling isn’t the only vice of modern life. What if we could use a similar system to ban ourselves from buying cigarettes, alcohol or fast food? That question was put to Blomfield in an interview with The Guardian: what if we could ban McDonalds? That’s actually already possible, for some beta-testing Monzo users, via a “merchant block”, which does the same as the gambling block but instead of banning a category of shops, it blocks a specific one. “That might be McDonalds or Pret,” Blomfield says. “We have a merchant block coming out soon, so if you’re trying to give up fast food you could block McDonalds – that’s your choice, we’re not here to do it for you. If you’re trying to cut down on certain kinds of behaviours you can do that… but you can still pay by cash.”
Taking the idea further is harder, and because of that is multiple years away. A lottery ticket, cigarettes or beer bought at Tesco couldn’t be blocked – all Monzo see is that you bought from the grocery chain, not what was in your basket. “It just comes through as groceries,” he says. Indeed, in the early days of Monzo, the team wanted to include a beer spending category in the app, but for this very reason it was too difficult to see if a pub night was food or alcohol, or a Tesco order was groceries or booze. (Blomfield notes that in those early days, the then-mostly-male team eager to track beer spending failed to include a health or home section — one reason he’s so keen on diversity with his staff.)
Retailers of course know exactly what you’ve bought, but that level-three category data, as it’s called, it isn’t normally shared with banks. If it were shared, it’d be possible to block a purchase at the till if you tried to buy a product you’d excluded yourself from. While that means sharing a lot of data with Monzo, alternatively a grocery store could have a binary switch that says certain products like alcohol or cigarettes are either included or not in a transaction; all Monzo would get is a yes or no to excluded products, rather than your entire shopping basket.
“Historically, you’ve had to trust your bank with your money, which is a big thing, but increasingly you have to trust you bank with your data,” he says. “I think there’s a great responsibility to keep it safe and secure.” He says Monzo doesn’t share data without specific permission – noting it isn’t legally allowed to, under GDPR – aside from credit checks.
Such proactive customer protections are certainly led by challenger banks, but these ideas are not entirely new to banking, as high-street banks already offer support for those suffering mental health issues. The Mental Health and Money Advice group works with banks, including Lloyds, to help develop ideas such as letting a trusted friend or family member oversee an account or add tools like savings pots. “This is not always easy, as some of the recommendations that we make go against normal banking practice, and more often than not are far from a one size fits all approach,” says Laura Peters, head of advice and information at Mental Health and Money Advice.
And that’s the problem for Blomfield and Monzo. He wants the gambling block to be one of many customer support tools, but ensuring such efforts continue at Monzo regardless of company leadership or investor pressure isn’t easy. “We are looking at ways to embed almost a constitution for a company – you can put it in your articles of association, but those are amendable,” he says.
It can be easier for startups to focus on ethical ideas such as sustainability than large multinational corporations, as they’re more flexible and smaller, says Lara Bianchi, assistant professor at the University of Nottingham’s business school. But holding onto those ideas is part of a wider systemic problem around value – it’s easier to quantify financial profit, but harder to measure social benefits. “At the moment, the business value on the market completely ignores the outcomes on people and the environment,” she says. “The market is not rewarding responsible performance.”
Indeed, most startups don’t lose sight of their ideals because of sudden bus accidents or dramatic pivots to the dark side, but the slow drip of investor pressure. Monzo remains privately held and doesn’t yet make a profit. But what happens to its ethical values if or when financial pressures start to bite, or if the company goes public and shareholders start pushing for quarterly profit growth?
“That’s why we’ve got shareholders who are in it for the very long term as opposed to private equity owners who are more focused on a two or three year funding cycle,” he says. And, it’s one reason why Blomfield has no intent to take Monzo public anytime soon – he says it’s at least four or five years off – as it turns up the pressure to deliver quarterly growth.
One idea Blomfield has spotted that appeals is a long-term stock market, where investors have to hold stock for multiple years, for example. “It has attractions, and encourages long-term stable thinking,” he says, pointing to the newly founded Long-Term Stock Exchange launched in San Francisco in May. Such ideas could have merit, as the intense focus on short-term results doesn’t help society nor financial outcomes, says Bianchi. “It doesn’t make sense,” she says, calling for pressure to be put on “both asset owners and fund managers to change the way they are rewarding the value of businesses on the market.”
Blomfield is also intrigued by the idea of different corporate entities that balance corporate responsibility alongside profits. One structure could be a B Corp, which requires the board to consider social and environmental impact alongside profit; Ben and Jerry’s is an example. “You do have these people leading the way who are trying to make a difference,” says Bianchi. “And you need more of this, it’s a way for corporations to get change from investors.”
Exactly what answer Monzo will go with hasn’t been decided, Blomfield says, but, of course, money does matter – Monzo is a bank, after all, and it doesn’t yet make a profit. Part of the problem faced by challenger banks is customers use them as spending cards, putting their salaries into traditional banks but using Monzo et al to track transactions. “If you put your salary into Monzo, or deposit at least £1,000 a month by bank transfer… you are nicely profitable for Monzo – you make about £35 a year in gross profit,” he says. “If you don’t put your salary in, and just use it as a spending card, we lose about £5 a year.”
The aim, over the next three years, is to diversify revenue. The aim is that roughly a third of the bank’s revenue will come from fees paid to Monzo when you use the card, another third from balance sheet lending such as overdrafts or loans, and another third from in-app sales such as upgrades to Monzo Plus, insurance and other ancillary products. “If we can do well on that, it gets us to profitability in two to three years.” If he sounds fairly relaxed, it’s because he is: Monzo has raised £300 million, and about £200 million is left, so there’s plenty of room to maneuver – and to keep funding socially positive products like the gambling block or helping to bank homeless people and refugees, as well as tackling debt problems with a self-exclusion loan blocker. Monzo has ideas around each of those, though whether the plans come to fruition remains to be seen, and Blomfield stresses none of the above are formally on the road map.
And without investors and their money, Monzo can’t build such socially responsible features. But maintaining that ethical focus in the face of investor pressure will need creative thinking. Perhaps the real disruption from Monzo won’t be a whizzy app, but building a startup that doesn’t need to sell out to scale up.
Monzo’s Tom Blomfield is speaking at WIRED Smarter at Kings Place in London on October 30, 2019. Find out more here
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