When weighing up the likely success of challenger banks in the U.K., two predominant schools of thought emerge.
Those who are bullish say that incumbent banks provide a lousy user experience, rip off customers, and innovate incredibly slowly — and therefore are ripe for the taking. Challenger banks just need to focus on what they do best and word of mouth-led switching will follow.
And then there are people who are less convinced who say that most consumers are happy enough with their current bank account and see no reason to switch. Besides, anything innovative a challenger does will be copied by incumbents eventually anyway.
But what if switching was only one means to customer acquisition? One argument I’ve sometimes made is that grabbing customers from a competing bank isn’t the only way to grow a challenger bank. Another customer segment is people who don’t have an existing current account, such as recent immigrants or young people who need to open their very first bank account.
In fact, incumbent banks have long targeted students, for example, with attractive student overdrafts or by setting up shop on university campuses. That’s how Barclays first won my business and why I still lazily bank with them today.
Enter challenger bank Monzo, which early on in its existence experimented with a Monzo ambassador program at a number of universities, with only limited success. Today the fintech is moving the funnel forward slightly by making its digital current account offering available to 16-18 year olds, opening up the bank to more than 1.5 million new young people.
Monzo says that 16- and 17-year-old customers can sign up for a Monzo bank account today by downloading the app. They’ll then receive a contactless debit card in the post the next working day. Certain banking features, such as overdrafts and spending on gambling, will be blocked until customers turn 18.
With more than 860,000 registered account holders and set to cross 1 million accounts in the next few months, Monzo has employed a number strategies to grow customers, with a heavy emphasis on viral features and a fresh, young brand.
These have included making friend-to-friend payments easy, either to people who already bank with the startup, or via the Monzo.me service, which gives users a payment link to share with friends.
The idea, as Monzo co-founder Tom Blomfield (picture above) often explains, is that unlike traditional incumbent banks that basically have zero network effects (perhaps beyond joint accounts), the challenger bank is designed to become more useful the more people who join it.
More recently, the challenger bank launched ‘Nearby Friends’, geolocation functionality that uses Bluetooth to let you see anyone else that uses Monzo who is nearby so that you can initiate a payment without needing their phone number to be in your contact book first.