App-only bank Monzo raised £19.5 million at a £65 million valuation and is crowdfunding again

Tom Blomfield, CEO, Monzo.Monzo

LONDON — App-only bank Monzo is raising £22 million to launch its current account in the UK.

Monzo has closed £19.5 million in Series B funding — the second injection of institutional money — and is planning to raise a further £2.5 million through crowdfunding.

The £19.5 million has been raised from New York-based Thrive Capital, with participation from longtime Monzo backers Passion Capital, and Orange Digital Ventures, the VC arm of telecoms network Orange. The funding values the two-year-old business at £65 million pre-money.

Co-CEO and founder Tom Blomfield told Business Insider: “I’ve known Thrive for a few years actually. I worked in New York and got to know Myles and Jared, who’s one of the partners there, pretty well. I chatted with them, probably three or four years ago, about starting a bank.

“I think their investment in Oscar Health, it’s a really good parallel. Health insurance in the US is very similar — high cap requirement, high regulation, horrific user experience. A lot of investors were scared off by the regulation and capital requirements. Thrive just saw it as a space they understood very deeply.”

Monzo is returning to Crowdcube for its £2.5 million crowdfunding campaign, opening pre-registrations for potential investors from February 28 to March 14. Investors will then be given the opportunity to invest through a random ballot. Last year investor demand was so great that Monzo — then known as Mondo — raised £1 million in just 96 seconds.

Blomfield told BI that the total £22 million is “the big chunk of cash needed to launch the bank.” Monzo gained its banking licence last August and Blomfield told BI last year that the startup would have to raise at least £15 million to get certain operating restrictions lifted.

Monzo employs a team of 80 people in London that Blomfield expects to rise to over 100 by the end of the year. While some of the money raised will satisfy banking capital requirements, Blomfield says “most of it is for operating expenses.”

Monzo’s app and pre-paid card.Monzo

The startup is currently trialling current accounts and overdrafts internally and plans to begin transferring its existing customers — over 100,000 who are on pre-paid cards — to current accounts shortly. New customers should be able to sign up for them by the summer.

BI has highlighted before that the so-called “neobank” market — apps that provide banking or near-banking services — is crowded in Britain, with not much revenue generation so far.

Blomfield told BI: “I think in the short to medium-term, unsecured personal lending will be the majority of our revenue.”

Monzo recently joined the UK’s Faster Payments network and the MasterCard network directly, which Blomfield says “gives us ultra-low-cost access to these payment schemes, which is super important from a business model perspective.”

But he added: “I don’t think you’ll be able to build a multi-billion-pound business on overdraft lending. The long term vision has always been a marketplace where maybe we won’t offer you a Monzo mortgage but Atom will and they’ll do it through our platform. We become a kind of aggregating hub for all of the different money problems you have, whether that’s savings accounts, or ISAs, or mortgages. We’re starting to explore that over the next year or so but that definitely is the long term vision.”

Rival app-only bank Atom is close to announcing a fresh round of funding close to £100 million and Tandem Bank announced a £35 million raise in December. Asked if Monzo was daunted by his rivals’ war chests, Blomfield said: “I think we’re playing a different game. I think a lot of the UK banks, if we’re honest, are low-cost savings and loan businesses. We’re trying to provide a day-to-day control centre for your money and many of the other banks in the UK are just trying to offer you cheaper mortgages.

“The people I admire in this space are N26 in Germany and Nubank in Brazil. Those are the kind of models we’re looking at and admiring.”

By the time Monzo’s latest crowdfunding campaign completes, the startup will have raised £35 million since launching in February 2015.