Customers can use overdrafts from Monzo to buy shares in the bank – but the CEO says this isn’t encouraged.
The Times article focuses on the fact that customers can access overdrafts of up to £1,000 from the bank and that they could feasibly use that cash to invest in Monzo shares as part of the crowdfunding campaign. It notes that while companies are ordinarily banned from making loans to investors to buy their own shares, ‘the use of overdrafts does not appear to be covered by the rules’.
The piece also emphasises the illiquid nature of investing in private startups and the fact that Monzo remains loss-making.
Responding to the article, Blomfield published a blog post this morning entitled ‘Setting the record straight on our crowdfunding round’.
In it, Blomfield stresses that the bank doesn’t encourage people to borrow money from Monzo or anywhere else to invest in shares. He sees The Times piece as stemming from the fact that the bank offers overdrafts – and that it hasn’t disabled those overdrafts during its fundraising.
However, he also wrote that it isn’t the bank’s place to ‘judge or restrict’ how people spend their money, adding that disabling overdrafts seems ‘deeply unfair’ to those who may need them.
An extract from the post reads: “When our crowdfunding round opens next week, our customers can choose to invest in Monzo. And, as is the case with all their purchases, they can use their Monzo overdraft to do this, as well as the overdraft of any other bank accounts they have. But again, we wouldn’t encourage anyone to do so.”
The situation is somewhat reminiscent, though subtly different, to Revolut’s past crowdfunding rounds.
Revolut raised £4m via equity crowdfunding platform Seedrs in July 2017. At that time, it was offering loans through its app via a partnership with peer-to-peer lender Lending Works. As with Monzo today, it would have been possible at that time to borrow money through the app (if not from the company) to invest in Revolut’s shares.
Indeed, the only reason the present Monzo situation hasn’t occurred more often is the simple fact that digital banks have been relatively slow to launch loan products, but quicker to tap crowdfunding platforms for capital.
Revolut has plans to bring consumer lending in-house – a move away from its marketplace model. But after raising $250m in a round led by DST Global earlier this year, Revolut confirmed for AltFi that it will not stage any further crowdfunding campaigns.
Now in its sixth year, the AltFi London Summit returns on 18th March 2019 to 155 Bishopsgate. Last year proved to be a crucial turning point for the key players building the future of finance. Leading platforms launched oversubscribed IPOs, digital banks proliferated and mainstream financial institutions started their own disruptive propositions. With 2019 certain to be another landmark year, more questions will be asked by regulators with investor interest in disruption also poised for more rapid growth.