I recently went on holiday in Europe, accompanied by five other people under the age of thirty. Every single one of them carried with them either a Monzo or Revolut card. It was the first time in nearly four years of covering alternative finance and fintech for AltFi.com that I felt able to discuss the subject of my scribblings in terms other than niche.
The leading app banks are becoming increasingly well-known, especially among younger people. Let’s face it: Monzo and Revolut are winning at the moment. Both firms tout hundreds of thousands of sign-ups, despite only having been around for a few short years. And both have recently closed significant investment rounds: £19.5m for Monzo, c. £51m for Revolut (plus equity crowdfunding top-ups of £2.5m and £4m respectively).
It’s a haggard cliché (forgive me), but I’m now going to move on to discuss the disrupting of these disruptors.
I suspect most users of Monzo, have kept their original bank account(s) intact – at least for the time being. But Monzo, Revolut and others like them are not built to be complementary: they’re built to replace.
There is, however, a new wave of fintech challengers coming through which are explicitly built to coexist with traditional bank accounts. These apps and websites are not full-blown banks – they’re better described as banking wrappers. They sit atop existing bank accounts and credit cards with the purpose of consolidating and optimising the user experience. Hence the term: “layered banking”.
Carrying the flag in this emergent sub-sector of digital banking are such firms as Tandem, Yolt and Pariti. All three of them fit with the “banking wrapper/layered banking” description. Tandem is a bit of an outlier among the three in that it’s an app and card offering – and in that it had planned to offer its own savings products.
But all three generate actionable insights by synching up with a user’s existing banking providers. They then analyse regular incomings and outgoings to produce spending analytics (e.g. how much can you afford to spend this month?), recommended product switches (between, say, energy providers), and so on.
Phase two of Open Banking will level the playing field for banking challengers by giving them access to vast swathes of current account data that have hitherto been the preserve of the big banks. It will, by all accounts, be a “game-changer” for fintech.
"The rise of PSD2 and Open Banking will trigger a new generation of apps which will evolve into money platforms, and provide a starting place for users to manage a range of money related activities," said Frank Jan Risseeuw, CEO of Yolt, which is owned by ING.
"Open Banking will be implemented across traditional banks and new start-up banks alike," he continued. "The real question will be what the general public prefers when it comes to managing their money. At Yolt we have got a head-start by harnessing the power of Open Banking to refine and validate our proposition before the regulation comes into effect."
The conversations I’ve had in recent months would suggest that firms like Yolt do not simply intend to sit above traditional banking models; they also intend to encompass the Monzos of the world. Risseeuw seems to be alluding to this above, in his assertion that Open Banking will impact both mainstream and start-up banks alike.
My sense is that “layered banking” upstarts are pinning their hopes to the belief that clunky, old-school current accounts (of the kind offered by Barclays, Lloyds, HSBC, RBS, etc.) are not going away anytime soon. Meanwhile they’re also hoping to enmesh the full-service banking challengers like Monzo within their webs.
What “layered banking” fintechs have on their side is a degree of flexibility in an uncertain future – but the risk is that Monzo and friends make them redundant. Risseeuw, however, doesn’t seem worried.
“The most successful platforms in other industries all work as independent middlemen, without holding the real assets such as hotels and cars,” he said. “Instead, they take users’ needs as their starting point, partnering with suppliers to meet them.”