For Fred, a 30-year-old strategy consultant, one of the first challenges of moving to New York from London was getting used to his new Chase banking app. “Wiring people cash is clunky and you have to pay fees,” he says. “It’s a bit of a nightmare.”
Revolut and Monzo, the two leading UK digital banks, think they can help fix this. Since they burst on to the UK scene a decade ago, they have attracted millions of customers with user-friendly mobile apps and lower fees for things like overseas transactions and cross-border transfers.
The share of UK adults using neobanks jumped from 16 per cent in 2018 to 50 per cent last year, according to data provider RFI global. Now the London homegrowns are setting their sights on the much larger US market, which has $24tn of assets.
Revolut’s US chief executive Siddhartha Jajodia says the country is “critical” for its ambition to be a “global bank.” Monzo chief executive TS Anil agrees. “Our mission is about reaching millions and millions more customers and the US is the largest market in the world,” he says.
The push comes as fintechs are once again attracting investment following a funding drought caused by rising interest rates. Monzo raised $430mn from investors last year, while a series of secondary deals made Revolut Europe’s most valuable start-up with a $45bn valuation. Both companies are now turning profits.
“You can’t really be the number one player, if you’re not number one in the US,” says Martin Mignot, a partner in European venture capital firm and early Revolut investor Index Ventures. “It’s the largest consumer market in the world.”
International expansion is also a business imperative for these start-ups as the rate of UK customer acquisition is slowing after a decade of hypergrowth.
Cracking the US market is no easy feat, however. Navigating the regulatory landscape is a complex process that often requires approval from more than one entity.
America is also hyper-competitive in retail banking, with over 3,000 institutions offering a myriad customer rewards and loyalty deals. Critics say the sleek apps developed by European fintechs may not be enough to lure customers away from their existing banks.
“Most start-ups that come [to the US] fail to provide a compelling value proposition,” says Accenture global banking lead Mike Abbott. “They think a better mobile app is the answer but no one cares about their mobile app.”
The push across the Atlantic comes as neobanks are looking to enter a new phase of growth.
While they have started to generate profits, they do not yet lend at scale and are rarely used as primary salary-receiving accounts. Their lower deposit bases and small-scale lending have left them over-reliant on revenue from sources such as payment fees and, in a competitive market such as the UK, limit their growth.
“For . . . banks that have a single product, the only way to really scale and bring the valuation higher is by getting a bigger population pool,” says Pierre Legrand, a fintech analyst at consultancy Alvarez & Marsal. “If you live here in the UK, you’re not gonna get that very easily because of the sheer numbers and the saturation in the market.”
Another attractive feature of the US market is that interchange fees — levied by card networks such as Visa and Mastercard on behalf of banks — are higher in the US than in the EU and the UK, where they are capped. This means that for the same number of payments, a US customer is more profitable.
Fintech companies listing on the Nasdaq or NYSE typically secure a higher valuation than those on European stock markets, and US exposure could help smooth the path to a float.
“If you’re IPOing in New York, having a US business can’t hurt from a brand equity perspective,” says Rupak Ghose, former financials research analyst at Credit Suisse. “It’s a big thing — not everything, but you’re looking at growth, quality of business and a little bit of brand equity.”
Revolut is expected to go public within the next couple of years, and chief executive Nik Storonsky has already indicated he would prefer the company to float in the US.
Monzo’s chief executive Anil is also leaning towards the US, though the group’s board is sceptical about an overseas listing given that the bulk of the company’s customer base is in the UK. Expansion in the US might help alter that view.
But the market principles that helped neobanks grow in Europe do not always apply in the US. Fintechs attracted UK customers by capitalising on the faster payment scheme — an instant interbank payment system introduced in 2008 that enabled customers to send money to each other from their mobile apps within seconds.
The US only introduced real-time interbank payments in 2017, and adoption has been slow as US regulators do not mandate their use. For many consumers, payments between bank accounts can still take several business days to process. Payments by cheque remain commonplace.
Other fintech solutions have emerged. Zelle allows account-to-account payments by connecting larger banks, while Venmo and PayPal offer similar services on a mobile app. But these are add-ons to banking services rather than fully-fledged banks.
This fragmentation is why neobanks, which combine current and savings accounts with payment, investing and budgeting tools on one single app, believe they have room to grow in the US.
“Monzo here in the UK helps people budget, helps people spend and save and invest and do a whole bunch of things in a single place with real tools for money management,” says Anil. “That product doesn’t exist in the US [even though] most American customers have high anxiety about their money.”
Remittances is one potential gateway service that British companies could exploit. Revolut and London-listed Wise have gained market share by helping customers send money across borders more quickly and cheaply than traditional banks.
Offering cross-border or multicurrency services to Americans, particularly immigrants sending money home to their families, might be a way to enter the market and capitalise on their existing expertise.
“It’s a natural market for us to go after,” says Revolut’s Jajodia.
UK fintechs setting up shop in the US face a daunting regulatory approval process, whether they obtain their own banking charter, buy a bank that is already approved, or partner with one.
British regulators granted 60 licences between 2014 and 2023 in a deliberate attempt to foster competition in a market dominated by four large institutions.
The US has a far more conservative approach. Starting a bank in the US is a “long organisation process that could take a year or more, and permission from at least two regulatory authorities”, says the Federal Reserve.
Aspiring lenders must apply for either a federal or state banking charter, then secure deposit insurance from the Federal Deposit Insurance Corporation (FDIC). They must also show that they have enough capital to support their operations and risk profiles.
Monzo aborted its first US expansion attempt, after regulators warned the company it was unlikely to receive a banking licence in 2021, while for Revolut, getting a US licence was a non-starter until it secured one in the UK.
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Its application with UK regulators stalled for more than three years after a series of setbacks including a qualified audit and the departure of several key executives.
Companies unable to secure US licences have to rely on a network of smaller “partner banks” that can provide underlying services such as FDIC-insured accounts, card issuance and credit.
Harsh Sinha, chief technology officer & US president at London-listed cross-border payment group Wise, says operating under US regulation presents “unique complexities”.
“Unlike the more unified regulatory frameworks in Europe, operating in the US requires navigating state-by-state money transmission licences alongside federal regulations,” he says. “On top of that is a lack of direct access to US payments infrastructure for non-banks.”
Since being knocked back by US regulators, Monzo has raised fresh cash from Alphabet’s fund CapitalG, which it is using to power its second attempt. Having previously intended to target customers in Los Angeles, New York and San Francisco directly, it is now planning to work with a “partner bank” to piggyback on their regulatory approval.
But joining forces with external entities is a more expensive strategy that adds a layer of compliance risk. The banking partnership model has faced increased scrutiny after the collapse of fintech intermediary Synapse. Wise changed its partner bank after a data breach at Evolve Bank & Trust.
Banks that provide services to fintechs can find themselves attracting greater attention from supervisors; Goldman Sachs received a rebuke from the Federal Reserve over its relationship with risky fintechs.
Even those that manage to navigate the complex web of regulation are not guaranteed to win customers, experts say. Neobanks cannot rely on copying and pasting the strategies that made them successful in Europe, where they burst on to the scene at a time of low digital adoption in the industry generally.
Since then, legacy banks have improved their own digital user experience game, a trend accelerated further during the Covid-19 pandemic. Some have cut fees for things like overseas card transactions and ATM withdrawals.
“The regulatory question is an excuse,” says Abbott at Accenture, who firmly believes European fintechs are doomed to fail in the “overbanked” US market unless they go head to head with giants like JPMorgan Chase and Bank of America on credit card offers — which would be hugely expensive.
“A better experience doesn’t cut it in the US,” he adds, pointing to Accenture data showing that US customers already score their banking app at 4.8 points out of 5, compared with 4.7 in the UK. “Everyone’s good.”
Beyond the giant banks, American consumers also have a wide range of alternative places to put their money, from regional banks to savings banks and credit unions. “Your options are literally infinitely higher than every other market in the world already,” Abbott says.
Homegrown US fintechs are also gaining popularity and increasingly saturating the market. As well as Venmo and Zelle, there is Jack Dorsey’s Cash App and Chime, backed by SoftBank and Sequoia. Both offer a range of zero-fee banking services, including peer-to-peer payments, debit and credit cards, and savings accounts. Robinhood has become a prominent platform for retail investors seeking to put their money in stocks or crypto.
For Anil, the Monzo chief executive, this fragmentation is the big opportunity for companies like his. “[US customers’] needs are being met in disparate places,” he says. “They don’t see a full view and can’t make great choices across everything and can’t actually budget effectively.”
But while a new player could theoretically aggregate all these services and emerge as a market winner, perhaps the hardest challenge for new entrants into retail banking is credit card deals.
“You cannot really compete without credit cards,” acknowledges Revolut chief executive Storonsky. But the prevalent points-based system of loyalty in the US means new entrants must offer significant value and perks in order to get people to switch over.
Such perks can be expensive for the provider. The premium Chase Sapphire Reserve card launched by JPMorgan Chase in 2016 initially cost the company $300mn. Two years later, it was forced to write down another $330mn as more customers than anticipated took advantage of credit card offers.
“The US is all about the freebies,” says Ghose. Credit card fees might be higher, “but you get United Airlines lounge access and loyalty this and loyalty that.”
The fintechs are still hopeful that they can find creative ways to attract customers by using Silicon Valley’s mantra of solving problems from scratch by ditching conventional wisdom and institutional biases.
“I can’t help but recall that in 2015, UK banking customers were asked if they thought they needed a new bank or app,” says Eileen Burbidge, a non-executive at Monzo and a former Treasury envoy for fintech. “Very few would have thought so at the time.”
“Innovative companies are always predicated on the principle that consumers don’t yet realise what good can look like,” she adds.
Revolut is hopeful that it can offer a unique approach to perks. In the UK and Europe, it offers various account subscription plans, including a “premium” one that includes a free subscription to the Financial Times.
“We would look to bring similar value added features to credit products,” says Revolut’s Jajodia. “We’re actively working on . . . some financial incentives and non-financial incentives.”
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Crypto investing is another offering they could deploy to charm US customers, particularly as President Donald Trump’s support of the sector has boosted market confidence.
Monzo has not so far permitted its customers to trade crypto, but Anil says doing so is not off the table. “We’ve never said never to crypto,” he tells the FT, adding that offering it without a broader suite of investment options would not make sense.
Revolut was boosted by a boom in crypto trading during the Covid-19 pandemic. The neobank already has a broker licence and is registered with the Securities and Exchange Commission as an investment adviser in the US. It is seeking a direct banking licence, rather than partnering with an existing bank.
European fintechs will need to decide which segment of the US market they plan to target first. Both Monzo and Revolut initially grew within a bubble of cosmopolitan tech-savvy customers in London before branching out to the rest of the UK.
In the much larger US market, wealthier young cosmopolitans resemble the neobanks’ existing European customers a lot more, but they are already spoilt for choice when it comes to banking services.
Another avenue could be to follow the strategy of Chime, which found success in the less affluent “underbanked” population.
Alvarez & Marsal’s Legrand suggests that “super-regional” cities like Charlotte or Seattle may be a good compromise. “The bigger the city you have, the more people may be willing to have two or three bank accounts because they’re more financially astute about how to move their money around,” he says.
For Monzo’s Burbidge, achieving success in the US doesn’t mean dominating it. “Given the size of the market and interchange rates, one doesn’t need to be a top 10 or even top 20 player across the entire US in order to have a very profitable business,” she says.