Digital banking giant Monzo is once again renewing its attempt to secure a US banking license so it can enter the US banking sector and increase its geographical reach and growth.
The company first applied to gain this license in 2021, but a lot in US fintech, crypto, and financial regulation has changed since. The most significant changes include stricter fintech regulations, higher capital requirements, stronger consumer protection, increased oversight of digital banks, and growing partnerships between fintechs and traditional institutions.
In some way, it may be more of a challenge for Monzo to secure a US banking license, but this article will explore why Monzo is applying for this license and what approval would mean for their broader global strategy and renewed investor confidence.
A Second Attempt at the U.S. Market
The question on many minds in fintech is: Why is Monzo choosing now to try to re-enter the US market after their failure four years ago to receive a bank license? The answer is that regulators have relaxed licensing hurdles, Monzo is now profitable, has raised capital, and U.S. expansion offers big growth opportunities.
Regulatory challenges for US banking licenses have dramatically relaxed under Trump, and this is good news for Monzo, as it increases their chances of receiving a license on this attempt. Monzo has prepared for years for these changes and has now adjusted their compliance framework to comply with US banking standards and secure the deal.
The other favourable factor for Monzo is that US consumers have driven the fintech market in a different direction, toward technology and away from traditional banking. This shift means that consumers are open to digital banks like Monzo and are more likely to use Monzo services if they are available in the US.
Competitive Landscape: Digital Banks and Regulation
It’s crucial for Monzo to look at the competition if it wants to maintain sustainability, as there are many similar products already succeeding in the digital banking field. Chime is the most popular neobank in the US, with 22 million users, and SoFi and Revolut are also popular.
Monzo will also be acutely aware that, despite regulations becoming more lax, US regulators are still wary of digital banks, which represent a fairly new branch of the fintech world.
What will work in Monzo’s favour is that the organization has built a favourable reputation for itself in the UK for its customer-focused model and track record. These aspects differentiate it from competitors and could help it lower the defenses of US regulators that are typically cautious of awarding banking licences to fintech organizations.
Finally, Monzo has always been transparent in its voluntary compliance with regulations in the UK, so if it transfers this same rigour to the US, it may be more likely to receive the license it desires.
All of these factors should help Monzo get the US banking license and enter the US financial market.
Strengthening Infrastructure and Data Security
Monzo is visibly improving its systems with strong security, better fraud checks, and safe data storage. Of course, this is all to meet U.S. banking rules and protect customers’ money and information so they can demonstrate that they will comply with all US regulations if they receive the banking license. Security and data protection have high priority for Monzo because keeping data safe with encryption and strong protection rules helps them follow U.S. and international laws, prevent hacking, and build trust with people using its banking services.
One of the best examples of this is that Monzo’s engineering team has adopted secure methods to transfer files from Windows to Mac during multi-platform development and testing. This feature allows them to ensure they offer consistent data protection across all systems that consumers need to use.
Monzo will need to adhere to specific encryption standards if it wants to secure the license, such as SOC 2 and GDPR-like data controls adapted to US frameworks.
Conclusion
It seems likely that financial organization Monzo will achieve the outcome it wants while applying for the US banking license. But to do so, it will have to stick to adherence to regulations specific to the US, such as encryption regulations like SOC 2 and GDPR-like data controls adapted to US frameworks.
If Monzo receives the US banking license, the world will be blown open for how it can compete on an even playing field with other neobanks like Chime, SoFi, and Revolut, which collectively already have tens of millions of users.
Whatever the outcome for Monzo, it’s fascinating for fintech stakeholders to observe how this organization’s persistence signals a new era of cross-market fintech expansion across the globe.
