Digital challenger Mondo, a smartphone-only app, has been granted a banking licence which gives it free-reign to offer customers the full range of services offered by the traditional high street banks - although it plans to stick with just a single product.
The Bank of England's Prudential Regulation Authority and the Financial Conduct Authority handed the startup a licence to operate from yesterday, and it joins fellow digital challengers such as Atom and Tandem which have also gained approval in the last 12 months. Tandem is yet to launch while Atom initially offers a savings account and business loans.
Speaking exclusively to City A.M., deputy chief executive and co-founder Paul Rippon said the bank now plans to connect its app with payments infrastructure to support services such as Faster Payments and Direct Debits, with the goal of launching its first full current account in the coming months - either in the last quarter of the year or first quarter of 2017.
After 18 months, Mondo has already signed up 30,000 people to its beta iPhone app and prepaid card which has already given users access to ways of monitoring their spending. It this week also launched its first Android app which has already signed up 1,000 users so far.
Existing users will gain access to new features in the coming months too, including one in which targets for spending on certain items can be set and with that, nudge notifications.
Aspects of the current account will also be introduced over time, for example, the ability to pay in salaries or set up standing orders.
Rippon told City A.M. that Mondo will focus solely on current accounts and has no plans to expand into other traditional banking products such as savings or loans, but has ambitions to launch the app in more markets around the world.
"Our current account will look very different to the traditional ones," he added, indicating a pick-and-mix style offering where users can choose to use some features and not others.
He said this single offering would still be enough to turn a profit, and that will be via overdraft charges.
"We will charge in a different way to traditional banks. We will make money from overdrafts but we will do it in a fair way," said Rippon, pointing toward the much lower operating costs it has compared to traditional banks, meaning a much lower threshold for making money.
"We will turn a profit within a few years but not in the traditional way. It’s not going to be a myriad of products we’re looking to cross-sell."
The award of the banking licence comes just days after the competition watchdog announced plans to get the big banks to make their customer data open to third parties such as challenger banks and fintech firms in a bid to promote more competition in the market.
Chief executive of Mondo and co-founder Tom Blomfield said: "This is how the banking market changes, not with 800 page reviews from public bodies like the CMA, but with technology bringing new ideas to the table. We’re creating something that will completely revolutionise the way people think about their money."