Tom Blomfield doesn't think big banks will ever undergo a digital transformation.
The British fintech entrepreneur says banking behemoths like Barclays and HSBC are saddled with outdated technology and a risk-averse culture to respond to the challenge that upstarts like his digital bank, Monzo, present.
"The banks really focus very hard on their existing set of financial products," Blomfield, co-founder and CEO of Monzo, said in an interview. By that, he means things like mortgages, loans and credit cards — "balance sheet products, basically."
"When you go out on the street and talk to people about their banking, they don't mean their mortgage, they mean, 'When am I going to get paid?' or, 'Can I afford to buy lunch today?" he added. "Human beings mostly focus on day-to-day payment processing."
Blomfield said he felt there was a "disconnect" between large lenders and their customers. To be sure, "they have all of the customers and all of the money at the moment," he said, "but it does feel like a dying industry."
Founded in 2015, Monzo has swiftly grown from a start-up offering prepaid debit cards and an app to a regulated bank that's managed to pull in over 3.5 million users. The company is one of many so-called neobanks that flooded Europe following the 2008 financial crisis, with firms like Revolut and N26 also gaining momentum.
The movement hasn't been limited to the continent, however, with U.S. challenger bank Chime seeing rapid growth as well. Meanwhile, Europe's neobanks have been making inroads in America, with N26 racking up 250,000 customers there and Monzo launching a waiting list.
That's put increased pressure on the large incumbent banks to respond and introduce new offerings for younger, tech-savvy customers. RBS for example recently introduced a standalone digital bank called Bo to take on the fintech challengers. J.P. Morgan had less success with its app-only brand, Finn, which it decided to shut down last year.
"You've got massive technology problems and massive cultural problems," Blomfield said of the traditional banks. "I don't think that people in banks are necessarily incentivized to think about the customer in the right way."
He added: "You add on 100,000 staff. How do you transform that whole thing? I think it's very, very tricky."
Blomfield blasted the big banks' approach to tackling the threat of rising competition from the fintech players, saying their method is often to spin out a part of the institution and "send them off into a trendy office with exposed brickwork, Converse and Ping-Pong tables."
"Banks are set up to prevent change basically," he said. "A lot of the systems inside the bank — particularly risk and compliance functions — are there to stop things changing. Because if things change it creates risk. And so they're like these antibodies that go around hunting out change and trying to kill it."
"Starting from scratch presents its own problems but it's in a sense easier to create a culture that's well aligned to creating something new," Blomfield added.
Monzo and its peers have raised huge sums of cash and notched multi-billion dollar valuations thanks to the willingness of venture capitalists to fast-track their growth. N26 last year raised a whopping $470 million at a $3.5 billion valuation, while Monzo's market value rose to $2.5 billion on the back of a £113 million ($146 million) capital injection.
Blomfield's start-up is said to be lining up another £100 million in funding, an extension to last year's round, while Revolut is reportedly seeking to raise as much as $1.5 billion through a mix of equity and convertible debt to fuel its global expansion.