Monzo, the UK-based online bank has pulled back its application for a banking license in the U.S. The decision was taken after the company was told by regulators that the chances of the application being approved are slim. This is likely to put a dent in Monzo’s international expansion plans.
U.S. Regulators Tread with Caution
The story highlights how cautious U.S regulators are when it comes to giving banking licenses to startups. Market penetration and regulatory approval across the European countries and the UK is comparatively easier. Over the past few years, the UK has handed out licenses to a number of companies to increase competition.
Monzo was positive that the experience of securing a full banking license in the UK would make it easier to make an entry into the American banking sector. However, the bank was informed in recent weeks that its bid to the Office of the Comptroller of the Currency is likely to be unsuccessful.
The bank said that the withdrawal was not part of its initial plans and that it still has major plans for its U.S. business. Monzo’s stakeholders and key decision-makers were involved in months of deliberation whether a fully licenses bank is the right choice to expand.
Some of Monzo’s strong rivals such as Peer have witnessed significant growth without a banking license. Besides, steeper card interchange fees across the U.S. have proved to be more sustainable for companies to share revenues with licensed partner banks, contrary to that in the UK.
Monzo’s American Dream
Currently, Monzo said that it is on course to develop and scale its early-stage product offer in the U.S. via existing partnerships. Besides, it has also launched a pilot program with a few customers through a partnership with Sutton Bank.
The fintech said that since the company is not required to capitalize a separate U.S. bank, it opens up more investment opportunities in the UK. The company is likely to shift its focus on growth across the UK, particularly due to the disruption caused by the pandemic.
During the pandemic, the company’s valuation dropped by around 40%. Further, higher capital requirements by the Bank of England along with an investigation over a potential breach have affected business in the UK.