Mondo, Atom Bank, Starling, and Number26 have all recently obtained U.K. banking licenses. Though these startups hope to control their own destiny, they may be required to raise significant capital, adapt to higher costs, and accept a higher barrier to profit.
The bigger problem is that making money as a fully-fledged bank is hard. Lending is an expensive trade with high capital costs. For every 100 pounds of mortgage lending in the U.K., a new bank would have to have about 2.80 pounds of capital, according to regulators. Interest rates are at a record low, squeezing margins. Banks are also easy targets for cash-strapped governments: U.K. lenders are subject to an additional 8 percent tax surcharge. Present an entrepreneur with these realities and you'll likely be told that their new banking model will involve less balance sheet and more data. The new breed of lender wants to cross-sell financial products and unlock new revenue streams through lucrative consumer spending data.