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Monzo withdrew its application for a US banking license after being told by regulators that it was unlikely to be approved, contrary to the British fintech company’s international expansion plans.
The move underscores the caution among U.S. regulators to allow loss-making businesses to become banks, in contrast to countries like the United Kingdom that have handed out dozens of licenses over the past year to promote competition.
Monzo had hoped that his experience in obtaining a full banking license in the UK would help him succeed where others were struggling, but a person close to the bank said it had been made clear in recent weeks that his bid for the office of the office of the it was unlikely that the currency would be successful. Monzo informed his home regulators of the decision.
The bank said the withdrawal “was not the outcome we initially wanted to achieve”, but stressed that it still has ‘big ambitions’ for its US affairs.
The person close to Monzo said that there had been an ‘active debate’ internally for several months about whether setting up a bank with a full license was the best way to expand.
Many of its largest peers in the U.S., including Chime – which was recently valued at $ 25 billion – have grown without going through the costly and time-consuming process. Higher card exchange fees in the US make it more sustainable for businesses to share revenue with fully licensed partner banks, unlike in the UK.
Monzo said it would now ‘build and scale our product range at an early stage in the US through existing partners’. It operates a pilot program with several thousand customers through a partnership with Ohio-based Sutton Bank.
He added that the fact that he would no longer have to capitalize on a separate US bank would allow him to ‘invest further in the UK’.
Monzo wanted to focus on growth in the UK again after a crushing pandemic in which its valuation fell by 40%, a greater capital requirement was met by the Bank of England and subsequently to a investigation about possible violations of the rules against money laundering.
The start-up made a statutory net loss of £ 130 million last year, 13 per cent worse than in 2019, and acknowledged it needed to raise more money from investors.
This led auditors EY to warns of a second consecutive year that there is ‘material uncertainty’ about Monzo’s ability to continue as a going concern.
During the summer, Monzo said it was making faster progress toward profitability. It recently started launching new products, such as a buy-now-pay-later service. It also expects to raise new cash from investors by the first quarter of 2022.
Varo Bank became the first fintech for consumers in the US last year to secure a national banking charter from the OCC, but several other high-profile businesses have hampered barriers.
The online brokerage Robinhood, the corporate card specialist Brex, the Japanese e-commerce group Rakuten and Jack Dorsey’s payment firm Square have withdrawn all applications for different types of bank charter over the past few years.
Square finally started a bank this year, four years after its first application was filed.
Monzo’s British rival Revolut applied for a US banking license in March.