L DECEMBER 25

THE ‘MARKETPLACE’ The digital-only banks boast slick apps, which can analyse spending in this for

GROWING PAINS The new banks’ branchless, digital proposition means they benefit from far lower costs.

Nevertheless, digital player Revolut, with a 300 million pound valuation and 1.2 million users, believes it couldn’t achieve the scale it wants with marketplace money alone.

Subscriptions for premium and business accounts resulted in 2.36 million pounds of turnover in 2016 and Revolut plans to offer overdrafts and loans too. It expects to break even by the end of 2018.

Starling plans to hit the same milestone one year later. Interest from overdrafts will provide a third of its income, said Boden, with more funds coming from a business-facing payments service and upcoming business accounts. Monzo is also currently rolling out overdrafts and exploring one lending product.

Edward Firth, managing director, UK banks at analysts KBW, said big banks make such a good return on retail banking that the digital upstarts can halve it and still make enough profit.

He has more confidence in models where the marketplace supplements such income, rather than the other way around. “It’s still untested,” he said. Eileen Burbidge, partner at venture capital firm Passion Capital, which backs Monzo, said the bank’s rapid growth validates her confidence in its ethos and model.

“That kind of engagement or interest from consumers is really unheard of in financial services,” she said.

Still, the firm wants Monzo to prove that each customer can drive more revenue than they drive cost within a year or so.

Monzo has already halved the cost per user, although that has meant cutting back on some key offers: previously unlimited overseas ATM withdrawals cost it 16 pounds per customer.

Now it will start adding revenues. Blomfield sees the marketplace playing an increasingly important role, although he added: “Until it plays out it’s hard to know for sure.”