A number of "neo-banks" or "challenger banks" have sprung up in the UK, some of them focusing on the retail and business sectors. We talk to a bank that is concentrating on mass-affluent clients.

There’s a major gap in the UK’s banking market: the mass-affluent segment.

As firms have either focused on digitally-driven retail models or chased ultra-wealthy clients, the opportunities for those somewhere in the middle have been mostly overlooked, so a new entrant into the industry argues.

“That [mass-affluent] segment has been watered down,” Ian Rand, chief executive of Monument, told this news service in a recent interview. “Our view is that we can do better than this.”

There are, Rand said, about five million UK people who have trillions in wealth but aren’t quite at the level to be onboarded into private banks.

Monument aims to change the game and a lot of that involves technology. A “neo-bank,” the firm specialises in catering for those wanting to finance buy-to-let residential/commercial investments and who own between £500,000 ($648,385) and £50 million-worth of property each. In terms of gross mortgage lending, £30 billion will need to be refinanced in the next year according to UK Finance (1), Rand said.

Monument intends to provide solutions for borrowers who have idiosyncratic collateral – such as an office sitting under a residential block – or the kind that won’t necessarily be liked by more rule-driven lenders at the established large banks. In an environment of rising UK interest rates, such considerations have urgency. 

Getting its Financial Conduct Authority clearance in November 2021, Monument has launched a range of services since then. In January this year, Dubai Investments PJSC, the investment company listed on the Dubai Financial Market, bought a 9 per cent equity stake in Monument Bank. The firm said that an important element of its property investment lending and range of savings products is its advanced “in-app capabilities.” Tech is a big part of the equation.

Rand comes to the conversation with plenty of experience, as do his senior colleagues. He has worked in finance for over 20 years, most recently leading business banking at Barclays. The founder and head of global institutional relationships, Mintoo Bhandari, worked for almost 12 years at Apollo Global Management as a senior partner and managing director, working in New York, London and then setting the firm up in India. Bhandari has also worked at large university endowments (Harvard University, for example,) as an investor and served on the boards of more than 20 companies across three continents. Wasim Khouri, who is chief commercial officer, spent most of his career at McKinsey before joining Monument.

Most recently, Craig Blackburn was appointed chief of staff in April this year. A former Royal Navy officer, he has worked at Estel Property Group Limited as COO. Yesterday, Monument said regulators had approved Fiona Pollard as successor to Niall Booker as chair of the firm. Pollard has been an independent non-executive director of the bank since September 2019 and chairs its remuneration and nomination committee. 

Fiona Pollard
 

Mass-affluent
The “neo-bank” or “challenger bank” segment has seen a few new entrants, with some, such as Revolut or Starling going after the retail market. Monument is more of a mass-affluent shop. Another in the UK is Pennyworth Financial, which also operates via apps. (The latter firm’s CEO and co-founder, Jeremy Takle, also has a background at Barclays.) Pennyworth is applying to be authorised in the UK, as of the time of writing.

The term "mass-affluent" can be fuzzy. Accenture has suggested that they are members of the middle classes who have between £100,000 and £1 million of investable assets, with around six million households in the UK falling into this category (source: S&P Global, October 2020). Another group, the management consultancy Sia Partners categorises them as those with €50,000 ($55,686) to €1 million in liquid assets. There is a lot at stake. Deloitte (source: S&P Global) estimates that mass-affluent customers can make up 80 per cent or more of the net income generated by retail banks.

It is not just the UK where there is a complaint about an underserved mass-affluent market. According to this commentary, the Asia-Pacific region has a problem. With a 9.6 per cent annual CAGR, the mass-affluent segment has already outpaced its high net worth counterparts. In Asia, this asset pool is predominantly held in cash positions, and over a third of this pool is not receiving any active wealth management advice.

Pillars
Talking about the three main elements of Monument’s business, Rand referred to the banking side (as in the aforementioned buy-to-let area), lifestyle, and technology. 

Starting with the property lending side, Rand said established banks “do what they do really well” but tend to avoid the more complex areas. “We trade complexity for yield,” he said, noting that among traditional banks, they often have simple rules such as limits on lending on small floor space sizes, even in high-quality properties. 

On the deposit side, Monument has developed apps, that are “very scalable” – in Rand’s words – for the business. His colleague Wasim Khouri (see above) told WealthBriefing that the ease of its savings products was a differentiator, for example. In March last year, Monument launched via an app a 12-month, two-year and five-year fixed-term deposit and easy access savings products. The launch followed the release of its app and entry into the savings market in December 2021. Monument’s custom cloud-based architecture has allowed the bank to rapidly update savings products almost instantly without disrupting the client experience. The bank has used the architecture to change its savings products quickly and efficiently more than eight times in the last eight weeks alone.

The rollout of products and services continues. In February this year Monument launched its Lifestyle proposition, also available via their app and pitched at professionals and entrepreneurs to help realise their financial, personal, and professional ambitions while maximising their spare time. The proposition covers more than 35 services across lifestyle, health, wellbeing, career development and beyond. Partners include Bupa, Tablet Hotels (part of the Michelin Group), DTB Sports & Events, KPMG, Fine Foods Specialist, Farewill, The Real Flower Company, Laundryheap, Imperial College Business School, Virginia Hayward, House of Townend, USPAAH, Cavendish Health, Figtree, Bonas MacFarlane, Black Brick, Sama, Singulart, TLT LLP, Lubbock Fine, EMW Wealth, and others.

With so much ferment in the Western banking sector, as seen by the recent failings and takeovers of lenders such as Silicon Valley Bank and Credit Suisse, industry consolidation, and the furore about “de-banking,” there’s plainly a market for new offerings without legacy issues and costs. It will be interesting to witness Monument's journey and assess its success in this evolving market.