CROWDFUNDING The wisdom of crowds?


Will crowdfunded digital-only challengers threaten traditional retail banks or does the small amount of money raised, customer numbers and launch problems mean they will only ever be low- functionality niche players? Neil Ainger investigates


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crowdfunding platforms as they work towards securing banking licences, challenging established FIs, and launching to the public. Earlier this year, UK mobile-only venture Mondo took just one minute and 36 seconds to raise a record-breaking £1 million from 1,861 investors on Crowdcube.


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Fellow UK new entrant Tandem raised almost £2 million on the Seedrs crowdfunding platform in May – almost double its initial target – after accepting overfunding due to high demand. Its founder, Ricky Knox, said in a statement at the time he was “delighted to welcome the public to be part of something very special; the creation of a good bank”.


However, the excessive demand led to Seedrs servers crashing and a pause in the fundraiser. It’s a fate that also befell Mondo on Crowdcube’s platform in March when a pause was necessary, meaning some of those initially signed up lost out.


“We’ve made significant improvements to our systems and are confident we will not experience issues in the future,” says Luke Lang, Co-founder and Marketing Head at Crowdcube, who adds that challenger banks have been among the largest raisers and fastest to reach their targets. “In truth some of these banks could raise their funds entirely privately, but they are choosing to turn to the crowd and to offer customers a stake in the business.”


Private investors are still offering funding and won’t disappear. A new wave of neo banks, with no branches,


eo banks’ are increasingly turning to


siloed technology or legacy concerns, are on the way, but Atom Bank valued at £150 million after a £45 million investment by Spanish lender BBVA just last year is not following the crowdfunding route. Such private investment proves these newcomers may disrupt the retail banking marketplace but they won’t necessarily revolutionise the players. Starling Bank rose £48 million in January 2016 without using Crowdcube, Seedrs or any of the other available crowdfunding online platforms.


Tandem is looking to raise a similar amount to Starling in total, but it is obviously keen on alternative funding. It included crowdfunding in its capital mix as a way to increase customer feedback, engagement, publicity, and so on – not just for the money. Its private backers, however, include eVentures and the [Pierre] Omidyar Network, set up by the founder of eBay, while Mondo also received early stage development money from Passion Capital. The majority of cash still comes from private investors.


“Crowdfunding enables businesses to build and engage existing customer networks and attract potential brand advocates,” says Lang. Such stakeholders can also provide expertise and tech advice via beta apps and customer feedback activities.


Despite the server crashes, the popularity of crowdfunding for neo banks is evident; goHenry raised £3.99 million in June. Whether these companies can ever be full-service or more than niche offerings, however, that only target Millennials or specific segments of the retail market must be open to debate – at least until they


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