Kroo gets its banking licence
The latest Bank of England list of authorised banks has been published showing that Kroo Ltd was authorised as a bank during July this year. Kroo, formerly known as B-Social, become the second bank to be authorised in 2021 following Cashplus, who were awarded their banking licence in February.
Kroo are the 33rd firm to gain authorisation as a bank since the process was changed following the global financial crisis of 2008. They are currently 'authorised with restrictions', a process which gives them 12 months to mobilise operationally and complete requirements laid down by the Prudential Regulation Authority and Financial Conduct Authority, which they will need to fulfil to have the restrictions lifted. The main restriction being that the bank can only hold a total of £50,000 in deposits until they exit mobilisation.
There are currently two other firms in this phase - Monument Bank and Recognise Bank - who are coming up to the end of their mobilisation periods as they were authorised in October and November 2020 respectively. GH Bank Limited, known as Vive Bank, were also in mobilisation but have been unable to complete the process and have handed back their banking licence. Vive are not the only bank to have to do this with revver and Civilised having done so in the past three years and others before that.
Many may wonder if there's room for another new bank. In the case of Kroo, there may well be. Whereas many of the firms who have come to market have set about attracting savers and lending in to specialist or niche market segments, Kroo are looking to enter the current account market. While the current account market is fiercly competitive, only Monzo and Starling of the newly authorised banks have launched targeting this space. Starling don't offer savings accounts but Monzo do, although this is through a savings marketplace using banks such as Paragon and Charter to provide the accounts, in return for a commission, rather than offering savings products themselves.
It remains to be seen what Kroo do in the savings space but they have three choices:
1) Do nothing - concentrate on current accounts, like Starling, and allow their customers to choose other banks for their savings needs
2) Use third parties - similar to Monzo, either integrate via open banking to enable their customers to save with other banks or to do so via a savings market place such as Raisin
3) Provide their own - this is the route I'd like to see Kroo go down.
Which option they choose is likely to be determind by where they are looking to monetise their bank. As Monzo have found, making money purely from a current account, even with five million customers, is really hard. Whereas Starling have turned profit by lending to businesses, I expect Kroo will look at personal lending products to serve it's social customers. The markets it could have aspirations in are personal loans, credit cards, overdrafts and motor finance.
Kroo certainly hasn't had the fanfare of Monzo or Starling so far but has attracted £17.7m of investment recently. However, not all that publicity has been good for either bank so it maybe that Kroo's quieter approach is ultimately more successful. Only time will tell. Regardless, it's one of the more interesting new entrants and a journey I shall follow closely as Kroo look to fully launch in 2022.