Latest entrant into crowded digital banking space exits beta phase, begins on-boarding wait list.
Loot, the mobile banking service, has launched version 2 of the app, opening its first 25,000 customer accounts. Loot is at once a deposit taking institution and a personal finance management app, encompassing two of the most up and coming segments in the fintech sector.
Version 1 of the app has been live for about a year, with 5,000 users, and considerably less functionality. The new iteration gives customers a high level of visibility and control over their money and spending, offering them a better understanding of how much they have available to spend.
And the app has plans to go a step further by empowering users to be proactive in making savings. “We will soon be adding a further unique feature, again making use of your spending data, to help you save more money,” said founder and CEO Ollie Purdue (pictured above). “We will send you messages on your phone offering you special discounts and deals from our partner retailers, cafes, cinemas etc. – all of which we know you like or are relevant to you.”
Loot categorises spending such that customers can track where they’re overspending. The app also allows users to track their spending while abroad, irrespective of the currency being used. When a Loot card is used overseas, the app uses a “competitive” exchange rate (the MasterCard “base” rate), taking a leaf out of the Revolut playbook (which uses the inter-bank rate). Loot could charge a fee on top of that rate, but chooses not to.
Exchanging money with Loot takes place behind the scenes, whenever a card is used, which Purdue believes strips out a level of complexity.
Loot customers have their own unique account number and sort code, and receive a contactless “MasterCard” debit card, which is synced up with the app. The firm’s underlying e-banking services and licences are provided by major UK issuer Wirecard Card Solutions Limited. Loot is an appointed representative of Wirecard.
Unlike its peers in the wider world of digital and challenger banking, Loot has opted not to pursue a banking licence. Instead the app uses an e-money licence, which Purdue argues is much more appropriate than a banking licence at this early stage in Loot's development, while also far cheaper to attain.
But not having a banking licence has its drawbacks. Loot cannot lend out its deposits in the way that a typical bank does. Instead deposits are ring-fenced and cannot be touched. This of course means that Loot does not pay a savings rate to its customers. But Purdue feels that the app's value-add is strong enough for this not to be an issue with younger people, who will in general only deposit a small amount of money anyway. Loot accounts are not protected by the FSCS, but Purdue doesn’t see this an issue because the money is ring-fenced irrespective of what becomes of Loot (i.e. whether it succeeds or fails).
The new-age bank will not be offering any overdraft or borrowing facilities in the short term, saying that it wants to help customers avoid the “trap of falling into debt”. But Purdue will not rule out pursuing a banking licence in the future, once the company has built out its customer base sufficiently.
In the short term, Loot intends to make its money only when it has helped to create savings for customers through referrals to firms offering discounts (via revenue share arrangements).
Purdue launched Loot straight out of university, driven by a desire to make banking apps better. After initially securing seed funding from a number of angel investors, Loot has now attracted $5.3m in venture capital from such backers as Global Founders Capital and Speedinvest. The company closed a $3.13m round in early November.