Earlier this month, digital challenger bank Mondo, which recently changed its name to Monzo, announced plans to crowdfund up to £20m after securing a restricted banking licence from the Financial Conduct Authority (FCA).

However, David McCarthy, chief financial officer at Atom Bank, insisted that crowdfunding was still some way off being able to replace traditional sources of equity finance for banks.

“… I don’t think we should see this as a breaking of the dam.

“Banks are intensely capital-hungry, and while £20m may seem to be a lot of money, it won’t be long before [Monzo needs] more – a lot more if they want to lend and grow their balance sheet to a significant size.

“However, £20m would already be a very large transaction for equity crowdfunding and I don’t think the market could scale up quickly enough to meet demand if several aspirant banks want to try something similar.”

David explained that as a risky and illiquid form of capital, regulators may be more watchful of the development of crowdfunding.

“Regulators will therefore adopt a cautious approach to the development of this market and will require banks to find deep-pocketed cornerstone investors that can support it through good and bad times.

“I don’t think crowdfunding for equity capital is yet stable enough or deep enough to do that.”

On the other hand, Alex Zivoder, CEO of goHenry, suggested that crowdfunding could raise capital on good terms and benefits fintech-orientated companies.

Regardless, Rishi Khosla, co-founder and chief executive of challenger bank OakNorth, suggested that raising capital was often not the main obstacle when launching a new bank.

“Crowdfunding is rapidly becoming an established method to raise money by many institutions.

“It allows the companies raising capital to dictate terms, as opposed to having to go through painful negotiations with institutions such as private equity and venture capital funds.

“Having said that, I don’t think crowdfunding will directly lead to a surge in the number of challenger banks as the biggest barrier to entry is not capital, but rather the time-consuming and difficult process of obtaining a banking licence.

“It would be a very risky move on the investors’ part to invest before a bank has its licence, as it may never get it.” 

On the other hand, Luke Lang, co-founder of Crowdcube, insisted there was a growing trend of traditional investors entering the crowdfunding market.

“Crowdfunding is already making a major impact on the alternative banking sector, helping to build a new world of finance as both a player and an enabler.

“Crowdfunding gives members of the public the opportunity to back this flourishing sector – and there’s clearly a strong appetite to do so.

“And it’s increasingly common that venture capital firms are joining fundraising rounds to invest alongside ‘the crowd’.”

Luke cited research which found that 60% of last year’s fintech venture capital funding rounds involved alternative finance.

Recently, venture capital backers Balderton Capital invested £1m in Crowdcube’s recent funding round, alongside 3,700 other investors.

“The established banks simply haven’t kept pace with emerging digital technologies, and it’s the challengers that are filling the void.”