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London Bank Scandals Open Doors for Financial Start-Ups

Throughout the United Kingdom, consumers’ trust in banks has deteriorated due to a series of recent scandals.[1] The tidal wave started in June, 2012, when Barclays Bank agreed to pay $450 million to settle claims that it manipulated interest rates to lift profits and mask concerns about its declining health.[2] Next, the United States Senate issued a report that HSBC bank failed to stop laundering Mexican drug money; HSBC faces up to $1 billion in fines.[3] Furthermore, JPMorgan & Chase Co. recently disclosed a $5.8 billion trading loss caused by its London office in a portfolio designed to circumvent risks that the bank takes with its own money.[4] As a result to these financial disasters, London bankers now worry that regulators will increase their efforts to clean up the image of the financial sector and quell public outrage.[5]

As a result of these scandals, newcomer financial firms seek to capitalize on United Kingdom banks’ misfortunes. Financial startups are using new technology and are innovating in ways that banks cannot in order to improve customer service, and venture capital firms are jumping at the chance to get a piece of the action.[6] For instance, Wonga, an online lending firm that offers high interest lending services to small businesses and consumers, has secured about $150 million in venture investment[7] from Balderton Capital, TAG, and Kreos Capital.[8] To cut own on costs, Wonga gathers publically available online data to determine a potential lendee’s creditworthiness.[9] Consumers are attracted to the fact that they can obtain loans within 15 minutes that they would not be able to receive from banks due to their risky credit.[10] Last year, Wonga reported revenues amounting to $73 million,[11] and is contemplating a $1.5 billion IPO on Nasdaq.[12]

Other venture capital success stories include GoCardless, a new financial firm based in London, which provides services to small businesses and consumers, allowing them to set up monthly payments directly to suppliers, at a cost dwarfing that of what banks charge.[13] The company is able to provide such favorable rates by cutting out the cost and complexity of credit card networks.[14] GoCardless has secured approximately $1.5 million from the venture capital firm Y Combinator.[15]

Finally, as banks have pulled back on lending, deeming small businesses to be too much of a financial risk, MarketInvoice helps small businesses obtain capital fast.[16] MarketInvoice is an online marketplace where small businesses are able to auction their long-term supply contracts to money managers for the highest price.[17] The company has received $1.4 million from venture capital investors.[18]

Growing disdain among small businesses and consumers for banks in light of recent scandals in conjunction with new innovative and technological services provided by financial start-ups has sparked a new industry in the United Kingdom. Venture capital firms will without a doubt continue to seize on the opportunity to invest in these financial start-ups.


[1] Mark Scott, In London, Nimble Start-Ups Offer Alternatives to Stodgy Banks, N.Y. Times DealBook (Oct. 22, 2012, 4:45 PM),

[2] Ben Protess & Mark Scott, Barclays Settles Regulators’ Claims Over Manipulation of Key Rates, N.Y. Times DealBook (June 27, 2012, 8:11 AM),

[3] Robert Barr, Bank Scandals Tarnish London’s Reputation, The Miami Herald (Aug. 17, 2012), available at

[4] Id.

[5] Id.

[6] See Scott, supra note 1.

[7] Bobbie Johnson, Wonga Readies $1.5bn IPO, but Stigma Won’t Go Away, Gigaom (June 6, 2012, 1:26 AM,


[9] Scott, supra note 1.

[10] See id.

[11] Id.

[12] See Johnson, supra note 7.

[13] Scott, supra note 1.

[14] John Peabody, GoCardless Tries to Disrupt the Credit Card Industry, Reuters (May 15, 2012),

[15] Scott, supra note 1.

[16] Id.

[17] Id.

[18] Id.