By Emma Rumney
LONDON (Reuters) - British digital challenger bank Monzo has raised 71 million pounds in a funding round, the mobile-only lender said on Tuesday, to boost investment in its chase for customers disenchanted with traditional banks.
Monzo and peers such as Revolut and Starling Bank are gaining popularity in Britain, with customers attracted by their slick mobile apps, lack of fees and instant overview of spending on different goods and services.
Monzo has signed up more than 400,000 customers since it was founded in 2015 and says it is increasing that total by 5 percent a week.
The latest funding round is the bank's biggest yet -- almost four times the 19.5 million pounds raised in February -- and doubles its valuation to 280 million pounds. Monzo said it attracted strong interest from the United States, including investments from venture capital firm Goodwater Capital and payments company Stripe.
However, Britain's new breed of app-only banks does face challenges, chiefly how to translate popularity among users into profitability.
Monzo reported a pretax loss of 7.9 million pounds for the year to end-February and has said that each new user is costing it about 50 pounds.
Digital banks such as Monzo have yet to expand into full-scale mortgage and consumer lending, the traditional way banks make money alongside charging fees for their services.
Monzo's fundraising comes ahead of new regulation aimed at boosting competition in the UK banking sector by cracking open the dominance of the big players and helping smaller financial technology companies to vie for customers.
Incumber lenders have responded by investing in their own digital platforms. HSBC <HSBA.L>, for example, last month becoming the first to launch a new app that allows customers to manage accounts with multiple banks in one place.
Monzo said it would use its fresh funding to hire more staff, improve its product and expand its user base, which now stands at 470,000.
"We will continue to hire talented people, focus on building the best produc, and bring Monzo to as many people as possible," said CEO Tom Blomfield.
Monzo, which has offered a coral-coloured pre-paid card since October 2015, secured a full banking licence in April and is currently in the process of rolling out current accounts.
It also plans to build a "marketplace" on which other firms will be able to offer their services to users.
The funding campaign also raised capital from Crankstart Foundation -- a charitable investment vehicle run by Michael Moritz, the head of Sequoia Capital -- and follow-on investments from Passion Capital, Thrive Capital and Orange Digital Ventures, which backed Monzo in previous rounds.
(Reporting by Emma Rumney; Additional reporting by Lawrence White; Editing by David Goodman)