FFREES Family Finance, whose current account is designed to help families save as they spend, has secured £2m of funding.
The Sheffield-based business launched in January this year, backed by Finance Yorkshire.
The latest £2m funding round, which Ffrees said was oversubscribed, included the Technology and Innovation Fund, owned by Gordon Crawford and Jon Lee.
Technology pioneer Mr Crawford was the founder of London Bridge Software, which was sold to an American buyer in 2004. Mr Lee was the firm’s chief executive.
Finance Yorkshire was involved in the latest funding round for Ffrees as well, as were other investors including former head of investment Banking at Merrill Lynch Europe and Nomura vice chairman, Justin Dowley; and former group finance director of Schroders, Kevin Parry.
Alex Letts, chief executive and founder of Ffrees, said: “Ffrees is the new kid on the block in the basic current account sector, which is the slave of a centuries old banking business model. Millions of families today are not good business for the banks unless they can be charged fees and penalties. Not surprisingly, families are unhappy. So we are rewriting the equation.”
The Ffrees account helps customers build up savings in a separate account by rewarding them for using its network of more than 1,000 retail and financial services providers.
Customers receive Frees points as they spend, at supermarkets, motor dealers and travel companies, for example. Once a customer has 10 points they can be converted into money: one point equates to one pound.
Ffrees also provides free services such as the Ffrees Money Manager which lets customers create separate “envelopes” to help control the family budget and put money aside for regular bills.
Mr Letts said: “Our unique business model allows us to bring new free services and products to customers, continuous innovation, and accessibility for all families, regardless of their financial status.
“These experienced investors bring us additional firepower and commercial expertise. We have lots of innovations for 2014 and it gives us the opportunity to create an even better, more differentiated service.”
Ffrees said it currently receives more than 100 new account applications per day. At present, nearly £1m per month is being put into Ffrees accounts, on course to reach the target of £100m a year by the end of 2014, it added.
Mr Letts said: “The real opportunity is there’s an awful lot of people in this country, probably half the people in this country, for whom the typical current account isn’t probably appropriate.
“It relies on people paying a lot of fees and overdraft charges, or having lots of money that the bank can make their interest out of.”
He adde: “We thought there was an opportunity to create an account that adds much more value to people’s lives and helps them save money.” Mr Crawford, founder of the Technology and Innovation Fund, said: “Ffrees’ business model is a springboard for innovation in the banking sector, allowing under-banked, under-served families to access what they need.
Ffrees is already addressing the savings crisis in the UK, and allows families to manage their money better.
“The truth is that the high street banks’ Rolls-Royce offerings are just not relevant to millions of UK families today. Most people simply need a free online facility, which helps them manage their money and save up. Modern technology allows this but legacy bank business models and infrastructure get in the way.”
Speaking about the purpose of the funding round, Mr Letts said: “We have to advertise, communicate with customers, set up the account, provide them with a debit card, fulfil it, provide a service.
“Until the customer has got used to using the account and spending their money and their savings are going up we can’t actually make any money.
“We make money from the retail partners who are paying them for their custom.”
In February, Ffrees announced it had acquired concessions website for the over 50s. OscarUK is a free online service providing a central database of discounts, concessions and information aimed at the UK’s over 50s in a range of areas, including holidays, transport and finance. OscarUK was founded in Leeds in 2004.
Ffrees employs 16 people in Yorkshire. This figure will go up to 20 now that the new funding has been raised, said Mr Letts.