Starling, Revolut and Monzo: The fintech smackdownby
It’s been a tough year for the fintechs, to say the least. With record losses and some companies’ status as going concerns under question, which British fintech is set to come out on top? In the first of a two-part series, Maddy Christopher monitors what’s brewing at Revolut, Starling Bank and Monzo.
Over the last decade, Starling Bank, Monzo and Revolut have become household names in the UK fintech scene, offering a fresh vision of what digital banking can be.
But with economic pressures mounting from the global pandemic, and an audit scandal that disrupted companies relying on payment provider Wirecard, the world of the fintech is being put under an intense microscope.
Starling, Monzo and Revolut have started to dominate the scene, accompanied by an abundance of trading news and investment updates. But with the wider market in turmoil, which out of the three digital heavyweights will come out on top?
“It isn’t surprising that all eyes are on this trio given that they are three of the UK’s fastest growing companies and that fintech is one the true success stories of the UK economy over the last three years,” commented chartered accountant and fintech specialist Nick Levine.
“As time has gone by, the three banks have begun to distinguish themselves from one another,” said Levine. “Revolut has become an expert at shipping new products and features (loyalty, share trading, currency conversion and so on), and is now very much considered to be in the ‘super app’ category. Could they become the WeChat of the UK?”
As if a global pandemic wasn’t enough, the recent Wirecard scandal brought associated fintechs to a grinding halt when the FCA froze the payment processor’s assets. The episode cast a broader shadow over the fintech ecosystem as concerns mounted over the sector’s infrastructure.
Revolut narrowly avoided disruption to its service as “it was smart enough to move away from Wirecard before the scandal broke”, said Levine. Curve, however, responded prudently by accelerating its break from Wirecard just 60 hours after the service went down.
Although Starling Bank, Monzo (both accredited and regulated by the FCA as banks) and Revolut (known in industry terminology as an electronic money institutino, but not a bank), do not use Wirecard – all fintechs suffered from the reputational fallout. In a period of financial unrest where credit is king, trust in the fintech services took a serious hit, affecting funding and valuations alike.
At the start of 2020, UK-based unicorn Revolut seemed to be on the rise as it jumped up the rankings to become Europe’s highest value fintech at $5.5bn after a $500m Series D funding round.
However, losses also tripled from £32.8m in 2018 to £105.6m in 2019 (£115.4m pre-tax) where it had invested heavily in staff and global expansion (US, Singapore and Australia) and new products such as a commission-free stock trading facility.
Losses have continued since then, despite revenues increasing 180% to £162.7m (£58.2m in 2018) and its customer base jumping from 3.5m to 10m.
CEO Nikolay Storonsky focuses on measures other than profit and loss, however, and claimed in a recent statement: “While we still have some way to go, we are pleased with our progress in 2019. We increased daily active customers by 231% and the number of paying customers grew by 139%.”
Rumours suggest that Revolut may make more redundancies to tighten the purse strings. “Nikolai will just fire everyone who costs him money (as usual). Company culture inside is so toxic that it’s a miracle they stayed above the water even for this long. Luckily most of us just ran away,” said one Sifted reader.
Storonsky, perhaps unintentionally, supported the rumour by asserting he would concentrate on “reducing our operational costs” to recover over the coming months. This is despite heavy spending last year to expand prepaid cards into Singapore and the US and hiring 3,500 new staff.
Despite doubling its pretax loss to £53.6m last year, Starling announced earlier this month that its annualised revenue had reached £80m and expects to break even by 2021.
A recent letter from CEO Anne Boden detailed the digital bank’s growth during 2020, with deposits tripling to £3bn, retail accounts increasing from 926,000 to 1.25m and small business and sole trader accounts more than doubling to 200,000. Starling’s loan book has grown from £100m in November 2019 to over £1bn in July 2020, and has it has approved £903.1m in government-backed loans.
“We’re doing really well financially, and it’s a horrible thing to say, but the crisis has given us the opportunity to focus on getting new products out and consolidating our position,” commented Boden.
“Something which stood out for me from the latest annual results is that Starling’s deposit per customer is £999,” said Levine. “In spite of Starling having a significantly smaller customer base, this is three times higher than Revolut’s (£236).”
“Starling has excelled in growing its business banking category and has been particularly successful in helping the government administer Covid loan schemes,” said Levine. But you don’t hear too much about their banking as a service revenue stream, which results in them selling payment services to other fintechs,” he added.
The neobank has yet to furlough an employee, instead, hiring 147 since lockdown in March.
Only last year Monzo was considered the UK’s second most valuable fintech. Since then, it has been burning through cash, taken a hit on customer card take up, furloughed hundreds of employees and closed its Las Vegas office along with 165 US jobs. The result of which has been a 40% drop in Monzo’s valuation and a doubling of pre-tax losses in 2019 to £115.4m.
To add salt to the wound, Monzo co-founder Tom Blomfield resigned as director weeks after stepping down as CEO. The digital bank acknowledged doubts over its ability to survive as a going concern, following a warning from its auditors of “material uncertainties that cast significant doubt upon the group’s ability to continue”.
Amid rumours that the neobank could go under, others are less concerned about its future. “Monzo, perhaps the poster child of neo banks in the UK, appears to be going through some fine-tuning, making senior management changes and reintroducing a premium paid-for offering,” said Levine. And with 98% of Monzo’s deposits (£1.4bn) remaining untouched, there is some evidence to support Levine’s optimistic assessment.
In the final episode of the digital finance smackdown series, the three fintechs will be subjected to head-to-head match-ups to find out which one is likely to come out on top.