You may find this recent article, published in the accountancy press, interesting
Revolut, Starling and Monzo: Battle royal
The three UK heavyweights have battled it out in the fintech squared circle, but who are we banking on for 2020’s champion, and who is living on borrowed time?
In round one, top three contenders Monzo, Starling Bank and Revolut went head-to-head, competing for the UK’s top fintech title.
It’s been a pandemic of a year for the fintechs, but it is time to reveal who is pipped to land the top account.
Sizing up the opponents
Starling founder is ex-banker Anne Boden who has a professional understanding of the banking industry and areas of profit, demonstrated in Starling’s big push into business banking. Business banking has clear revenue streams like business banking services and loans, whereas personal banking has struggled to encourage consumers to pay for personal bank accounts - which are usually free. Reports show Starling customers have already begun spending again, and the sharp recovery of average spending amounts from £500 to £700 puts it in a high seeding, despite being the smallest competitor.
Monzo, on the other hand, was driven to its prime spot as a UK neobank with ex-consultant Tom Blomfield at the helm who had considerably less banking experience before founding Monzo. As a result, his consulting related strengths lie more in strategy than banking, which shows. Monzo went down the fintech route of “Let's build a nice product that people love, and go hard on getting users – we'll figure out the money-making bit later,” said one industry expert. The time has come to figure this part out, but reviews of it’s paid service, Monzo Plus, have only emphasised an ongoing concern.
Revolut’s Nikolay Storonsky is more product-focused, releasing a new feature every few weeks. Storonsky’s background in trading stock and shares, which shows where Revolut has expanded beyond the normal banking services, including commission-free stock trading, crypto-trading and gold and silver buying and selling facilities. Like Monzo, Revolut is racking up the losses where it lacks a strong banking background to ground it in profit-making with the added disadvantage of not having official banking regulations. However, it is building a 'sticky' product in the process, becoming a financial hub, leaving it with more options and routes to go down than Monzo.
Sifted figures
Monzo takes critical hit
In publishing its 2020 accounts first with an independent auditor’s report included (page 79), Monzo chose the short straw, leaving itself exposed and unable to downplay the key issues comprised within the accounts and audit:
One fintech specialist described them as a “what got us here, won’t get us there” company, which will have to change its business structure in order to continue. “I think they're realising that now, with the new CEO and execs. Will they survive the next 12 months? I think so, but I wouldn't want to bet on it. The down round I think was just unfortunate timing with Covid putting them in the position of needing some emergency cash.”
After a year of furloughs, job cuts, a 40% devaluation and the loss of its CEO, it was ultimately the audit that knocked Monzo out of the running for top-dog UK fintech 2020.
Monzo will also have a tough time ahead where turning a profit will become crucial – which could prove difficult with a customer base of primarily millennials - not an easy audience to monetise.
Starling vs Revolut: Final Knockout
Although Revolut’s losses tripled, its revenue increased from £58m to £167m – a significant amount, accounting for its financial expenditure. But does it make money on each user? Revolut accounts suggest not, but internal metrics suggest it does.
“If they're making a gross profit on each customer then the scale of the loss doesn't matter so much. The idea is that they will hit the top of the revenue growth curve at some stage, go through a process of cost-cutting and finding efficiencies to reduce operating expenses, bringing them into a profit,” explained one industry expert.
Unlike Monzo and Revolut, the majority of Starling's customer transactions are domestic within the UK, limiting the impact of coronavirus. “Starling has a different demographic, our customers tend to be more affluent and older,” said Boden. “Our customers use us as a main bank and not a prepaid card, we have a bigger percentage of paying business customers, and we control our cost.”
The results are in: Starling for the win
Despite remaining the smallest, Starling’s unfaltering trajectory of profit-making and expansion makes it the clear fintech champion of the UK, for now.
“In a pandemic, you have to pick profitability because there is nothing like the stability of having a profitable business,” commented battle champion Boden.
“Everyone can respond well when things are going well but a company that can respond well in a crisis is a true litmus test of whether a company will survive.”
In future, this may not be a fair fight as the fintech's path continues to diverge. Revolut sees itself as operating across Europe and the world, and although Starling’s steady growth is the only to be placed at any cost, Revolut has ambitions to pull into the profitability lane by charging for alternative products.
Revolut certainly has the potential to pull ahead in the next couple of years, but the sustainability of Starling’s enterprise makes it the tortoise of profitability in the face of growth-focused hares.
But, as these three continue to develop down alternate paths, a fair comparison could be entirely impossible in the near future.
