Revolut, Monzo, Starling, Atom and TransferWise are part of a new generation of financial businesses that operate exclusively through mobile and have become indispensable for young British people.
In London, it’s becoming weird to see a Millennial pay for a flat white, the trendy café in the city, with a card from a traditional bank like Santander, HSBC or Lloyds. Just pay a little attention in any cafeteria to see that the young people take out cards from unknown banks (for their parents), like Revolut, Monzo, Atom or Starling.
All of them are part of a new saga of digital banks that is growing by leaps and bounds in the United Kingdom and that many see in the medium term as a serious competitor of traditional banks. They still have very limited services – usually they only offer debit cards, checking accounts and personal loans – but they are receiving the support of large venture capital funds to expand their businesses and, above all, reach new markets.
The biggest attraction of these banks is their mobile application, which allows to control personal finances in an intuitive and very graphic way. It has also been decisive in its cool and fresh business image, away from the scandals of traditional banking after the financial crisis. Finally, the absence of commissions when sending transfers to other countries or paying in local currency when traveling has attracted many business men and women, even without being young Millennials.
As an inconvenience, these new banks do not have branches -something that the youngest do not care because they do everything online-, and they still have to pass the great test: to prove that they are viable businesses with guarantees like the big banks.
Several of these businesses began as projects of entrepreneurs tired of seeing the high commissions charged by banks when transferring money (this is the case of the specialized currency company TransferWise or the Revolut bank). But all have benefited from a looser regulation by the EU, which has allowed to expand the competition and obtain more easily the banking license to operate.
Here also there have been several strategies. Some new banks chose to ask for the banking license and not start their activity until they get it, two years later. This is the case of Atom (participated by BBVA), Starling and Tamdem. Others preferred to launch the business, even without a license, with more modest services, such as pre-paid cards. It was the case of Monzo and the German bank N26.
The most aggressive has been Revolut, which instead of waiting, asked for an e-money license and started trading with exchange rates. Today, Revolut, which applies an aggressive marketing strategy, is the bank that grows the most, with 10,000 new customers a day.
The last example of the strength that this type of company is acquiring was seen last week when OakNorth, a British bank that gives credit to SMEs, became the most valued fintech in the country after the injection of 400 million dollars by the Japanese fund Softbank Vision Fund. This contribution allowed to value the firm in 2,800 million dollars, a record. OakNorth was the first British digital bank to make money, the unfinished business of almost the entire sector.
The company, which obtained its banking license in 2015 and is headed by founder Rishi Khosla, won 10.6 million pounds in 2018. Last year, the record operation in the UK was carried out by TransferWise, which received an investment of 280 million dollars and that also earns money (7.8 million pounds in its last year).
United Kingdom leads the European ‘fintech’ sector, channeling more than half of the investment in 2018
All the other projects are still in losses, although this does not worry investors at the moment, more focused on these companies taking the leap abroad. At the moment, only Revolut has opened an office in Spain, where it already has thousands of clients. Another large digital bank that has announced plans for Spain is the German N26, another fintech that was launched three years ago and has a current valuation of 2,700 million dollars. Its objective is to attract 100,000 customers in Spain.
The British fintech sector has become one of the engines of growth of the economy in the United Kingdom, at a time of great uncertainty because of Brexit. In 2018, the new banks and other projects related to the financial world raised 3,900 million dollars, 56% more than the previous year. The British market already channels more than half of all European investments in the Fintech sector, ahead of Germany and long distance from Spain (28 million dollars in 2018).
The momentum of this sector in the United Kingdom is not casual and partly due to the efforts of the banking authorities to encourage competition after the 2007 crisis, which was on the verge of ending several banks and forced the nationalization of RBS and Lloys, among others. “The role of London as the capital of Europe is indisputable” explains Richard Lumb, head of financial services at Accenture. “The new regulation and initiatives such as Open Banking have created new opportunities in this city” he adds.
The bad guys in the Revolut sector is one of the best examples of the success that the new digital banks are having in the UK. According to company data, the mobile application achieves 10,000 new customers per day, which currently means four million customers worldwide, who spend 3,900 million pounds through their services. Last year, the company raised 250 million pounds of capital to finance its international expansion, which means valued the firm at 1,700 million pounds. The founders of Revolut are the Russian Nicolay Storonsky, a former Credit Suisse broker, and Vlad Yatsenko, a technology expert. Together they want to change the way they operate in banking. “The big banks only promote incompetent” Storonsky told EXPANSION a few months ago.
The digital arm of BBVA Atom is a British bank that has BBVA as its main shareholder. The Spanish bank holds 39% of the shares, after attending several of the capital increases carried out by Fintech. Before April, BBVA has to decide if it launches an OPA and takes 100% of Atom, or prepares an IPO and sells its share. Atom Bank was born in 2014 in Durham, in the north of England, and was launched in 2016. Although it only operates through the mobile application, it is the closest thing to a traditional bank and allows you to open a current account in 10 minutes. It currently has 1,400 million in deposits and 1,200 million in loans to small businesses and individuals. In the last financial year, Atom lost 53 million pounds, “in line with expectations” according to the bank.
The fashion card in London Characterized by colorful coral cards, Monzo is one of the new successful digital banks in the United Kingdom. It was launched in 2015 by several entrepreneurs from Starling Bank, and is directed by Tom Blomfield, 33 years old. The company was born as a mobile application with a prepaid card, but since 2017 it has a banking license from the Bank of England and offers its users the possibility of having a current account. Although in principle it is a bank focused on the final customer, it has started to provide services to companies. Last October, Monzo raised 85 million dollars from private investors, which allowed us to value the company in 1,000 million dollars. The company lost 33 million pounds in 2017 and has 1.5 million customers.
The success of the fair exchange rate In 2007, the Estonian Kristo Käärmann sent a transfer that would change his life. When he realized the exorbitant fees and the bad exchange rate that his bank offered him, he decided to set up TransferWise with his friend Tavett Hinrikus. The company was born in 2011 and has become one of the most successful fintech projects in the United Kingdom. TransferWise manages transfers of more than 3,000 million pounds for its 4 million customers in 57 countries. The firm says it has saved 27 million euros in commissions to Spanish users. The World Bank says that the average cost of a foreign exchange transfer is 7.13%, while TransferWise charges less than 1%. In its last year, the firm earned 6.2 million pounds and is valued at 1.3 billion.
The only bank led by a woman Starling Bank was born five years ago and is a banking application that works through mobile. Your users can open a current account that allows them to have a Debit MasterCard. As it does not have ATMs, the company has an agreement with the Royal Mail (the British Post Office) so that its users can withdraw money from more than 11,500 branches. His last round of financing came last April, when he managed to raise 10 million pounds. In total, the company has received 68 million pounds since its birth for its expansion. The bank is led by Anne Boden, its founder, who previously worked on Allied Irish and RBS. Starling has around 350,000 clients, both personal and corporate, and does not charge commissions when making payments abroad.
Also published on Medium.