Seven years ago, the first new retail bank in almost a century got its licence to open: Metro Bank. Now, there are so many new banks starting up in Britain (and across Europe) that it’s sometimes hard to keep up with it all. There are app-only startup banks (Atom, Monzo, Starling, Tandem), foreign exchange payment cards (Revolut, SuperCard), personal financial management apps (Loot), business accounts (Tide), accounts for migrants and the low paid (Monese, Pockit), and even a card to help you manage all your cards in one (Curve). Collectively, these startups have raised hundreds of millions of pounds.
This is all happening in the UK in the last few years when, before then, I can’t remember any new bank starting up during my lifetime. Something is happening. It’s called competition. Even so, with almost 50 banks in the pipeline, it’s too many. They won’t all last, and some are already stumbling. The critical difference being funding, as I referred to the other day. This is why the ones we talk about the most – Atom, Starling, Monzo, Tandem – are those most funded.
- Atom Bank has raised $268m in three rounds from six investors so far.
- Tandem has raised $77m in three rounds from eight investors.
- Starling Bank raised $70m from one investor.
- Monzo has raised $45m in six rounds from six investors.
This differentiates them from others who have yet to announce a single funding round. Therefore, there are some here to take seriously, but others that are just announcements. I wrote about that theme a year ago, so don’t want to repeat it here. What I did think I’d do is write about how hard it is to launch a new bank, which is why we should applaud those that are succeeding in development. Or are they? (The Spectator recently wrote an interesting piece about this.)
The right talent
I agree that the hardest challenge is getting funding, but also getting the right talent is a challenge. We’ve seen plenty of in-house arguments among some of the key players. There have been more joiners and leavers in early days than I can count on both hands. Equally, even with the right funding and talent, there’s still the big question: customers. How will you build a market base? These are still questions to be answered for some of those who have the funding in place.
There are some fintechs out there that have got some very questionable models. If you’re giving away your service for free, your sole lifeline is venture capital money. There’s no real discernible revenue stream – Stephen Lemon, co-founder of Currency Cloud
In an interesting piece written by Tomáš Vyšný on Medium (well worth the 10-minute read), he challenges the thinking of Atom and Monzo and compares some of these funded startups with Zuno, a failed bank in CEE.
I’m not as pessimistic as this, although the will.i.am announcement from Atom did worry some, but I do see the Uber effect. Everyone gets excited about a fintech startup and doesn’t look closely enough under the hood. Oh, in case you weren’t aware of the Uber effect by the way, you should read the article ‘Uber is doomed‘ by Ryan Felton on Jalopnik a couple of weeks ago. Again, it’s worth the 10-minute read, and this paragraph sums it up well:
In 2016, “Uber burned through more than $2bn, amid findings that rider fares only cover roughly 40% of a ride, with the remainder subsidised by venture capitalists, it’s hard to imagine Kalanick could take the company public at its stunning current valuation of nearly $70bn.”
Wow! Just wow.
The 50 new names
Anyway, there are many worrying whether any of these new bank startups can succeed. Of these 50 new names, I’m confident that at least five will find their niche. 10-15 may break through, but will find it tough. Another 10 or so are backed by foreign banks, and will move along thanks to their parent’s support. And around 20 are probably going to disappear. Oh, and just in case you’re wondering who the 50 new names are, Banking Technology provides a nice roundup:
- Aldermore Bank
- APS Financial
- Atom Bank
- Axis Bank UK
- British Business Bank
- Cambridge & Counties Bank
- Charter Savings Bank
- Coconut (formerly Monizo)
- Community Savings Bank Association (CSBA)
- Coombs Bank
- Copernicus Bank
- FCMB UK
- Fidor Bank
- First Global Trust Bank (FGTB)
- Hampden & Co
- Hampshire Community Bank
- Hampshire Trust Bank
- ICBC UK
- Lintel Bank
- Metro Bank
- Monzo (formerly Mondo)
- OneSavings Bank
- Paragon Bank
- Private and Commercial Finance Group (PCFG)
- Redwood Bank
- Shawbrook Bank
- Starling Bank
- Tandem Bank
- Templewood Bank
- The Services Family
- Together Money
- Union Bank of India (UK) Limited
- Wyelands Bank
– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Main image: Kaissa, Shutterstock.com