by Matthew Dove
The past decade has seen the rise of the challenger bank. It’s an agile, tech-savvy new prospect designed to place the consumer at the centre of the financial universe and rob legacy institutions of their fiercely-guarded market hegemony.
Whilst measures like PSD2 and the Capability and Innovation Fund have allowed numerous challenger banks to thrive in the UK, few have picked up the kind of momentum required to unsettle the City’s old guard. However, there are 4 digital banks who might just have what it takes. Monzo, Revolut, N26 and Starling are all making serious noise and here we’ll compare and contrast the fortunes of this most disruptive quartet…
HISTORY
The oldest newbie on our list is N26 (known as Number 26 until 2016) which was founded in February 2013. Headquartered in Berlin, the challenger rose to prominence in 2016 when PayPal founder Peter Thiel took a break from suing news agencies and ponied up €10 million through Valar Ventures. Starling was founded by UBS and RBS alum Anne Boden in 2014 and is arguably the UK’s oldest challenger. Having fostered a reputation for hiring the best and brightest it comes as no surprise that another digital bank was conceived inside its walls.
Monzo (formerly Mondo), established in 2015, is the brainchild of Tom Blomfield, Jonas Templestein, Jason Bates, Paul Rippon and Gary Dolman, all of whom started out at Starling. In the same year, Revolut entered the market with former Lehman Brother and Credit Suisse derivatives trader, Nikolay Stronosky at the helm.
NUMBERS
By 2018, Monzo had upgraded all its pre-paid clients to full-account holders and boasted of a hugely successful funding round which brought in excess of £100 million into the coffers. This year, the bank’s annual report cited another £113 million on top of that, as well as 2 million active users with deposits totalling £461.8 million as of Feb. 2019. All this brought to you by a team of just 713 “Monzonauts”.
As of summer 2019, N26 asserted that it has 3.5 million users across 24 European countries. The volumes involved aren’t to be sniffed at either. The Germans are handling €2 billion per month and the equivalent of 400 transactions per minute with a staff of 1,300.
With an estimated value of $1.5 billion, Revolut’s 750+ employees are no slouches. The challenger has a reported 6 million users who’ve engaged in over 350 million transactions with a combined worth somewhere north of $40 billion.
As of summer 2019, N26 asserted that it has 3.5 million users across 24 European countries. The volumes involved aren’t to be sniffed at either.
Starling is bringing up the rear with 650,000 users as of summer this year, as well as a fledgling SME business (established in 2018) totalling 55,000 accounts. Don’t write off the little-challenger-that-could just yet though as they’ve also secured a £100 million slice of the Capability and Innovation Fund. Starling clearly has the confidence of the UK government. As Boden told us in June;
“The intention of the fund is to break the stronghold of the big banks in the SME market. It’s been awarded to the banks that can actually shake up the competition.”
BUSINESS OFFERING
All four offer digital banking services but with subtle differences in their business offerings. N26 provides a free basic current account and a Debit MasterCard card to all its customers, as well as a Maestro card for their customers in certain markets. Additionally customers can access option overdraft and investment products.
Pipping Starling to the SME post by a year, Revolut are moving fast (whilst presumably hoping to avoid breaking things) by offering an extensive package beyond mere retail products. As their website puts it;
“Revolut for Business is a business account platform for domestic and international payments, designed to save you time and money … Our Open API allows you to seamlessly integrate your Revolut business account into your workflow. Use it to automate cross-border business payments, send payouts to clients or employees and monitor transactions according to your business’ needs.”
Not convinced? Check it out for yourself!
Surprisingly, Monzo have been a little slower off the mark. As of February 2019, the current account whiz had only tentatively launched its first 100 business accounts on a trial basis.
WHOOPSIE DAISIES
Running a bank ain’t easy, just ask Fred Goodwin. So, it’s not surprising that our four upstarts have hit a few road bumps along the way. Revolut has perhaps led the field in whoopsie daisies this year; in March the challenger faced a FCA probe of lapses in its AML protocols as well as garnering a reputation for having a “toxic” office culture. And that’s without mentioning the company’s ill-received attempt at a humorous Valentine’s Day ad campaign (in which customers who’d ordered takeaway-for-one on the 14th were asked, “you OK hun?”). Sorry, I suppose I did mention it…
Similarly, N26 has found itself subject to unwanted attention from the regulator over its anti-money laundering safeguards. Following a probe, BaFin ordered the German digital bank to remove backlogs in monitoring, establish process descriptions and workflows in writing, and re-identify a number of pre-existing customers.
Running a bank ain’t easy, just ask Fred Goodwin.
Blomfield’s baby may have problems of a slightly different order, as the heady pace of its ascent shows signs of taking its toll. Monzo’s last annual report revealed losses rising to £47.2 million, up 54% on the previous year with Blomfield himself conceding that there’s, “still plenty of work to do to get to profitability.”
Starling’s most public source of consternation stems from its seeming inability to cling to some of its most talented employees. The bank has lost product director Ben Chisell, (who departed for a position at Oaknorth), Megan Caywood (now at Barclays) and, most recently, COO Julian Sawyer in the last 7 months alone.
CONCLUSION
It’s apples and oranges isn’t it? A matter of taste. When it comes to challenger banks, only a fool makes concrete predictions, the sand shifting beneath our feet on an almost daily basis.
In terms of international remittance, Revolut is probably the best bet offering as it does the interbank rate. Starling and Monzo on the other hand charge the MasterCard rate. Unlike Revolut though, Starling and Monzo both offer interest with their current accounts for savers although neither is juicy enough to trouble the incumbents much.
Who’ll dominate the market and who’ll slip beneath the waves? Well, that’s anyone’s guess…
Blomfield and Boden seem to have their apps nailed although N26 and Revolut aren’t far behind when it comes to ease of use and UX. Open banking APIs also allow Monzo and Starling users to see all their accounts in one place via partnerships with Yolt.
Despite all the bells and whistles, the differences between N26, Monzo, Revolut and Starling are superficial. The same could be said of the differences between the challengers and the legacy banks. Like Goldman, Barclays and co., our intrepid quartet still face the age-old problem of generating revenue without falling foul of the regulator.
With each of our four investing heavily in the expansion of its offerings and services to achieve just that, the only predication one can confidently make is that the line between challenger and incumbent will continue to blur. Who’ll dominate the market and who’ll slip beneath the waves? Well, that’s anyone’s guess…
