September 16, 2020 · 4 min read

It’s hard to be a fintech during the pandemic

The valley of coronavirus is trapping many fintech companies. Monedo, one of the household names of the German fintech scene, filed for bankruptcy after it was founded in 2012. Modeno focused on alternative lending including microloans, POS installments and buy-now-pay-later services. According to Finance Forward, the company had been hit hard by the laws passed by Monedo’s main markets Spain and Poland allowing borrowers to postpone their debt payments. The company looks to find investors to help Monedo keep operating.

Who else is trapped? Monzo

From 31st October, Monzo is going to charge you a 3% fee for withdrawing more than £250 from an ATM in 30 days unless you set up a direct debit with Monzo or pay in at least £500 every 35 days. So for instance if you withdraw £300 per month, you are basically giving away like two Prêt sandwiches and a coffee. Although given current cashless sentiment all around the globe not many customers will be affected by this new fee, Monzo’s ambition to be your main banking partner is well read. What made Monzo aggressive? Is it just passing on fees charged by the ATM network?

Monzo has two main revenue streams: interchange fees and lending.

Let’s see how much customers spend with Monzo. By the end of February 2020, Monzo had 3.9M customers and they spent a total of £10.9B. On average that comes down to £280 per person per month. I am assuming you are not shopping on Net-à-porter with Monzo, you are not paying with Monzo when you take someone out. You are probably buying a croissant and a coffee in the morning and if you are a good customer, pay Netflix with Monzo.

Moving on to lending, on a £1.39B deposit, Monzo lent out £143.9M and made £25M out of it. Expected credit loss was £20.3M. Lending is all about the deposit game. Monzo’s average per customer deposit is £357. Now the £500 you need to pay in each month to avoid ATM fees starts to make sense. I assume they wanted to make that £600 or £700 (if you add the average deposit and the average monthly spending amount I calculated above, you get £637) but those numbers are so odd, yet Monzo needed to do something so they settled with £500. £500 was their own version of £X.99 strategy. My pure guess.

To diversify their revenue streams Monzo added in paid-in options this year. In March business banking for £5/month, in July Monzo plus for £5/month. Monzo actually rolled out Monzo Plus last September but they stopped offering the plan in 5months. They are late! Starling rolled out business banking years ago and has 200,000 customers with an average deposit of £8,550. Starling’s average retail deposit is £940. Revolut’s Premium and Metal accounts are £6.99 and £12.99 per month. In 2019, Revolut earned £39.5M from its subscription services which makes up a quarter of its total revenue of £162.7M. Though they are aimed at frequent travelers with air lounge perks and overseas ATM withdrawals so it would be interesting to find out the post-COVID results on their travel centric appeal. Revolut’s weapon during the pandemic was its trading feature. Revolut’s “other income” - trading - doubled in 2019 from £10M in 2018 to £20.6M. Revolut also raised $580M this year alone and expanded to Japan too a week ago.

What Monzo can do is to find its niche. Starling focuses on SMBs, Revolut never participated in the deposit war. Some neobanks like Tomorrow and Aspiration target young customers who want their money to be spent on green projects. Brazil’s Nubank stepped into investing by acquiring a brokerage platform Easynvest, a broker.

Now let's talk about Klarna winning a $650M investment from Silverlake, BlackRock, GIC and HMI Capital, valuing the firm at $10.6B. Klarna is officially Europe’s most valuable private fintech. The pioneer of buy-now-pay-later now has 12M monthly active users and over 200,000 retail partners.

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