The Current Position of Britain's Leading Neobanks

Introduction

The UK, along with the rest of Europe, is often perceived as a challenging environment for tech companies. High-profile acquisitions, such as Arm being acquired by Japan’s SoftBank in 2016 and DeepMind by Google in 2014, are a prime example of such difficulties. However, the UK excels in the service industry, making it an ideal hub for financial technology (fintech) services. This article evaluates the current state of some of the largest fintech companies based in the UK.

Revolut

Though technically not a bank due to its inability to secure a UK banking licence, Revolut effectively operates as a neobank. Neobanks are banks that operate exclusively online without physical branches. Despite the setback from the lessened stability of no banking licence, Revolut has grown immensely, boasting over 40 million customers across around 30 countries.

Recently, Revolut aimed for a valuation exceeding $40 billion, surpassing Barclays and comparable to Lloyds Bank, positioning it as Europe’s largest fintech startup.

Monzo

Monzo, unlike Revolut, holds a UK banking licence, providing it with greater stability. Despite this advantage, Monzo’s customer base is less than 25% of Revolut’s, with operations confined to the UK.

Nonetheless, Monzo reported its first pre-tax profit of £15.4 million in 2023, suggesting that the bank is growing steadily. Funding from Alphabet’s investment arm, CapitalG, has boosted Monzo’s valuation to over £4 billion. The company is planning to expand into Europe, starting with Ireland, and reattempt US operations. These aims suggest an attempt to compete with Revolut internationally.

Starling Bank

Starling Bank also holds a UK banking licence but has a smaller customer base, less than 10% of Revolut. Even with its smaller user base, Starling Bank reported a strong pre-tax profit of £194.6 million for the financial year April 2022/March 2023. Their profits were over 12 times that of Monzo.

Furthermore, Starling Bank has recently launched Engine, a software service that allows other companies to use its banking software for a fee. This strategy enables Starling Bank to expand its financial systems internationally without the associated costs of such expansion. One top investor believes this approach has the potential to boost Starling Bank’s valuation to around £10 billion.

Conclusion

These three neobanks are demonstrating remarkable and accelerating performance. Revolut, as Europe’s largest fintech startup, strives for a valuation of $40 billion driven by its extensive operations.

Monzo is expanding internationally by directly challenging Revolut. In contrast, Starling Bank is focused on monetising its proprietary services, allowing for a global expansion through other companies. The latter’s strategy appears strikingly similar to that of Nvidia’s approach in the Artificial Intelligence race.

Each neobank has carved out a path to success in the competitive fintech landscape and have each demonstrated the strength of the UK fintech industry.

By William Payne