Neobanked - 011 It’s all about the business

The pandemic brings challenge and opportunity to the neobanks.

Throughout 2020 I’ll be publishing a newsletter called Neobanked. Issue 011 is below and you can subscribe here. Any thoughts or ideas are always welcome, get in touch!

Welcome to Neobanked, a newsletter focused on the quickly evolving UK digital banking market. I hope to gather enough interesting tidbits and news to share this every two weeks.

For me, Neobanks are digital-only offerings that apply internet economics (i.e. zero marginal costs) to the banking sector. My focus will be on companies such as Monzo, Revolut, and Starling.

Through this newsletter I hope to cover each of these companies as they continue to grow within the UK and beyond. Some of the regular features will include user number growth, new product/feature releases, and links to relevant interviews and analysis.

News this week

Revolut’s licensed banking service goes live in Lithuania

The licence now protects customer deposits up to €100,000 under the Lithuanian Deposit and Investment Insurance scheme. Furthermore, the company plans on offering loans and credit cards soon as a result of the licence. Revolut is yet to apply for a UK licence, so customers there will remain part of the e-Money offering, which offers no deposit protection.

Starling lends £90m in 24 hours through the Bounce Back Loans scheme

Starling has been quick to react and deploy COVID-19 related interventions. Details of the scheme are noted below.

Starling partners with Funding Circle to broaden its lending distribution

Starling is now part of Funding Circle’s panel of investors, allowing it to distribute their COVID-19 related lending solutions even more widely. The announcement commits to providing £300m in loans to small businesses.

Monzo valuation expected to drop ~40% as the neobank looks to raise £70-80m

Fintech valuations are down across the world as a result of COVID-19’s economic impact. However, reports indicate Monzo’s previous rounds were overly optimistic with a valuation of £2bn. The down round is preferable to a distressed sale to an incumbent bank but increases the pressure on Monzo (and other neobanks) to demonstrate a profit in the short term.

New and upcoming feature releases

Tide launching overdraft, credit facilities, and P2P business lending

In partnership with Mambu, Tide will soon allow businesses to use overdrafts, credit cards, and invoice financing. The Mambu platform will also allow businesses to lend to other businesses, an interesting product innovation that may be a better fit that traditional retail P2P lending.

Starling offers Bounce Back Loan Scheme support to small businesses

Small businesses can apply for loans of £2,000 to £50,000 free of interest and capital repayments for 12 months (2.5% thereafter). Starling recommends completing the application using a PC, rather than through the app; they included a video of the process.

Recent reports and studies

FT: A look into children’s financial education

The Financial Times speaks with a number of fintechs about financial education, exploring a number of tools and guidance.

A continued focus from Starling on small business banking during the pandemic will certainly cement their image as a strong financial partner for years to come. Monzo and Revolut are beginning to face their own challenges in the UK market and their business offerings still have a lot of catching up to do; aggressive growth plans aren’t as viable in a market where consumer spending and confidence is rock bottom.

Written on May 17, 2020