Connect with us


The virus has crushed the challenger bank dream



There comes a time in your life that you realise that some of the friends you used to consider good friends aren’t actually your true friends. These are your party friends. They’re great in the good times, but they lose their charm, or function, when something bad or life-altering happens to you (like losing a loved one or getting seriously ill, for instance).

The phenomenon known as “fintech” grew up in the good times, in the aftermath of the global financial crisis. Fintech firms were great during these party years, when VC money flowed easily, when profitability didn’t seem to matter (in any “tech-enabled” sector), when the idea of “being your own bank” was somehow a positive thing, and when contact with other people felt so normal — so incessant — that having an app that only spoke to you via robots felt like a nice break from the relentlessness of human interaction.

But the party years, for now at least, are over. In the UK, we are suffering our worst recession in 300 years. Globally, the economy is set to shrink by 4.4 per cent this year — the worst contraction since the Great Depression of the 1930s — and the IMF has warned the coronavirus crisis will wreak “lasting damage” on people’s living standards. Regular interaction with different humans is, for now, a thing of the past.

With lockdowns speeding moves to “go digital” across various industries, commerce rapidly shifting online, and cash being shunned as a potential virus-spreader, this should really have been fintech’s time to shine.

And for some, it has been. The less sexy business-to-business — or B2B — fintechs, particularly those that support rapidly growing ecommerce, have performed well on the whole, and have been popular among investors. European B2B fintechs this year have raised €5bn, compared with €3.1bn for business-to-consumer firms. London-based company, which processes payments for online retailers and services, raised $150m over the summer at a valuation of $5.5bn, more than twice the valuation it had raised money at a year earlier.

Klarna, meanwhile, the pretty-looking debt trap for millennials and Gen Zers (but which also tends to get counted as a B2B firm because it provides the payment infrastructure for e-retailers) was valued last month at almost $11bn, making it the most valuable fintech in Europe, having seen a surge of spending on online shopping during the pandemic.

Consumer fintechs

But for the big consumer fintech names, it has been rather different story. Some, such as Monzo, have seen valuations plummet. Both Monzo and Revolut have faced a barrage of complaints from customers who have had their accounts frozen.

In June, Monzo completed a funding round at a 40 per cent discount to its previous valuation, as the coronavirus hit its growth outlook, apparently pretty hard — in July, the challenger bank went as far as to warn that the pandemic had threatened its ability to continue to operate. Eesh. It also had to lay off 120 staff.

In a desperate bid to make some money, never-profitable Monzo has recently launched a £15-a-month premium account, which offers perks like metal cards (apparently some men people like them), and 1.5 per cent interest on balances of up to £2,000. (So that’s a maximum of £30 interest. On a £180-a-year account.) Monzo has tried premium accounts before, it should be said, and it didn’t go too well.

At the height of the lockdown, hundreds of its customers complained they had been shut out of their accounts for sometimes weeks at a time, with Monzo freezing accounts without notice. And the issue doesn’t seem to have gone away — there are now almost 5,000 members of a Facebook group called “Monzo stole our money” and on Trustpilot, 12 per cent of reviews are now “Bad”, with the bulk of the complaints about accounts being shut down or frozen, leaving customers unable to access funds.

Monzo says it has to sometimes freeze accounts in order to “stop criminals using Monzo for illegal activities”. It told The Guardian back in January that when it investigates its frozen accounts, it finds it makes the correct decision in 95 per cent of cases. Which would mean in 5 per cent of cases . . . it’s the wrong decision. Not great.

Revolut (also never profitable apart from a brief period in 2018 when a surge in crypto trading boosted its revenues) has struggled too. While it managed to extend its Series D round with a further $80m in fundraising in June at the same valuation as before ($5.5bn), it has been beset with issues in recent months.

Its revenues have fallen sharply since the start of the pandemic (and that comes after its losses tripling in 2019) and like Monzo, complaints about money going missing for weeks or even months at a time have increased in recent months. Online complaints service Resolver said last month it has received 3,911 complaints about Revolut this year so far, up 2,487 for the whole of 2019, with most of the complaints about not being able to access funds.

Many of these issues predate the pandemic. But it’s when the times get rough that challengers need to really prove that they are just as reliable as the incumbents. Despite having succeeded in acquiring millions of customers and becoming household names, fintechs like Monzo and Revolut have still not managed to acquire a key attribute: fidelity.

SME challengers

In terms of building trust, challenger banks serving SMEs have also not had a great pandemic. Business lender Tide, for instance, which is listed by the government as one of 28 banks offering state-backed bounceback loans, recently had to close its waiting list (which reportedly had 70,000 firms on it!) after many customers had been waiting for weeks, because it just didn’t have the money to lend out. In a recent survey by, while Lloyds got a net positive score of 81 per cent for the way it operates its bounce-bank loan application process, Tide came bottom with minus 90 per cent. Metro Bank has faced complaints about the same issue.

SMEs that are trying to switch banks so as to get access to the loan scheme are finding that most of the incumbent banks, such as TSB and Bank of Ireland, are restricting loans to existing customers. This is the worst possible advertising for fintechs: if customers know that only the big banks will be able to help them when times get tough, they are of course going to dodge the challengers.

Fintechs have complained that the system is rigged in favour of the incumbents and in many ways they’re right. The big banks are too big to fail, and that’s why customers know that they will probably be safe if they bank with them, especially in the bad times. It will take years for fintechs to achieve the balance sheets and loan books that banks have, and they might find that the VC money that has so far kept them afloat is not as readily available in a global downturn.

What fintechs really needed was a crisis so that they could prove once and for all that they were just as good as the best of em (or at least the rest of em). This year, they got just that, but they have failed to prove themselves. The problem, as we see it, is that anything they can do, the big banks can do better. And “innovation” and fun user interfaces suddenly become less seductive when the world is crumbling around us.

In life, when things get rough, you often find yourself back in touch with those old friends and family members who you shunned when you just wanted to party. They might not have been as cool and exciting as your new friends, but they won’t let you down when things get scary.

Deep down fintech customers know this too. While it might be very trendy to say that you hate the traditional banks, not many of us pay our wages into even the most established of their challenger rivals. Fintechs needed to prove that they’re not just there for the good times. They’ve still got some work to do.

Related links:
Monzo: the bank that doesn’t want to be — FT Alphaville
How Monzo is banking on customer apathy — FT AlphavilleRevolut saga spotlights concerns over digital banks’ service standards — FT

Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *


Chancellor spots break in clouds after Brexit, Covid and battered finances




Rishi Sunak will next week deliver a Budget in the shadow of a pandemic, in the aftermath of Britain’s painful divorce from its biggest trading partner and with its public finances, on his own account, under “enormous strains”.

But the chancellor, in an interview with the Financial Times, insisted he can see a brighter future and that his second Budget since being appointed last February will help to build a “future economy” characterised by nimble vaccine and fintech entrepreneurs.

Sunak supported Brexit and now has to show it can work. He knows he cannot expect much help from the EU, which has shown no appetite for opening its markets to the City of London, but still insisted Brexit is an opportunity.

He said post-Brexit Britain would be an open country. “It’s a place driven by innovation, entrepreneurship, taking the agility we have after leaving the EU and putting that to good ends, whether in vaccines or fintech,” he said.

Sunak’s Budget on Wednesday will attempt to flesh out the government’s “build back better” slogan; Britain’s successful vaccine scientists and scrappy tech start-up twenty-somethings will be the poster children of this new approach.

While big and profitable companies are expected to face a hefty increase in their corporation tax bills — part of Sunak’s drive to restore fiscal discipline — the chancellor will focus on companies for whom a profit is a distant dream.

On Friday he told the FT he would launch a new fast-track visa scheme to help Britain’s fastest-growing companies recruit highly skilled workers, as part of a drive to build an “agile” post-Brexit economy.

He said he wanted to help “scale up” sectors such as fintech to compete for the best global talent. The new visa system, he added, would be “a calling card for what we are about”.

Next week Sunak will publish a report by Lord Jonathan Hill, Britain’s former EU commissioner, on the City of London’s listings regime, to make it more attractive for fast-growing tech companies.

“We want to make sure this is an attractive place for people to raise capital — we’ve always been good at that,” Sunak said. “We want to remain at the cutting edge of that.”

The chancellor confirmed Hill will look at whether London can be a rival to New York as a location for so-called Spacs, the modish blank-cheque vehicles that hunt for companies to buy and take public.

He declined to speculate on what Hill will recommend, but gave a broad hint he supports radical reform. “Do we want to remain a dynamic and competitive place for people to raise capital? Yes we do,” he said.

The loss of some City business, including EU share trading, to Amsterdam has reinforced criticism of the government over its negotiation of a trade deal that focused heavily on fish, but hardly at all on financial services.

Last summer the Treasury filled in hundreds of pages of questionnaires from Brussels about its regulatory plans for the City but Britain is still waiting for a series of “equivalence” rulings that would allow UK firms to trade with the single market. It could be a long wait.

When Emmanuel Macron, French president, was asked this month by the FT if he was in favour of Brussels granting “equivalence” to UK financial services rules, he replied simply: “Not at all. I am completely against.”

Sunak insisted he has not given up and that the Treasury remained “constructive and open” in talks with Brussels. But he added: “We live in a competitive world. It’s not surprising other people are looking after their interests.”

Sitting in his sparse Treasury office, stripped of any clutter, wearing his trademark bright white shirt, Sunak said: “We just need to focus on what we’re in control of. I’m enormously confident about both the future for the City of London and, more broadly, financial services.”

At the age of 40, Sunak is only just a year into the job. “When I got the job I had three weeks to prepare a Budget,” he recalled. “I genuinely thought at the time it would be the hardest thing professionally I would have to do in my life.” But that was before the full-blown pandemic hit the UK.

“That Budget turned out, probably, to be the easiest thing I did in my first year in the job. It has been a tough year, dealing with something that nobody has had to deal with before. There was no playbook. We had to move at speed and scale.”

His critics argue that handing out £280bn of borrowed money to support the economy may not have been that difficult either — Sunak’s approval ratings remain very high — and that the really difficult bit is yet to come: trying to rebuild the economy and the tattered public finances.

Conservative MPs are anxious that Sunak’s innate fiscal conservatism might lead him to make unwelcome raids on the finances of core Tory voters and businesses, just as the economy starts to reopen.

The chancellor is expected to freeze income tax thresholds, pushing people into higher tax bands as their pay rises. Another “stealth” move — freezing the lifetime pensions allowance at just over £1m for the rest of the parliament — was reported in the Times on Friday and not denied by the Treasury.

And all the while Sunak will carry on running up debts into the summer to protect the economy from what he hopes will be the last Covid-19 lockdown. He said he is “proud” of what the support measures have achieved so far.

“I’m going to keep at it,” he said. “Some 750,000 people have lost their jobs and I want to make sure we provide those people with hope and opportunity. Next week’s Budget will do that.”

Source link

Continue Reading


‘Digital big bang’ needed if UK fintech to compete, says review




Sweeping policy changes and reform of London’s company listing regime will spark a “digital big bang” for the City and turbocharge the UK’s fintech industry, according to a government-commissioned review.

The report, to be published on Friday, warns that the UK’s leading position in fintech is at risk from growing global competition and regulatory uncertainty caused by Brexit

The review, carried out by former Worldpay chief Ron Kalifa, is one of a series commissioned by the government to help strengthen the UK’s position in finance and technology.

Both sectors are under greater threat from rivals since the UK left the EU in January amid growing global competition to attract and retain the fastest growing tech start-ups. 

Changes to the UK’s listing regime are recommended, such as allowing dual-class share structures to let founders maintain greater control of their companies after IPO. The review also proposes a lower free-float threshold to allow companies to list less of their stock.

Kalifa said the rapid evolution of financial services, from online banking and investment to digital identity and cryptocurrencies, meant that the UK needed to move quickly.

“This is a critical moment. We have to make sure we stay at the forefront of a global industry. We should be setting the standards and the protocols for these emerging solutions.”

John Glen, economic secretary to the Treasury, said more than 70 per cent of digitally active adults in the UK use a fintech service “but we must not rest on our laurels . . . all it takes is a bit of complacency to slip from being a leader of the pack to an also ran”.

He said the government would consider the report’s recommendations in detail. 

The review was welcomed by executives at many of the UK’s largest fintechs and leading financial institutions such as Barclays. Mark Mullen, chief executive of Atom Bank, said the review was “essential to maintain momentum in this key part of our economy and to continue to drive better — and cheaper outcomes for all of us”.

The review also recommended the government create a new visa to allow access to global talent for tech businesses, a move likely to be endorsed by ministers as early as next week’s Budget, according to people familiar with the matter.

Fintechs have been lobbying for a visa scheme since shortly after the 2016 Brexit vote, but the success of remote working since the onset of the coronavirus crisis has reduced its importance for some firms.

Revolut, for example, has ramped up its hiring of fully remote workers in Europe and Asia to reduce costs and widen its potential talent pool, according to chief executive Nik Storonsky.

Charles Delingpole, chief executive of ComplyAdvantage, a regulatory specialist, agreed that fintech was becoming more decentralised. He added that the shift in tone from the government could have as big an impact as specific policy changes. “Whilst none of the policies is in itself a silver bullet . . . the fact that the government recognises the threat to the fintech sector and is publicly acting should definitely help.”

The review also proposed a £1bn privately financed “fintech growth fund” that could be co-ordinated by the government. It identified a £2bn fintech funding gap in the UK, which has meant that many entrepreneurs have in the past preferred to sell rather than continue to build promising companies. It wants to make it easier for UK private pension schemes to invest in fintech firms. 

The report also recommended the establishment of a Centre for Innovation, Finance and Technology, run by the private sector and sponsored by government, to oversee implementation of its recommendations, alongside a digital economy task force to align government efforts.

The review has identified 10 fintech “clusters” in cities around the UK that it says needs to be further developed, with a three-year strategy to support growth and foster specialist capabilities.

Dom Hallas, executive director at the Coalition for a Digital Economy (Coadec), said it was now important that people “follow through and actually implement” the ideas in the review. The sector’s direct contribution to the economy, it is estimated, will reach £13.7bn by 2030.

However, the review also raised questions over the role of the Competition and Markets Authority, saying that the CMA should better balance competition and growth. 

“There is a case for more flexibility in the assessment of mergers and investments for nascent and fast-growing markets such as fintech,” it said. 

“Success brings scale but as some businesses thrive, others inevitably will fail. Some consolidation will therefore be critical in facilitating the growth that UK fintechs need in order to become global champions.”

Charlotte Crosswell, chief executive of Innovate Finance, which helped produce the report, said: “It’s crucial we act on the recommendations in the review to deliver this ambitious strategy that will accelerate the growth of the sector.

“The UK is well positioned to lead this charge but we must act swiftly, decisively and with urgency.”

Source link

Continue Reading


Coinbase: digital marketing | Financial Times




Coinbase will be a stock riding a runaway train. The US cryptocurrency platform wants investors to think long term about the prospects for a global “open financial system”. Most will be unable to tear their eyes away from wild, short-term price swings in bitcoin, the world’s largest digital asset. 

This has its benefits. Coinbase, which has filed for a US direct listing, makes most of its money from commissions on crypto trades. Sales more than doubled to $1.3bn last year. The company has swung from a loss to net income of $322m as crypto prices jumped.

But the company has given no detail on the financial impact of the 2018 bitcoin price crash. Will Coinbase’s 2.8m active retail users and 7,000 institutions hang on if there is another protracted price fall? 

Coinbase was valued at $8bn in a 2018 private funding round and $100bn in a recent private share sale, according to Axois. That rise looks remarkably similar to the increase in bitcoin’s price from less than $5,000 to more than $50,000 this year.

The rally is hard to justify. Bitcoin has not become a widely used currency — nor is the US ever likely to countenance that. It offers investors no yield. Volatility remains high. Elon Musk’s tweet this weekend that bitcoin prices “seem high lol” propelled a sharp fall that hit shares in crypto-related companies. Shares in bitcoin miner Riot Blockchain have lost a quarter of their value this week. 

Prospective investors in Coinbase should keep this in mind. Its listing will take cryptocurrencies further towards the financial mainstream. But risk factors are unusually numerous, including the volatility of crypto assets and regulatory enforcement. 

Both threats are widely known. Another risk factor in the listing document deserves more attention. Vaccination campaigns and the reopening of shuttered sectors of the economy is raising yields in safe assets such as Treasuries. Risky trades may become less attractive. Coinbase might be about to go public just as the incentive to trade cryptocurrencies is undermined. 

If you are a subscriber and would like to receive alerts when Lex articles are published, just click the button “Add to myFT”, which appears at the top of this page above the headline.

This thread is closed to comments due to a history of posts on this subject that breach FT user guidelines

Source link

Continue Reading