London's fintechs come of age

On Nov 26, 2015, a little-known fintech startup called Mondo held a small gathering in London where it attempted to sell its vision and handed out "hot coral" banking cards.?

Today, Mondo is called Monzo, and some of the people who attended this closed alpha launch are deeply proud of the low issue number on their cards, in the same way that some people take pride in discovering bands before they go mainstream.?

"I sneaked in and just picked up a card," James Cook, a former technology editor at Business Insider, told LinkedIn News UK, adding that he still has it and that it's a nice Mondo relic. "I'm proud to have been there early, it felt like a proper movement happening and I don’t think anybody wanted to miss out."

While the company had just a few dozen cards in the wild in the early days, before long, there were a few hundred and then a few thousand. Today, there are millions.?

But Monzo, which ranked highest on LinkedIn's UK Top Startups list this year, isn't the only UK fintech company that now boasts millions of customers.?

There's a whole host of them, and they tend to be headquartered in London.?

"The fintech ecosystem in London is probably the best in the world and that's thanks to the ambitious founders, the tech talent and the forward-thinking policymakers who have helped to foster innovation," says Emma Burrows, Stripe's head of engineering in London.

In a way, the city's fintech firms have grown up and come of age, says fintech strategist Sarah Kocianski, who has followed rival fintech apps Monzo, Revolut and Starling since their inception.??

Now the leaders of these companies are looking ahead to the next chapter, but the road forward has the potential to be bumpy given current economic headwinds.?

Here's a closer look at two of the UK's leading fintech firms and where they're headed.?

Monzo

Monzo is a relatively straightforward mobile banking app that allows people to do things like pay for goods, send and receive money, set up direct debits, save money and borrow money.?

It has amassed a loyal customer base, but there was a time not all that long ago when analysts were concerned about Monzo's future.?

"Monzo really struggled at the beginning of the pandemic," says Kocianski, referencing the time in July 2020 when Monzo warned its ability to continue operating had become more uncertain.??

A couple of months earlier, co-founder Tom Blomfield stepped down from his CEO role, passing the reins over to TS Anil, a veteran banker who was 48-years-old when he took the helm.?

(Pictured: Monzo CEO TS Anil)

Monzo has a couple of ways of making money. Like many other banks, the company charges some users a monthly fee in exchange for things like travel insurance or a fancy card. In its last annual report, Monzo said it had 430,000 Monzo Plus, Monzo Premium and Monzo business customers.?

However, not everyone is sold on Monzo's paid-for accounts, which are broadly similar to those its competitors offer.??

"I think what Monzo needs to do is to think about what differentiates its proposition," says Kocianski. "It has had an uptake of its premium offering, but I would say not enough. That can't be what sustains it in the future. It needs to either sell more of those or do something else."?

One thing it could do is try to become a "compassionate lender" over the next 12 to 24 months, suggests Kocianski.

"We know people are going to need to access credit who were not historically able to do so," she said. "Monzo has the technology and kind of brand to maybe be able to fill that gap."?

While Monzo has matured a lot over the years, it's yet to turn a profit. Anil claims it's only a matter of time, however.?

"There is no question that we will be profitable," he says. "We're more than doubling our revenues year on year and we're well on that path."

"If we choose to, we could turn off investing and make the business profitable tomorrow. But that's not in anybody's interests. We are building Monzo for the long term."?

To help the company scale, investors have backed it with around $1.1bn. It was valued at $4.5bn when it raised its last round of funding in December 2021.?

Revolut

Revolut, second on the LinkedIn Top Startups list this year, is the biggest in terms of valuation and customer numbers.?

It has around 20 million users, whereas Monzo only has about 6 million and Starling has 3 million. Investors valued the company at $33bn when they backed it in a $800m funding round last July.?

On a mission to become a financial "super-app", Revolut offers debit cards, in-app foreign exchange, the ability to buy crypto and stocks, and many other services.?

(Pictured: Revolut CEO Nikolay Storonsky)

The company has launched product after product over the last few years, which has helped it to scale quickly.?

However, the company's growth is likely to slow in the coming years due to two main pressures, according to Kocianski.?

The first is pressure from its investors to make good on the money they've put into the company over the years.?

The second is potentially a bigger problem: regulators.?

"It's possible the regulatory burden will get in the way," Kocianski said, noting that Revolut is yet to be awarded a UK banking licence .?

To complicate matters further, the company has struggled to keep hold of staff working in compliance . In the last 18 months, it has lost a UK money laundering officer, a chief risk officer, a data protection officer, and the UK and global heads of regulatory compliance, according to a report by City AM .?

Other big names

There are a host of other homegrown fintech unicorns in the UK, including payment processor Checkout and lender Oaknorth.?

But where do they all go from here? Do they allow themselves to be acquired by a big bank or pursue a stock market listing? Shareholders will no doubt want an exit at some point.?

These are challenging economic times for startups and the days of hypergrowth appear to be over. Many startups have been forced to make layoffs and valuations have collapsed. Sweden's Klarna, for example, saw its valuation fall from around $46bn to $6.7bn this year.?

For now, many of the fintech firms are choosing to keep growing independently, adding more users in more markets whenever they can.

Jay Wilson, an investment director at venture firm AlbionVC, told LinkedIn News UK: "The current market environment is acting as a sorting mechanism, sifting out those with solid business fundamentals, which is healthy."

He added: "It's true to say that a certain vintage of UK fintechs has matured, but this is never the end. As these commoditise, they lay the foundation for the next wave of innovation."

Can the fintech darlings keep on growing or will the looming recession force them to downsize? Let us know in the comments below.