Monzo teases IPO as competition heats up between UK challenger banks

19 Jul 2021

Image: © Ascannio/Stock.adobe.com

As Monzo gears up for growth in the US and a potential IPO, the UK challenger bank has a lot of catching up to do with its rivals.

In an interview with Sifted, Monzo’s leadership has again tabled the prospect of an IPO. COO Sujata Bhatia said that an IPO could be on the horizon, while general counsel Stephanie Pagni agreed that such a move would “make sense” for the company.

CEO TS Anil previously told Wired that such a plan could come to fruition by 2023 while the company focuses on growth in the US in the immediate term.

Monzo’s potential stock market listing comes following speculation that payments brand Stripe has taken its first steps toward a public listing and the London Stock Exchange recently saw a boost from the debut of expanding fintech Wise.

The highs and lows of Monzo

From its founding in 2015, Monzo emerged as a strong contender in the emerging race to become Europe’s biggest challenger bank. It was once considered the UK’s second-most valuable fintech firm with a valuation of £2bn. However, the London start-up anticipates a move to go public following a challenging year.

Co-founder Tom Blomfield started Monzo after a controversial departure from Starling Bank, another UK neobank, where he served as CTO. Blomfield was at the helm of Monzo until June 2020, when he stepped into a newly created role as president of the company. He then decided to depart the company in January 2021 after a difficult year under the Covid-19 pandemic.

The closure of its Las Vegas office in April 2020 meant 165 jobs lost, while the UK team saw further redundancies and hundreds of staff furloughed through the summer.

The summer of 2020 also saw the company secure £60m in a down round of funding which resulted in a 40pc drop in its valuation to £1.24bn.

According to recent interviews, the priorities now on Monzo’s roadmap are profitability, US expansion and an IPO.

Anil sees the company becoming profitable in 2022. He said Monzo saw 30pc revenue growth in December 2020, though the year’s losses are expected to hit harder than in 2019, which saw its annual post-tax loss more than double to £113.8m.

This leaves the company trailing behind rivals Starling Bank and Revolut, however. The Financial Times reports that Starling has been profitable since October 2020. Fellow London-headquartered fintech Revolut achieved profitability shortly afterward and has continued to do so monthly – an achievement CEO Nikolay Storonsky expects to hold out.

Revolut has emerged as the forerunner among Europe’s digital banks. Last week, the company surged in valuation following $800m funding from Softbank and Tiger Global. This Series E round saw Revolut’s value take a giant leap from $5.5bn to $33bn, out and out the UK’s most valuable fintech.

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This funding will support Revolut’s global expansion, with a particular focus on the US. This longed-for market for fintechs presents both a lucrative opportunity and a capital-intensive challenge.

Chasing the American dream

A number of native contenders make it hard for European challenger banks to break through in the US, though German start-up N26 has managed to breach the top 10. Revolut sits just outside at number 11 when it comes to US app downloads, leaving Monzo with a lot of distance to make up.

Anil previously led the US operation for Monzo, but his move to global CEO made room for Carol Nelson to step up to take charge of the UK bank’s US arm.

Nelson told Sifted she doesn’t see saturation as an issue in a market the size of the US. Where Monzo could take the lead, however, is with a US banking licence.

Along with Starling, Monzo was one of the early neobanks to be licensed in the UK. Revolut, meanwhile, just submitted an application for a UK banking licence this year.

Storonsky’s start-up is also behind Monzo in securing the same in the US. Monzo filed for a US banking licence almost a year ahead of Revolut in April 2020. N26 went the strategic route of partnering with California-based Axos Bank for its launch in the US in 2019. In 2020, US CEO Nicolas Kopp said that N26 had yet to decide on whether it would apply for a licence of its own.

The locally licensed route is a smart choice, however, as US regulators are cracking down on apps deeming themselves ‘digital banks’ without a banking licence to back it up.

Meanwhile, Starling Bank has its sights set on European dominance via an Irish banking licence. And in Ireland, with traditional banks facing increasing competition from Europe’s digital challengers, four of the country’s pillar banks decided to team up to take them on. A joint venture between AIB, Bank of Ireland, Permanent TSB and KBC Ireland aims to set up its own digital banking services through a new company, Synch Payments.

No love for crypto

Another area of opportunity for fintechs is the booming but volatile cryptocurrency market. Revolut reported that it made a gain of £38.7m on cryptocurrencies in 2020 through its crypto trading service.

However, in the Sifted interview, Monzo’s Pagni dismissed bitcoin as a fad, which could signal differences that inspired another high-profile departure at the company.

A few months after Blomfield’s exit, CFO Alwyn Jones announced that he would be stepping down in the autumn to join cryptocurrency exchange Luno.

Elaine Burke is the editor of Silicon Republic

editorial@siliconrepublic.com