Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Europe's digital banks got a 'wake-up call' in 2020. And consolidation could be coming

Europe's digital banks got a 'wake-up call' in 2020. And consolidation could be coming

Investors want fintech challengers to show they can monetize their products and eventually make a profit. Experts say the space is ripe for some consolidation.

In a year when online banking has taken off, you’d think it would be a golden opportunity for Europe’s digital challenger banks to shine.

Research from Mastercard last month found that 42% of Europeans handle their finances digitally more frequently than they did before the coronavirus pandemic, while 62% are thinking of switching from physical banking to digital platforms altogether.

But many of the so-called “neobanks” have stumbled in 2020, with the likes of Monzo and Revolut revealing deepening losses and getting hit with a multitude of complaints from customers about service.

Monzo, whose founder Tom Blomfield stepped down as CEO earlier this year, caused concern after flagging “significant doubt” about its ability to continue “as a going concern” due to disruption from Covid-19.

Now, neobanks are under tremendous pressure to show they mean business. Investors are pushing the fintech challengers to demonstrate that they’re able to monetize their products, and eventually make a profit. Experts say the space is ripe for some consolidation.

“Thanks to this crisis, there has been a wake-up call to some of these neobanks,” Ali Niknam, CEO and founder of Dutch online bank Bunq, told CNBC in an interview. “To run a healthy business, you need healthy business conduct.”

Can the digital banks survive Covid?


For Niknam, not all digital banking upstarts will make it through the Covid-19 pandemic.

“The complexity of having a start-up, having to compete with these gigantic incumbents and having such a heavy burden of regulation is a mix that not many can muster,” he said. “Those who survive this economic downturn will have a great future ahead.”

Like many start-ups, Bunq is itself loss-making, with Niknam expecting the firm to lose around 14 million euros ($18.5 million) this year.

The firm’s founder said he is able to fund those losses with the profit he makes from another company he owns, internet domain name provider TransIP. To date, Bunq hasn’t accepted any external funding from venture capitalists, and Niknam remains its sole shareholder.

Nik Storonsky, founder and CEO of Revolut, agreed with Bunq’s boss, and suggested some firms could become the target of takeovers bids.

“Certain banks won’t be able to survive this Covid thing because they are too reliant on payments and interchange, especially here in Europe,” he told CNBC.

Much of the start-up banks’ revenues come from fees which are generated each time a customer uses their card to make a payment.

“We’ll clearly see some winners and losers in this game in Europe, and maybe some M&A activity as well,” Storonsky added.

Last month, the U.K’s Times newspaper reported JPMorgan and Barclays had shown an interest in buying U.K. digital lender Starling. But Anne Boden, Starling’s founder and CEO, poured cold water on the report, saying her firm was more likely to acquire a lender itself.

“It’s very flattering when you hear rumors about big banks like that,” Boden told CNBC. “For ourselves, we are probably going to acquire something during 2021.”

“Lots of lenders are going to reevaluate their future and we are growing very, very fast,” she added. “We’re always looking for opportunities.”

Tom Merry, managing director of banking strategy at Accenture, said a big bank acquisition of a neobank would be questionable due to “sky high” valuations in the sector, and as many fintechs have struggled to convert their users into primary account holders.


Can they make a profit?


Europe’s neobanks have gained millions of users thanks to offering little to no fees on top of a slick user experience. But they “still lack scale” versus incumbents like HSBC, Barclays, NatWest and Lloyds, Merry told CNBC.

“If the neobanks are able to turn great customer affinity and numbers into revenue growth whilst maintaining their cost advantage, profitability will follow,” he added.

The challengers have been racing to roll out new products in an effort to bring in new revenue streams and edge toward profitability. Revolut, Monzo and N26 all now have premium subscriptions, while some firms have been branching out into business banking.

Revolut, by far the largest neobank in Europe with over 13 million users and a valuation of $5.5 billion, itself broke even for a second time in November, recovering from a sharp drop in revenues at the start of the pandemic.

Starling similarly managed to enter the black in October, eking out an £800,000 ($1.1 million) profit. The company is currently in the process of raising a new round of funding ahead of an anticipated European expansion next year.

“The high street has been replaced by Amazon,” Boden told CNBC. “The analogy is, what’s happened in banking is that the high street banks have been replaced by the digital banks.”

But Alex Zivoder, CEO of children’s banking app Gohenry, said his challenger bank peers shouldn’t shy away from charging for their services. The start-up offers a “Netflix-like” model that sees parents pay a monthly subscription for their kids’ accounts.

“It’s quite difficult to sustain a business just on interchange,” Zivoder told CNBC. “When you have a very clearly-defined, well-understood product with good take-up from customers, they are happy to pay for it.”

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
France Faces New Political Crisis, again, as Prime Minister Bayrou Pushed Out
Nayib Bukele Points Out Belgian Hypocrisy as Brussels Considers Sending Army into the Streets
France, at an Impasse, Heads Toward Another Government Collapse
The Country That Got Too Rich? Public Spending Dominates Norway Election
EU Proposes Phasing Out Russian Oil and Gas by End of 2027 to End Energy Dependence
More Than 150,000 Followers for a Fictional Character: The New Influencers Are AI Creations
EU Prepares for War
Trump Threatens Retaliatory Tariffs After EU Imposes €2.95 Billion Fine on Google
Tesla Board Proposes Unprecedented One-Trillion-Dollar Performance Package for Elon Musk
Gold Could Reach Nearly $5,000 if Fed Independence Is Undermined, Goldman Sachs Warns
Uruguay, Colombia and Paraguay Secure Places at 2026 World Cup
Trump Administration Advances Plans to Rebrand Pentagon as Department of War Instead of the Fake Term Department of Defense
Big Tech Executives Laud Trump at White House Dinner, Unveil Massive U.S. Investments
Tether Expands into Gold Sector with Profit-Driven Diversification
‘Looks Like a Wig’: Online Users Express Concern Over Kate Middleton
Florida’s Vaccine Revolution: DeSantis Declares War on Mandates
Trump’s New War – and the ‘Drug Tyrant’ Fearing Invasion: ‘1,200 Missiles Aimed at Us’
"The Situation Has Never Been This Bad": The Fall of PepsiCo
At the Parade in China: Laser Weapons, 'Eagle Strike,' and a Missile Capable of 'Striking Anywhere in the World'
The Fashion Designer Who Became an Italian Symbol: Giorgio Armani Has Died at 91
Putin Celebrates ‘Unprecedentedly High’ Ties with China as Gazprom Seals Power of Siberia-2 Deal
China Unveils New Weapons in Grand Military Parade as Xi Hosts Putin and Kim
Rapper Cardi B Cleared of Liability in Los Angeles Civil Assault Trial
Google Avoids Break-Up in U.S. Antitrust Case as Stocks Rise
Couple celebrates 80th wedding anniversary at assisted living facility in Lancaster
Information Warfare in the Age of AI: How Language Models Become Targets and Tools
The White House on LinkedIn Has Changed Their Profile Picture to Donald Trump
"Insulted the Prophet Muhammad": Woman Burned Alive by Angry Mob in Niger State, Nigeria
Trump Responds to Death Rumors – Announces 'Missile City'
Druzhba Pipeline Incident Sparks Geopolitical Tensions
Cost of Opposition Leader Péter Magyar's Economic Plan Revealed
Germany in Turmoil: Ukrainian Teenage Girl Pushed to Death by Illegal Iraqi Migrant
United Krack down on human rights: Graham Linehan Arrested at Heathrow Over Three X Posts, Hospitalised, Released on Bail with Posting Ban
Asian and Middle Eastern Investors Avoid US Markets
Ray Dalio Warns of US Shift to Autocracy
Eurozone Inflation Rises to 2.1% in August
Russia and China Sign New Gas Pipeline Deal
Von der Leyen's Plane Hit by Suspected Russian GPS Interference in an Incident Believed to Be Caused by Russia or by Pro-Peace or by Anti-Corruption European Activists
China's Robotics Industry Fuels Export Surge
Suntory Chairman Resigns After Police Probe
Gold Price Hits New All-Time Record
UK Fintechs Explore Buying US Banks
Greece Suspends 5% of Schools as Birth Rate Drops
Apollo to Launch $5 Billion Sports Investment Vehicle
Bolsonaro Trial Nears Close Amid US-Brazil Tension
European Banks Push for Lower Cross-Border Barriers
Poland's Offshore Wind Sector Attracts Investors
Budapest Central European Fashion Week Kicks Off
U.S. Celebrates Labor Day
Hungarian National Team Captain Scores Epic Goal
×