Investors have lost their appetite for backing fintech companies on the back of the chaos unleashed upon global markets. At the same time, incumbent players like Goldman Sachs and JP Morgan have launched digital banks of their own, seemingly to compete with the likes of Monzo, Revolut and Starling Bank.
However, the CEO of Monzo seemed unfazed by any of these threats when he spoke at the Accel Fintech Summit EMEA on Tuesday, November 29. In fact, he welcomed the growing competition.
“When the big boys come and want to copy what you’re doing, it just means that what you’re doing is working,” he said, adding that he welcomed anyone who tried to raise the standards of financial services and that “new players coming in are only scratching the surface” of the opportunities in this space.
“Incumbents don’t have a great history of reinventing their own industries”
Anil also took the opportunity to throw some shade at traditional banks launching platforms similar to the ones provided by neobanks.
“Incumbents don’t have a great history of reinventing their own industries,” he said. “[There is] a long list of people that have tried before them.”
The Royal Bank of Scotland‘s (RBS) digital bank Bó is probably the clearest example. Bó first saw the light in November 2019. At the time, it was touted as the incumbent bank’s attempt to launch a “Monzo killer” following a rumoured botched deal where RBS had failed to buy Monzo two years earlier.
At the launch, Bó came complete with several features already commonplace among challenger banks, such as its own debit card, current account and a piggybank feature.
However, Bó was hobbled with problems from the get-go. It was weighed down by accusations of posting fake positive reviews, fraudulent accounts applications and a clunky interface. Then in February, it was forced to replace 6,000 of their customers’ cards as its old ones were non-compliant with the EU’s strong customer authentication rules.
While it attempted to drum up a positive buzz for the app by enlisting the help of influencers, those efforts were for nought. RBS announced in May, six months after the launch, that it would “wind down Bó”.
Goldman Sachs‘ digital bank Marcus is not faring much better. While the offshoot is still up and running, the securities firm confirmed in October that Marcus isn’t getting the grades it needs. Marcus had helped attract over $100bn in deposits, but Goldman Sachs’ internal projections suggest that the bank could lose more than $1.2bn in 2022.
These results have put Marcus’ future in doubt. Reports suggest that Marcus’ products could be moved into Goldman Sachs’ wealth management business while its checking accounts will be steered towards affluent clients and employees at corporate partners.
TS Anil is a fintech veteran
Anil’s attitude towards incumbent players has been forming for some time. Before becoming the global CEO of Monzo in May 2020, Anil had established himself as a fintech veteran. Over the years, he’d clocked up experience at big movers like Citi, Capital One, Standard Charter Bank and Visa.
However, during that time he felt restrained, as if he could only change so much. Anil said that older banks, while being able to provide plenty of benefits to customers, were inherently held back by legacy structures.
What excited him about the Monzo team was that he believed “this was the rocket ship that will take us where we need to go to.”
“It just felt like this could be something special,” Anil said.
He said that contrary to all other startups that say that they are mission-oriented, Monzo really is mission-oriented. To see that that was the case, that was why he joined Monzo as its US CEO in February 2020.
New Monzo CEO stepped in during the pandemic
Monzo had a tough pandemic. That surprised some who’d seen it achieve success after success since its launch in 2015.
Ever since the founding team had broken out of Starling Bank to launch the company, the UK neobank had gone from strength to strength. Its popular coral debit card had become a status marker around the Silicon Roundabout.
The success and continuous growth – albeit no profitability – also attracted a steady stream of financial backers. In 2019, Monzo raised a massive £113m Series F funding round that propelled its valuation past the $2.4bn mark.
At the start of 2020, it announced plans to hire 500 new employees and was gearing up to go big in the US. Anil had been hired as part of that push. Then the pandemic hit.
The coronavirus crisis sent shockwaves across the fintech space, with industry stakeholders introducing remote working and furlough schemes in order to save their business and their employees.
Then-CEO and co-founder Tom Blomfield announced at the end of March that he wouldn’t take out a salary for a year in solidarity with workers. Several board members would also take a 25% pay cut.
In the summer, it became clear that Monzo was struggling. Not only did it report record losses, but it also suffered through a brutal down round that slashed its valuation by 40%, down to £1.24bn. In May, Blomfield stepped down as CEO, but remained as president.
In January 2021, Blomfield stepped down as president as well, citing mental health issues. Blomfield has stayed busy after leaving the digital lender. He has embarked on a new career as an early-stage startup investor, leveraging his experience as a tech startup founder.
In his efforts to reinvent himself as a trusted investor, Blomfield last year shared a story about a SoftBank investor who allegedly picked his feet during an investment meeting. So far, the ex-CEO has invested in the likes of dating app Thursday and metaverse concert startup Condense.
Anil stepped in as the new global CEO of Monzo following Blomfield’s stepping down from the role. When asked about his experience of taking over from the founder, he likened it to adopting a child.
“I don’t think adopting parents think any differently about their kids than someone who had them the natural way,” he said, suggesting that his plan is to protect the legacy of the founding team.
Fintech funding falling
The bull market businesses enjoyed during the pandemic has come to an abrupt end this year. Skyrocketing interest rates, the war in Ukraine and the fallout of the pandemic have all wreaked havoc on the markets. Analysts now expect that a recession could be imminent.
Tech stocks have fallen as a result as Big Tech firms’ losses have climbed. The tumultuous times have cost investors roughly $7.4tn in losses on the Nasdaq this year. Tech firms have responded by introducing hiring freezes, kicking off mass-layoffs and, in some cases, closing shop all together.
Tech funding has dropped as a result, as investors have lost their appetite to back untested startups. Industry stakeholders fear the funding dry-spell could last until 2024.
Fintech funding has not remained immune to the crunch. Investors have injected $78.4bn into the sector across 1,681 capital raises in 2022, according to research firm GlobalData. That’s down from $261.7bn across 2,923 rounds in 2021.
Despite the market turmoil, the CEO has pledged to scale Monzo. Monzo most recently raised a $500m funding round in December 2021, pushing its valuation past the $4.5bn mark. The company did not reply to Verdict's questions about if any new funding rounds are planned any time soon.
The company is actively hiring. However, Monzo nor its CEO responded to Verdict's questions about how much the company plans to expand its workforce or why the venture has not hired a new US CEO since the last one stepped down in February.
GlobalData is the parent company of Verdict and its sister publications.