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Quick observations for fintech businesses/digital banks from financial results of Monzo, Revolut & Starling

Lesson 1: LENDING HURTS. Starling earned 2.1m from interest but has 2.2m in bad loans. Monzo has an even riskier loan portfolio.

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Lesson 2: card transaction fees still makes up a large portion of the models for the 3 digital banks - about 63% of income for Revolution, 55% for Monzo & 45% for Starling.

So earnings are not so diversified as card transactions fees is main earner. This is a major income risk.
Lesson 3: The Starling model of having a marketplace for vendors to sell their services doesn’t seem to be yielding great results. Starling only got a commission of £72,000 for period.

If the model is going to survive, volumes have to go up for commission to be worth it.
Lesson 4: Earning per customer is rather low.

When you divide earnings by customer - Monzo earned £20 per customer for the year, Revolution earned £24 and starling earned £21.

In some cases (eg. Revolut) the cost of running the accounts is more than amount earned from customer
Lesson 5: Customers’ deposits still very low. Collectively, 3 banks held about £4.8b in deposits. Compare that to 2018 levels of Barclays (£197 billion) or RBS (£184 billion). Virgin Money, a similar bank, has £64b in deposit.Average deposit for Resolut per customer stood at £236
Lesson 6: Burn rate is highhhhhhh!

Pursuing a growth model and trying best to acquire new customers, mean a high customer acquisition cost.

So, making 20 to 30 pounds a year on customer while spending several times over to maintain accounts.
Lesson 7: This issue of valuation.

In words of @LexSokolin, “If you look at the unicorn valuations of these companies, they are pricing on a per user basis valuation somewhere like $1,000…the reality is all of these companies are making 20 to 30 bucks a year per customer...”
The unit economies don’t tally with their present valuations. £30 pounds a year in customers revenue is hard to use to justify £1,000 per customer in enterprise revenue.

Time will answer on questions.
If you want to read in more details, @Siftedeu has a great article on this.

Also, see this summary chart from them on the 3 banks:
*Revolut
*Revolut
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