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Fintech firms keen to gain market share at the expense of profitability have found their business models abandoned, the boss of savings start-up Chip said, as some of Britain’s biggest players grapple with losses increasing.
Simon Rabin, CEO of Chip, said Financial news that too many fintech companies like digital banks Monzo and Revolut are stuck with loss-making business models that rely too much on generous venture capital funding to stay afloat.
“We have seen consequences more recently, where some fintechs have looked for growth above all else and have not given enough respect and consideration to the profitability of their business, and they have paid a high price for it,” Rabin said. in a press release. September 28 interview.
“Some fintech companies have sought to satisfy their customers with user experience and functionality, without sufficiently considering the potential profitability of what they are offering,†he added. “And the result is that they have relatively large customer bases that use their product. [and] features, but they don’t generate revenue for the business, and I would question the long-term sustainability of that.
Some of the UK’s biggest fintech companies have incurred losses every year since their inception more than five years ago, but making a profit has become more important as companies mature and move into public procurement.
READ State of the Fintech Union: Monzo, Starling Bank and Revolut
Rabin’s comments come as Chip, founded in 2017, recorded its first profitable month in August. While the savings app boss has said he expects the business to be in the dark again for September, he expects longer-term losses.
The app, which offers easy-to-access cash savings accounts as well as BlackRock-managed funds and AI-based management tools, currently has a market share of less than 2% of accounts from British savings with 400,000 clients. Rabin said he plans to reach five million customers and about 25% market penetration within three years.
He added that achieving profitability was essential for Chip to demonstrate that “the economy is piling up and to make it a viable business for investors and our shareholders.”
“From the conversations we have, venture capital is much more focused on potential profitability,†he said. “Right now, I think companies like Monzo would struggle to raise capital in today’s environment, as they did a few years ago. “
Venture capital has flocked to UK fintech companies, with Revolut steal the show this year after it became the UK’s most valuable private tech company with a valuation of $ 33 billion.
Banks have also become more active players in fintech. Goldman Sachs and JPMorgan, both of which have launched their own digital challenger brands in the UK, have taken action this year, including Goldman’s £ 50 million investment in the acquisition by Starling Bank and JPMorgan of the digital asset manager Nutmeg.
READ JPMorgan’s Nutmeg game is the latest in a fierce war for consumer wallets
Chip is currently raising new funding from investors, approaching institutional businesses for the first time alongside its fifth round of crowdfunding. It plans to raise £ 100million over the next two to three years to fund its next expansion in Europe, he said. FN, having raised over £ 25million to date from the Crowd and the UK Government’s Future Fund.
Monzo co-founder Tom Blomfield recently criticized the economics of crowdfunding for startups, calling it “possibly the slowest, hardest, and most expensive way to raise money” in a personal blog post this month after raising over £ 23million for the bank via Crowdcube.
“He is categorically wrong, I totally disagree with that,” Rabin said.
“It gave us the capital we needed early on, but also an army of loyal and engaged customers who… keep us on track and focus on what customers really want from the product, rather than can – to be Tom, who pursued a strategy of what his venture capitalists were telling him to do at the time, which is to continue to grow at all costs.
Monzo has been contacted for comment on Rabin’s statements.
Chip’s boss said he is targeting European venture capital firms to lead its current funding round as the company will need expertise on the continent for upcoming license applications and expanding its offices. .
Despite the recent influx of liquidity into the industry, Rabin said big banks aren’t ideal investors because they focus too much on what fintech companies can bring to their core business.
“It’s pretty limited, rather than talking to a real venture capitalist, where this is what the business needs,†he said. “[One bank] said, “Would you like to sell our insurance products to your customers?” If so, we might make an investment, â€not really.
The company’s revenue has grown 500% since December as customers put their extra money aside during the pandemic. Chip plans to add another 200 jobs in the UK over the next 12 months to meet demand, along with significant spending on marketing and product development.
To contact the author of this story with comments or news, send an email Emilie Nicolle
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