Monzo, the British digital bank popular with millennials, is set to become the latest European fintech “unicorn” with a fresh round of fundraising expected to put a valuation on the company of up to $1.5bn.
Monzo has grown rapidly by capitalising on disenchantment with traditional banks and a growing desire, particularly among young people, to manage their finances on their mobile devices rather than in a branch or by talking to someone in a call centre.
The east London-based online bank, known for its distinctive pink cards, is signing up 18,000 customers a week and aims to reach as many as 4m customers in the next couple of years, according to Tom Blomfield, its chief executive.
Monzo is set to be valued as high as $1.5bn, more than quadruple the £280m ($356m) valuation in its last fundraising in November 2017, according to two people familiar with the talks. Its latest funding round, which aims to raise $150m, includes Silicon Valley-based venture capital group Accel Partners and is expected to be announced before the end of the year.
Mr Blomfield declined to comment on the fundraising, but said: “Our investors are totally aligned with our plan and completely comfortable that we are not looking to break even this year or next.”
The new funds are expected to be used to expand Monzo’s product range, including plans to launch short-term unsecured loans or to offer high-interest savings accounts via a third party.
The digital bank, which charges no annual fee and only recently started offering overdrafts, is burning through cash rapidly and made a pre-tax loss of £33m on revenues of £1.8m last year. Its customer deposits at the end of February were £71.2m, equivalent to less than £150 per account.
It is one of numerous European digital financial services providers that have recently gained banking licences in Europe, including Starling and Atom in the UK, Klarna in Sweden and N26 in Germany.
“If you are the number one neobank by users then everyone is going to want to get in,” said Lex Sokolin, global director of fintech strategy at research firm Autonomous. “So to me that [Monzo valuation] number isn’t crazy as much as at the optimistic end of the spectrum.”
Valuations of fintech companies have soared in recent months as investors have bet that digital disruption will upend the financial sector, as it already has in other sectors such as retail and media.
In April, Revolut announced a $250m fundraising that valued the UK-based digital payments company at $1.7bn, more than five times the level of its last round of investment in 2017. Shares in Dutch payments provider Adyen almost doubled on their first day of trading in June and its €16bn market capitalisation is bigger than some of Europe’s leading banks.
Peer-to-peer lender Funding Circle is aiming to join the UK’s fintech “unicorns” with a planned initial public offering later this year that is targeting a £1.5bn-plus valuation. Last year, TransferWise was valued at $1.6bn when the British cross-border foreign exchange company raised $280m from investors.
Having launched in 2015 by offering a pre-paid card, Monzo started moving its users to full current accounts last year after gaining a banking licence that means deposits up to £85,000 are insured by the UK’s Financial Services Compensation Scheme. It aims to make money by lending out more of its deposits, almost all of which it currently parks at the Bank of England.
“A year ago we were exclusively a pre-paid card provider and to have said we would now be at close to 1m current accounts, nobody would have believed us,” said Mr Blomfield.
“We are never going to operate like the high street banks,” said Mr Blomfield, adding that it only planned to increase its lending from 5 per cent to about 10 per cent of its deposit base, still well below the 100 per cent-plus of many traditional lenders.
While only a fifth of Monzo’s more than 870,000 current account holders are paying their salaries into them, Mr Blomfield said more than 45 per cent of customers were putting at least £500 a month into their accounts and this was growing rapidly.
In the longer term, he said, the company’s main revenue stream would be commissions from helping customers to manage their money better, such as by switching their savings to a higher interest account or suggesting a cheaper provider of gas, electricity or broadband. “We are trying to build a control centre or dashboard for your financial world,” he said.
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