Why is one maintaining its valuation and the other is not?
In this article, we compare the top two British financial technology companies (fintechs) that provide banking services: Revolut and Monzo. Both are unicorn firms that offer business accounts, among other services.
Revolut is headquartered in London and was founded in 2015 by Nikolay Storonsky, a former trader at Credit Suisse. Notable services for business customers: it allows to send and receive international payments, with no hidden fees in 28+ currencies at the interbank exchange rate; and spend in over 150 currencies at the interbank exchange rate.
It does not have a banking licence in the UK yet, but is preparing to apply for one, while it shifting its payment regulatory responsibilities to Ireland and Lithuania ahead of a potential loss of passporting rights at the end of the year, when the UK leaves the EU. (Revolut has already a licence in Lithuania since 2018.)
This means that, for now, Revolut is not covered by the Financial Services Compensation Scheme (FSCS). However, it is protected by the Financial Conduct Authority (FCA), i.e. its customers’ money is backed up in a separate bank, which has a UK banking licence.
(The company was originally based in Level39, a “fintech accelerator space” in Canary Wharf, London. Before COVID-19, we often met fintechs we worked with there, now we meet them on Zoom…)
• Valuation (2020): $5.5 billion (Craft.co)
• Revenues (2019): £162.7 million (Sifted)
• App downloads (Jul 20, worldwide): 500k (Sensor Tower)
Monzo is headquartered in London and was founded in 2015 by Tom Blomfield, previously co-founder of GoCardless. Notable services for business customers: it does not offer much in terms of international business, but, unlike Revolut, it does allow to deposit cash (via PayPoint) and provide 24×7 support regardless of whether the plan is free or premium.
Monzo has a full banking licence in the UK and, therefore, is covered by the Financial Services Compensation Scheme (FSCS).
• Valuation (2020): £1.2 billion (Craft.co)
• Revenues (2019): £67.2 million (Sifted)
• App downloads (Jul 20, worldwide): 190k (Sensor Tower)
Revolut vs Monzo: COVID-19 and valuation delta
Globally, fintech has been a major investment for many Venture Capital firms (VCs) in recent years. However, in Q2 2020, fintechs raised $6.3 billion (£4.8 billion), down 41% on the year. For the first time, VCs invested more in mature fintechs than younger ones (52% of total funding). COVID-19 boosted fintechs in areas such as digital payments and online trading, but it hurt others, such as online lending.
In the UK, Monzo closed a £60 million in a June funding round with a 40% cut in its valuation (£1.25 billion, down from 2 billion last year). However, Revolut completed an $80 million top-up raise in July, maintaining its $5.5 billion valuation.
Source: Craft.co, P27
Revolut vs Monzo: why such a delta
We think that corporate governance may be a main reason why Monzo had to accept a 40% cut in its valuation this year, while Revolut managed a raise at no discount. Governance is a core component of smaller business value creation. Some investors think that up to a third of that value creation may come from better governance.
We also agree with those investors who think that the team may be the main reason why there is such a delta between the two fintechs. Eearlier stage investors are all about people. The quality of the start-up team is the ultimate key to success for most of them.
A great team will fix a flawed business plan, product, or service. But the opposite is usually not the case.
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