Nubank’s 100m customer milestone set a new benchmark for fintech — its success highlights both the pains and pitfalls upcoming for Europe’s neobanks.
Earlier this month, Brazil’s Nubank made neobanking history by announcing that it had reached 100m customers, 11 years after its launch and two years after it was listed on the New York Stock Exchange.
It’s the first time that a neobank outside of Asia has hit the milestone and comes hot off the news that it made $1bn in profit and $8bn in revenue last year. Those are numbers that Europe’s big-name neobanks — Monzo, Starling, Revolut and N26 — could only dream of.
Revolut, founded in 2015, two years after Nubank, is closest with 40m customers as of three months ago — while the other three are yet to pass the 10m customer mark.
They’re also a way off Nubank’s revenue — and valuation. Its market cap is currently $55bn; Revolut’s valuation, meanwhile, peaked at $33bn in 2021.
But the future is looking brighter for Europe’s digital banks than it has for several years. This year, Monzo raised $600m in fresh funding at an increased valuation; Starling has been making a profit since 2022; N26 is in less trouble with BaFin; and Revolut is reportedly set to generate over £1.5bn in revenue.
So, how do Europe’s neobanking competitors stack up in 2024 — and which might be the first to follow Nubank into the public markets?
Taking the lead
Nubank, Brazil’s biggest app bank, has many features — stocks and share trading, loans, free instant transfers and business bank accounts — that European neobank users will be familiar with.
But it’s also realised some ambitious product plans its European peers are yet to copy. For instance, in March last year, it launched its crypto token native to the platform — which no big-name European neobank has done yet.
It has customers in three markets: it holds a full banking licence in Brazil as well as operating as a financial services firm in Mexico and Colombia — where it’s seeking fully-fledged banking licences.
It’s also publicly listed — which Revolut, Starling, N26 and Monzo have all indicated is on their roadmap at some point in the future.
“Nubank has massive scale,” says General Catalyst partner Zeynep Yavuz. “And they were ready to go public when the IPO window opened. A lot of these businesses [in Europe] didn’t have these internal systems ready when the IPO window was open.”
Europe’s neobanks exist within a more mature banking scene than Nubank, with higher levels of financial access compared to Latin America.
Simon Taylor, head of strategy at fraud fintech Sardine and cofounder of fintech consultancy 11:FS, describes Brazil as a “cheat code” for fast-paced fintech expansion thanks to its sky-high central bank interest rates of 10.5% boosting revenue from its lending products and large unbanked population.
“The scale of the opportunity is uniquely Brazilian. There was a massive population that did not have a bank account and was crying out for one,” he says. “They’ve gone after a population that was just sitting there waiting to be captured.”
The European digital banks began playing a different game, luring customers away from traditional high street banks with slick user-friendly apps, money transfer services and budgeting tools. Following Revolut’s 40m customers, Monzo clocks in second place with 9m customers while N26 and Starling have less than 5m accounts opened each.
That puts them neck-and-neck with many high-street banks. App download data from the Google Play Store provided by SplitMetrics’ App Radar puts N26 and Monzo ahead of HSBC and Deutsche Bank, but behind Halifax, Barclays and Santander.
Revolut, however, reigns supreme with over 43m downloads, while Starling and Amsterdam-based neobank Bunq have less than 4m each.
“I think it demonstrated to banks that a very traditional user experience is not satisfactory for Gen Y and Gen Z,” says Mastercard SVP Christian Rau. “If you want to retain relevance, you need to up your game.”
Going global vs staying local
Unlike Nubank — and its European peers — Revolut has “blitzscaled”.
It’s so far launched in 37 countries and is available in an extra 14 territories and countries, including Chile, Azerbaijan and Kazakhstan, where it functions largely as a money transfer app with some crypto trading services.
Despite applying for a banking licence in the UK, its home country, in 2021, it’s yet to get the stamp of approval from financial regulators. It’s had better luck with regulators outside its British base — it’s operated as a fully-fledged bank across the European Economic Area (EEA) since 2018 and nabbed a banking licence in Mexico this year. It’s also set to enter the Indian market this year.
Berlin-based N26 hasn’t made the same headway with its global ambitions, bungling rollouts in the UK, the US and most recently Brazil. It operates in 24 markets, although 75% of its total customers are in Germany (where it holds a banking licence), France, Italy and Spain.
Yet operating as a bank since 2016 hasn’t been without its regulatory complications — failure to install adequate anti-money-laundering (AML) controls saw N26 with a €4.25m fine and a limit on monthly customer acquisitions in 2021. This month, the regulator levied another €9.2m fine against it for its failure to file AML reports on time.
Starling and Monzo, meanwhile, have chosen to primarily focus on the UK (where both hold banking licences).
At the tail end of last year, Monzo restarted its US operations (after retreating from the market in 2021 when it became clear US regulators weren’t going to approve its local banking licence application). Rather than making a second attempt at obtaining a banking licence, it has instead partnered with a local US bank.
Making money
Nearly all the European neobanks began making the bulk of their revenues from interchange fees; the small charge a merchant pays to a card issuer for every transaction made. But over time they’ve developed numerous other income streams.
In the UK, Revolut now provides international money transfers, stocks and shares trading, cashback — and, since 2021, flight and hotel-booking services. It hasn’t stopped there — so far this year it’s added to its treasure chest of features by launching international data plans and Revolut X, a crypto exchange catered to professional traders.
While interchange fees still made up around a third of the £923m in revenue it reported in 2022, foreign exchange and wealth also drove £270m in revenue for the business. Despite making close to a billion in revenue, the neobank sunk back into the red with a pre-tax loss of £25.4m after reporting a £39.8m profit the previous year.
Revenues reportedly grew substantially in 2023; according to an investor presentation seen by Bloomberg in December, it recorded a revenue of more than £1.5bn last year.
Starling’s road to profitability has involved trudging through the unsexy sector of B2B lending. In 2020, it started lending to small and medium-sized enterprises (SMEs) and in July 2021, it topped up its lending book by acquiring UK-based buy-to-let mortgage lender Fleet Mortgages in a deal that allowed it to access its mortgage portfolio.
Both of these moves meant it was well-placed to benefit from the current high-interest rate environment; it reported a pre-tax profit of £195m last year with £453m in total revenue.
Starling also makes money (although not that much, yet) from a banking-as-a-service platform named Engine, which other banks use to create digital operations of their own. Last year, it announced deals with Salt Bank in Romania and AMP in Australia.
Monzo has focused far more on developing products geared towards consumers. Its buy now, pay later product Monzo Flex has caught on quickly since launching in 2021 and now comprises 20% of the BNPL market in the UK, according to a report by credit technology company Render.
In the last year, Monzo has also unveiled a cashback feature, a stocks and shares investment product and — for subscribers — a high-interest rate account and a voucher for Greggs sausage rolls. The neobank is also set to launch a pension product in the next six to nine months.
Monzo’s 2023 annual results saw it double revenue to £355.6m as it tripled its lending book.
While it’s expected to hit profitability this year, that year it also posted a £116m pre-tax loss — a minor improvement on the £119m recorded the year prior.
N26, which reported losses of €213.4m in 2022, halved that figure to €100m in 2023.
It’s been slow to bring new products to markets; it only rolled out crypto trading and a stocks and ETF investment product in the last year.
In a recent interview with Sifted, CEO Valentin Stalf said the company aims to provide a full range of financial services to its customers, touting its loan product N26 credit and its savings accounts. He says that its subscription products, which offer features such as free cash withdrawals abroad and travel insurance, make up 30% of the company’s revenue.
The matter of valuations
Revolut is the highest-valued neobank in Europe. At its last funding round in 2021, it was valued at $33bn; recent valuations from Molten Ventures and Schroders were 40% and 22% lower than that, suggesting its current valuation is somewhere between $19.8bn and $25.7bn.
Starling and N26 last raised primary funding at pre-downturn valuations of £2.5bn and $9bn. They’re unlikely to be worth that much now; last year, Allianz sold its stake in N26 at a discount that valued it at $3bn per a Reuters report.
In May, Monzo bumped up its valuation to $5.2bn, raising $610m in two funding rounds this year — possibly its final financing before a public listing.
But the road to the public markets doesn’t look short, or simple.
“I think there’s still a question of where you go public,” says Yavuz. “I think dual listings is probably where everyone will focus — where they list both in the US and Europe.”
“Nubank had a very obvious place to go public,” she adds. “It’s not so obvious for the neobanks in Europe.”
Former Revolut board member Martin Mignot, a partner at Index Ventures, told the Sifted podcast recently that he thought the digital bank would certainly consider the US when it came to listing.
“The analysts that understand tech stocks are by and large based in New York and in San Francisco; there are more companies listed there that are more similar to what [Revolut’s] trying to do; the market is very deep, there’s a lot of knowledge and capital.”
“NASDAQ has to be the first place [founders] think about when they think about listing, regardless of where they’re based in the world.”
However, in a March interview with Bloomberg Revolut’s new UK CEO Francesca Carlesi said that going public isn’t a priority right now.
Despite a promise in 2021 that it will list in two years, recent updates indicate Starling has adjusted that timeline. N26 also described an IPO as three to five years away and in an interview earlier this month Monzo CEO TS Anil said it’s still too early to talk of an IPO.
Source: sifted
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