UK Neobanks: A Summer of Highs and No’s

This summer was a wild ride for some of the UK's top neobanks. We take a look at Revolut, Starling, Atom and Monzo.

The summer of 2022 has been a raucous one for some of the 35 neobanks operating in the UK.

Rising up in the wake of the 2007-2009 financial crisis, neobanks have spent the past decade-plus carving a place for themselves in the world of banking. These online-only banking firms offer a narrower range of services compared to traditional banks.

However, their accessibility, digital focus, and availability gives interested clients plenty of reasons to pick them, and UK customers have been quite interested.

The banks cater for the B2B crowd of course, but according to an April 2022 report from Insider Intelligence, nearly 40% of all UK adults are expected to have an account with a digital-only bank by 2025.

In this feature, we’re going to go through some of these highlights and potential flops from some of the most talked-about firms in the region.

Revolut-ing Times?

There have been mixed fortunes for Revolut.

City A.M. revealed that the bank has been hit by a slew of resignations from its UK risk and compliance chiefs in recent weeks amid heightened tensions with regulators and delays to the firm’s banking licence.

Five Revolut executives have handed in their resignation including UK Chief Risk Officer, Victoria Stubbs; UK Head of Regulatory Compliance, Justine Wootton; and UK Money Laundering Reporting Officer (MLRO) Mathew Seneviratne, a source close to Revolut told City A.M.

The UK Data Protection officer and UK Deputy MLRO have also resigned, City A.M. understands, leaving the UK business – which is currently regulated as an electronic money institution – without a regulated MLRO.

Tensions between Revolut boss Nik Storonsky and the Financial Conduct Authority have spilled over into public in recent weeks after Storonksy criticised processes and the pace of movement at the regulator on its banking licence.

That said, earlier this month, the firm unveiled its Revolut Reader, the company’s first hardware device. The announcement signalled Revolut’s entry into the in-person payment market.

Revolut has also launched its buy-now-pay-later service, called Pay Later, in Europe, where the scheme has been flourishing. The service allows customers to spread out online and in-store payments of up to €499 (£423) over three months.

Outside of the UK, the neobank has had a happier time. It got new recruits for APAC, Brazil and the US; unleashed stock trading in Australia; acquired India-based Arvog Forex; secured an Australian credit licence; and launched as a bank in ten Western European markets.

Starling and the Irish Question

Backed by the likes of Goldman Sachs and the sovereign wealth fund of Qatar, Starling is one of the most prominent names in UK neobanking. In late July, it reported its first full year of profit with a 93% increase in revenue and a tremendous swing from a £30+ million loss to a £30+ million pre-tax profit.

This announcement comes in the wake of a fundraising effort where Starling raised £130.5 million.

Starling attributed a large portion of its financial gains to its expansion into mortgage loans via its acquisition of Fleet Mortgages which resulted in £2 billion in mortgages on its balance sheets as of June 2022.

However, its report failed to mention the boost Starling received from government-backed Bounce Back Loan Scheme (BBLS) and Coronavirus Business Interruption Loan Scheme (CBILS) loans meant to aid small businesses during the COVID-19 pandemic.

Former Tory anti-fraud minister Theodore Agnew accused Starling of mishandling these loans for the firm’s personal benefit, rather than the benefit of the small businesses and individuals the loans were meant for.

Specifically, Lord Agnew cited the rise in Starling’s lending balances since the government scheme went into effect. In November 2019, the bank had lent £23 million. However, by June 2021, it had lent nearly £1.6 billion in BBLS loans alone.

“Lord Agnew is just wrong,” responded Starling’s founder Anne Boden. “Starling has done a fantastic job in making sure we did all the checks necessary and more.”

A spokesman for Starling stated the government-backed loans made up 20% of Starling’s current revenue and 44% of Starling’s current loan book.

Unfortunately for Starling, its attempted voyage into Ireland hit some rough waters this summer, as the firm withdrew its Ireland banking licence application this month. This is an ironic setback, as Boden was previously COO of Allied Irish Banks, one of the ‘Big Four’ banks in Ireland.

Atom’s American Aspirations

Touting itself as the UK’s first app-based bank, Durham-based Atom announced a 200% increase in income for fiscal year 2022 versus a 6% increase in costs. It reduced its operating loss by a whopping £34 million, leaving the loss resting at a manageable £2 million.

Atom Bank credited its income increase to a growth of its loan book in both residential and business lending. This resulted in a rise from £2.7 billion in fiscal year 2021 to £3.3 billion. Put together, these have Atom set to achieve its first-ever year of profit.

In February, Atom raised more than £75 million in new equity and had an IPO on its mind. Although in May, media reports revealed it was eyeing up a listing in New York in a major blow to London’s dream to be a destination for tech IPOs.

Monzo’s Moments

After Tencent’s January 2022 investment in the bank, Monzo revealed its Group Annual Report brought it good tidings. Its net operating income rose from £62.8 million in fiscal year 2021 to £114 million in fiscal year 2022. It saw a 21% increase in customers, from 4.8 million to 5.8 million.

In the awards section, Monzo took home the Best British Bank award from the 2022 British Bank Awards, as voted by customers, and it also won awards for Best Banking App and Best Banking Business Provider.

Though the bank still isn’t profitable, it managed to shave off some of its losses, reporting a £119 million loss in fiscal year 2022 in comparison to a £131 million loss in fiscal year 2021. This resulted in auditors giving Monzo its first clean bill of health since 2019.

Despite many fintech firms experiencing a slowing of economic growth amid a downturn in the markets, Monzo CEO TS Anil reaffirmed Monzo’s plans to scale up and develop new products. Anil stated that this strategy had the backing of Monzo shareholders.

Zephin Livingston
Zephin Livingston
Zephin Livingston is a content writer for eWeek, eWeek UK, IT Business Edge, and SoftwarePundit with years of experience in multiple fields including cybersecurity, tech, cultural criticism, and media literacy. They're currently based out of Seattle.
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