CFO newsletter 12

Where next for the neobanks?

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Welcome to all CFOs, finance pros and fintech enthusiasts 👋

Another 500 of you subscribed to the newsletter during this week alone – thank you!

This issue, we’re talking about Europe’s neobanks.

They’re back in the news because Revolut, the Godfather of British fintechs, might be edging closer to winning a banking license in its home market…

What you need to know right now:

UK fintech: neobanks may end up blending in – Financial Times

First, some context.

Revolut, the most valuable British fintech company, had agreed to simplify its ownership structure.

This removes one obstacle to the company obtaining its UK banking license from the Bank of England and the Financial Conduct Authority (FCA).

A banking license would allow Revolut to offer services like mortgage loans, bringing it into open competition with high street banks like HSBC and Santander.

This, after all, is the bet that early investors in Revolut made: that the company would one day disrupt the traditional banking sector and its enormous profits.

But Revolut’s UK banking license has been a long time coming, and the company’s smaller competitors have wasted no time in forging ahead.

Starling Bank was granted a UK banking license in 2016 and now offers mortgages to its 4 million customers.

Monzo’s banking license arrived in 2017, allowing the company to offer loans, current accounts, and overdrafts to its 8 million customers.

But the FT poses a bigger question: what happens next?

If Revolut, Monzo, and Starling merely become smaller, digital-only versions of their high street peers, can they really hope to disrupt behemoths like HSBC?

The article points out that these franchises are well-established and difficult to disrupt. And while sales of proprietary technology may unlock value, that proposition remains untested.

We’d add that the big banks, while initially slow to adapt, are rapidly improving the quality of their digital consumer services. Ease and simplicity were major USPs in the early days of consumer fintech, but that gap is now closing.

Our take? The smart money this decade will go to B2B fintech companies who solve problems that major banks unwilling or unable to solve themselves.

We’ll also see more partnerships between big banks and technology companies, especially in the B2B space.

Further reading:
Payroll Payments: Evolving From Banks to E-Wallets

What else to read:

Data Breaches Strike Half of Financial Services via the CMS – The Fintech Times

  • 50% of financial organisations experienced data breaches in the past three years due to CMS vulnerabilities.
  • 75% of financial organisations use a CMS, with Adobe, WordPress, and HubSpot being the most popular.
  • 88% use multiple CMS systems, increasing security risks.
  • Banking and wealth management sectors reported higher breach rates at 61% and 68% respectively; 77% of FSI organisations with revenues over £500 million were most affected by CMS breaches.
  • 26% of respondents said their CMS doesn’t integrate with other systems, with the insurance and reinsurance sectors reporting the highest non-integration rates at 39% and 41% respectively.
  • Peter Proud, CEO of Forrit, suggests using a single, secure, and scalable CMS platform to address most issues identified by senior marketers, emphasizing its benefits for security and compliance.

European fintechs “shocked” how much worse US engineers are – eFinancialCareers

  • Venture capitalists at the 2023 Sifted Summit highlighted Europe’s exceptional engineering talent in software and enterprise software, particularly in Central and Eastern Europe, as a key attraction for fintech investment.
  • A talent gap has been identified, with one fintech founder expanding to the US noting a significant difference in the caliber of engineers, favoring Europe, although this sentiment does not extend to marketing and sales personnel.
  • Despite the engineering talent in Europe, US startups are recognized for superior user interface and user security in their fintech products.
  • The compensation structure in Europe, especially concerning employee option grants, is considered lacking, with a call for a stronger equity culture to involve employees in companies.

See you next time for more fintech news and insights,

The Papaya Global Team