The pandemic has accelerated digital adoption across financial services, with fintechs enjoying extraordinary customer growth in the past 15 months.
Sadly, for their backers, however, few are yet making a profit.
In a note published this week, titled Digital Neobanks: Clients Grow, Losses Grow, analysts at Citi scrutinized four leading UK firms – Monzo, Starling, OakNorth and Revolut – and found their combined customers increased 45% in 2020 to 22 million.
That is almost as many as domestic retail champion Lloyds Banking Group, with 25 million.
Yet average revenue per user for the four neobanks was just £14 in 2019/2020, compared with £370 at Lloyds.
Revolut, to pick the best known, now has 15 million customers, up from 10.2 million at the end of 2019. However, even in a year when it halted marketing and discretionary spending, Revolut recorded a pre-tax loss on ordinary activities of £207.9 million for 2020.
That compares with a loss of £107.7 million for 2019.
In a policy statement in April, the UK’s Prudential Regulation Authority reminded such, for now, non-systemic banks that, as they mature after initial authorization, they should provide greater clarity over the path to profitability.
We are the API for gold. And that’s all we do
Sylvia Carrasco, Goldex
Most are pursuing the same route. Having begun as specialists – Revolut, for example, in pre-paid cards and low-cost foreign exchange for cross-border payments – they are diversifying business lines to grow revenues and expanding into new countries.
Revolut added 15 retail products last year, from interest-bearing savings vaults to bill sharing, subscriptions management and gold and silver trading. It makes a lot of its money now from cryptocurrencies.
Increasingly, fintechs that once competed with a few peers concentrating on the same product – Revolut against Wise (TransferWise) and Azimo in cross-border payments – now find themselves competing against every other fintech as they build universal offerings.
Nikolay Storonsky, chief executive of Revolut, says the firm’s investments are now “following our goal of creating a financial superapp”.
There is still one way to stick to your speciality, though: white label it to all the other fintechs.
That is the plan for Goldex, the business founded by former equities electronic and algorithmic trading experts Sylvia Carrasco, a veteran of Credit Suisse, and Fernando Ripolles, an ex-UBS and Nomura banker.
The two used their experience in institutional equities markets to build an app for retail investors looking to take small-size allocations to physical gold at the best price and lowest friction costs. This uses smart-order routing, including splitting orders, to achieve the best execution available across the largest liquidity pools for gold trading in London, Zurich, New York, Singapore and Toronto.
Frustrated consumer
Like most entrepreneurs, Carrasco was a frustrated consumer. She built the app to solve her own problems investing in an opaque market through wholesale dealers with no regulatory requirement to disclose bid-offer spreads or execute for customers at best price in a classic principal-versus-agency conflict.
The Goldex app has 20,000 retail customers.
“We built it really well,” Carrasco tells Euromoney. “It automates everything and the queries we get from customers are minimal.
“But the only way to acquire more retail customers is to spend tens of millions a year on marketing. And I am an institutional person, more used to dealing with large banks, hedge funds and asset managers. I realised we had been fishing with a rod when we could be fishing with a net.”
Goldex decided to take its core technology, upgrade it to institutional-calibre capable of executing thousands of orders per second, and offer it as a plug-and-play multi-dealer platform to fintechs.
These are not just looking for new revenue sources. They are also fearful that if they don’t offer services such as investing in gold – on top of cryptos, equities, payments, cards, loans – customers might go to a competitor that does.
“We had started to get inbound queries from fintechs wanting to offer gold investing to their own clients, as they realised they would have to supply anything and everything to them,” says Carrasco. “Most of the fintechs are going for cryptos first, but, after that, they will be looking to gold.”
We are building a big pipeline of fintech companies seeking to integrate our service
Sylvia Carrasco
There used to be considerable antagonism between proponents of gold and cryptocurrencies, but that has diminished. Financial intermediaries serving digital-native investors with robust risk appetites realise that, if these clients see cryptos suddenly falling in price, they are not likely to park their money in cash, but might rather be enticed to another decentralized commodity with a finite supply that is not printed by central banks.
Goldex established a viable institutional product in mid-March, officially launched it in June and has already signed up with three fintechs, one in the UK, one in Dubai, one in Turkey.
“We are the API for gold,” says Carrasco. “And that’s all we do. The fintechs have the most valuable thing, which is trusted relationships with large numbers of customers. If fintechs want to offer their customers gold, they could link up with a single gold dealer. But they tend not to have good technology and there is a limit to liquidity they can provide on their own.
“Our marketplace offers links to 16 gold dealers, which solves the liquidity issue, and also assures best price.”
In a way, Goldex competes with the gold dealers, but they just want to sell more gold. And, white-labelled inside the fintechs, Goldex can bring them business from, potentially, millions of customers, as long as the dealers’ prices are competitive.
“We are building a big pipeline of fintech companies seeking to integrate our service,” says Carrasco, who has big ambitions. “If we can sign say 30 fintechs in the next two or three years, we might serve 100 million customers.
“We will have no direct relationship with those customers, but we have learned a lot from the 20,000 who use our app, most importantly that they don’t want ETFs, they don’t want gold tokens or derivatives.
“They wanted physical gold, stored in a vault that they own themselves.”
