London, United Kingdom, January 08, 2020 --(PR.com
)-- Bank challengers in Europe keep growing very fast. Only the eight major players*, including Revolut, N26, TransferWise, Monzo, Monese, Starling, Curve, and Tandem served nearly 27 million customers as of the end of 2019. In fact, their number of clients has increased exponentially as the figure doubled every year since 2016. Considering current trends, it can be expected that the selected group of bank challengers will get over 50 million clients by 2021. And, this is only a part of the broader market since there are dozens of other players across Europe already operating or planning a launch.
VC funding fuelling the growth
The recent rush has been triggered by multiple factors including regulatory easing and PSD2/open-banking opportunity. However, it is the recent influx of funding by VC which has enabled the massive expansion of top players like Revolut, N26 and the others. Nowadays, investors are competing for the “privilege” to fund top startups and not the other way around. Consequently, valuation multiples are increasing to extreme levels. For example, the total post-money valuation of seven** major bank challengers in Europe exceeded $18.8 billion while the funding received was just at $3.6 billion, which implies the valuation to funding multiple of 4.8 times.
Similarly, the value of an average customer for bank challengers seems to be quite elevated. Investors are ready to pledge between $120 and $1030 for a single client, while the average is a whopping $730. Such extreme valuations could be possibly substantiated at a full-service retail bank, but they seem rather high for start-ups, which attract clients with low fees and no-frills offers.
No wonder the disconnect between the valuation and the revenue per customer is huge. Major bank challengers made between $3 and $38 in revenues per customer as of 2018/2019. Consequently, investors were eager to pay between 4 and 150 times the current annual revenue per client. And those are multiples calculated on sales revenue and not on net income, as most bank challengers in question remain deep in the red.
So, what is the trick?
Current excessive valuations can be explained with the exponential growth of the client base. Investors expect that the present pace of growth will continue, and start-ups will eventually build multi-million customer bases. Moreover, the freemium business model operated by most bank challengers assumes upselling and switching of customers from free to premium tiers in future. Whether it will be possible to upgrade a significant part of clients to higher plans, remains still an open question.
For more details on current developments in the bank challenger scene check the latest summary written by Marcin Mazurek at : https://www.linkedin.com/pulse/bank-challengers-europe-track-50-million-customers-20202021-marcin/
*A non-exhaustive, hand-picked, group of large and prominent bank challengers operating in Europe including: Revolut, N26, TransferWise, Monzo, Monese, Starling, Curve, and Tandem
**Only players for which the valuation could be determined