Banking

Revolut and beyond: Meet the startups taking on the banking industry

October 1, 2018 View comments (2)
Breaking news: VCs like money.

Well, obviously. But this is coming increasingly true when looking at which particular sectors they are making the biggest bets in. Indeed, globally VCs have already spent more than double on fintech startups so far this year than they did in all of 2016 and 2017 combined, per the PitchBook Platform.

Completed VC deals for fintech startups


A number of factors are behind this, including the rise of subsectors such as regtech and insurtech, as well as opportunities coming from initiatives like the EU's Payment Services Directive 2, and Open Banking, a UK scheme forcing the country's biggest lenders to release their data.

However, one particular startup profile that private investors are paying more and more attention to is companies that are developing new ways to look after consumer cash—so-called "challenger banks."

While the definition of a challenger bank is rather flexible, these new institutions tend to intentionally separate themselves from traditional lenders—more often than not representing themselves as a new, fairer way to bank away from greedy old-school bankers, an image that has fared well in the years since the financial crisis. Indeed, a number do away with physical branches entirely, with many operating on an app-only basis.

Several of these startups, founded three or four years ago, are reaching a level of maturity and a customer base that has led to them raise massive rounds this year to fund further expansion. And this could keep on going if reports of UK-based Monzo's impending unicorn coronation hold true.

Monzo will certainly be looking to join the number of its peers that have raised big rounds this year to set them up for taking on the big boys. Check out our selected list and profiles below of seven challenger banks that have raised almost $1 billion among themselves this year.

Revolut

Three years from launch was all it took for the London-based banking app Revolut to earn unicorn status, confirmed when it raised a whopping $250 million led by DST Global at a valuation of $1.7 billion in April. The Series C round was done to boost hiring and fuel the company's insatiable appetite for expansion.

After starting off as a foreign exchange card with no fees, Revolut has expanded into areas including cryptocurrency trading, property investment and insurance. The business, which has more than 2 million customers and has processed more than £15 billion-worth of transactions, is currently applying for banking licences across several jurisdictions.

Nubank

Brazil’s Nubank netted $150 million in another DST-led round in March, giving the startup a valuation of around $2 billion. The company, which earned approval to become a bank in January, has already received 8 million applications for its credit card product, with over half a million on the waiting list.

Nubank got its start in 2013 after founder David Velez found himself fed up with the behaviour of existing Brazilian financial institutions and high interest rates. This led to a $2 million seed investment from Sequoia Capital and Kaszek Ventures. Nearly three-quarters of its customer base is under the age of 36.

Chime Bank

While not a unicorn yet, US-based Chime Bank has gathered a lot of attention for its activity this year, given where it operates. The startup, which raised $70 million in Series C funding in May led by Menlo Ventures at a $500 million valuation, is one of the few challengers to find a foothold in its home country, a place where innovation in consumer finance has been notoriously slow to catch on.

The company, which has a network of almost 40,000 free ATMs, adds more than 100,000 accounts per month and expects to hit $10 billion in transaction volume by the end of the year.

OakNorth

Unlike other banking startups that have emerged this year, British lender OakNorth eschews consumers and instead focuses on providing debt financing for SMEs and property investors. Doing so effectively requires a lot of money, with a $100 million round last month—with backers including Singapore's EDBI and NIBC Bank—the latest in a line of funding rounds that now totals $576 million. The investments have helped the company, which has seen its loan book swell from $1.1 billion to more than $2.2 billion so far this year, reach a valuation of $2.3 billion in just three years.

N26

One of Europe's pioneers in digital banking, Germany's N26 raised $160 million in Series C funding in March in a round led by Allianz X and Tencent. Since its launch in 2016, the company has seemed to get the step on its rivals; for example, while a vast majority of fintechs are still applying for banking licences, N26 achieved this status in 2016.

Shortly after the round, the digital lender announced plans to launch in the US and UK later in 2018, outside of its current German, Austrian, French, Italian and Spanish markets. N26 expects to process around $16 billion in transaction volume this year.

solarisBank

solarisBank, which has its own banking licence, enables companies to build their own financial services products such as cards, peer-to-peer and merchant payment solutions. This (and more) was enough to convince BBVA, Visa and other investors to part with €56.6 million for the company's Series B round in March—the same month as its second birthday.

The company has spent little time in putting the money to good use, including making its own investment—alongside ABN AMRO and Earlybird—in CrossLend, as part of a programme to create a platform for loan trading.

Atom Bank

The Durham-based lender, which like OakNorth focuses on business lending and mortgage products, netted £149 million in March in a round led by BBVA (again) and Toscafund, giving it a valuation of some £450 million. Founded in 2014, Atom Bank has taken around £1.3 billion in deposits, as well as lent out more than £1.2 billion to businesses and homeowners.

While this year's fundraise will go towards growing that loan book, the company has also been busy developing its own investment suite, too; in July, the startup announced a business accelerator for companies based in the north east of England.

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