Building a consumer-focused fintech business is expensive. And if you want to start one in an area populated by both legacy companies and richly funded startups, it can be Great expensive.
This is the lesson we learned at the end of 2020 by examining the operating results of a number of neobanks.
Neobanks are essentially software layers on top of the banking infrastructure, providing consumers with digitally-focused, mobile-friendly and often cheaper banking services. The push to rethink consumer banking is a global effort, with neobanks popping up in virtually every market you can think of. Private investors have come forward in droves to fund competing neobanks, as they have the potential to secure the users – the customers – who generate income for long periods of time.
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Investors have shown themselves to be more than willing to fund huge investments in the growth and products of many neobanks, which has resulted in sharply negative operating results for unicorns. In short, while US consumer fintech Chime has disclosed positive EBITDA – a measure of adjusted profitability – many neobanks whose numbers we’ve seen have demonstrated a glaring inability to chart a course for profitability.
It could change.
Revolut’s recent results that TechCrunch covered earlier this morning show the company has had a deeply unprofitable year 2020. But if we dig into its quarterly results, there is good news to be found. Neobanks could finally mature in their cost structure.
So today we are going to analyze the main financial results of Revolut and see what we can extract from Starling and Monzo. Maybe Revolut’s good financial news isn’t just in one neobank?
Our own Romain Dillet has a general overview of Revolut’s business here, if you want a broader focus. We only care about its raw bottom line at this time.
Here are the big numbers:
- 57% returned growth from £ 166m in 2019 to £ 261m in 2020.
- Gross profit growth of £ 123million in 2020, up 215% from 2019.
- Gross margin by 49% in 2020, which Revolut described as almost a doubling.
- 2020 operating loss £ 122million compared to £ 98million in 2019.
- Total loss from £ 168million in 2020, up from £ 107million in 2019.
The gist of these numbers is that the company’s revenue growth has been solid, but improving gross margins has allowed its gross margin to rise in 2020.