Fintechs must beware of growth at any cost

The rise of so-called neobanks has arguably been the biggest story in banking since the financial crisis.
Whether it’s been Revolut, N26 or a host of others, they have laid a direct challenge to the established banks that would scarcely have seemed possible 20 years ago.
To that mix in Ireland comes the UK’s Monzo, which has put €4 million into its Irish entity and named a high-powered board in advance of using its outlet here to passport its services into the rest of Europe.
The firm already has a strong presence in its native land, and now it has secured a valuation of about $5.9 billion (€5.4 billion) after an employee share sale.
This latest valuation is up from $5.2 billion earlier this year and speaks to the voracious demand among investors for a piece of the action in the fintech space.
Existing Monzo investors including StepStone Group and Singapore’s sovereign wealth fund GIC participated in the round, according to Bloomberg News. The company didn’t disclose how much equity employees chose to sell during the round.
While Monzo’s valuation pales in comparison to Revolut’s $45 billion, growing fast with plans to expand in Europe and the US means few would be surprised to see that valuation increase.
Still, if you want to see potential pitfalls in the quest for growth, one need only look at rival Starling Bank. That neobank, founded by former AIB chief operating officer Anne Boden, has been growing rapidly but ran into a fair bit of trouble in recent days.
[ Revolut weighs offering mortgages in second quarter next yearOpens in new window ]
The UK’s Financial Conduct Authority (FCA) fined it £29 million (€34 million) last week amid what it called “shockingly lax” anti-money laundering policies that left “the financial system wide open to criminals”.
The report makes for grim reading and highlights the issues at play when building a start-up in an industry as heavily regulated (with good reason) as banking. In any start-up, growth is really what brings investors in and pays the bills.
But growth can’t come at any price when it comes to financial services. Anyone who has worked in industry knows that targets and controls can be in conflict. The successful neobanks have to navigate this innate conflict successfully.