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The Profitability Challenge for Challenger Banks

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Re: The Profitability Challenge for Challenger Banks

#11

Post by blibble »

always seemed to be lunacy to me, given:

- the margins for retail banking were wiped out a long time ago

- consumers have been used to free banking for decades (at least in the UK)

- near-or-even-below zero interest rates for the last decade (with no signs of this ending)

- the "legacy" competition are some of the most well captialised entities on the planet

is a "legacy" bank going to pay several billion dollars to acquire a nice app with an unprofitable business behind it? I doubt it

Re: The Profitability Challenge for Challenger Banks

#12

Post by wdb »

Nextgrid wrote: post #7
RcouF1uZ4gsC wrote: post #4

> While these challengers are successful in attracting large number of customers, many of them haven't quite yet made profit. Simultaneously, the larger the size, the more the losses. I have seen this story okay out before. Startup basically grows base by losing money. Eventually they need to actually make a profit. Then come out all the dark patterns, selling of customer data, and other scummy behavior. If you are a…

I am using Starling Bank. As far as I know they are profitable - they offer enterprise services (payment processing, etc) and use that to subsidise free consumer-facing services. What I don’t understand however is how the other challenger banks didn’t see this coming. Like how do you decide to build a bank and take millions of VC funding without a reasonable path to profitability? Also I think Monzo could’ve done wel…

Guess, they can spend the £100m of the special RBS fund in the UK: https://www.starlingbank.com/news/rbs-cif-funding-feb2019/

Re: The Profitability Challenge for Challenger Banks

#13

Post by BubRoss »

FailMore wrote: post #9

I worked as a VC and saw the cohorts of (non superstar) challenger bank... and omg: the more customers you have the more you lose, the more they use your product the more you lose.

Why? It seems almost impossible to take people's money, charge them fees for it, then loan it out again for interest and still lose money.

Re: The Profitability Challenge for Challenger Banks

#16

Post by 55555 »

BubRoss wrote: post #13
FailMore wrote: post #9

I worked as a VC and saw the cohorts of (non superstar) challenger bank... and omg: the more customers you have the more you lose, the more they use your product the more you lose.

Why? It seems almost impossible to take people's money, charge them fees for it, then loan it out again for interest and still lose money.

They all charge almost no fees and there is almost no money to invest for interest. Monzo is very transparent with their financials and when I checked in mid 2018 their account balances totalled a mere 150 million USD. A single rich person might have that in an older bank.

Re: The Profitability Challenge for Challenger Banks

#18

Post by Marsymars »

benjaminwootton wrote: post #6

I think the challenge goes beyond just profitability. I’m currently locked out of my Revolut account due to a bug on their end. There is no telephone support and no in app support until after you are logged in. Apparently you have to contact them via Facebook or Twitter for assistance. They are forever destined to be a toy with this kind of approach to people’s money.

> There is no telephone support and no in app support until after you are logged in. Apparently you have to contact them via Facebook or Twitter for assistance.

The legacy banks all seem to be moving to voice-recognition IVR systems which primarily exist to provide the same service as the website/app, but in a more frustrating manner.

If I had a problem that could be solved on the website, I wouldn't be calling in the first place...

Re: The Profitability Challenge for Challenger Banks

#20

Post by notyourday »

blibble wrote: post #11

always seemed to be lunacy to me, given: - the margins for retail banking were wiped out a long time ago - consumers have been used to free banking for decades (at least in the UK) - near-or-even-below zero interest rates for the last decade (with no signs of this ending) - the "legacy" competition are some of the most well captialised entities on the planet is a "legacy" bank going to pay several billion dollars to…

> - the margins for retail banking were wiped out a long time ago

In the US retail banking is a cash cow: most of the country does not have enough money in the bank which means customers periodically pay overdraft fees.

> - consumers have been used to free banking for decades (at least in the UK)

In the US most of consumer banks have a service fee, some as high as $15/mo.

> - the "legacy" competition are some of the most well captialised entities on the planet

Legacy competitors are carrying branches in the most expensive real estate markets in the world.

The problem of the upstarts is that they do not want to attack one issue and do what MCI did to AT&T ( pick one - lower overdraft fees/lower service charges/do not waste money on stuff (real estate), instead they want to completely destroy the business model by making banking free, wiping out overdraft fees and still wasting money on real estate ( headquarters/staff in the most overpriced cities etc ) and after that they wonder why they don't make money.

Here, a brilliant idea: take BoA fees, cut them in half, don't put everyone in San Francisco, issue debit cards and hire a pile of people in Ohio to do customer service a-la Discover. You will make money hand over fist and every time BOA matches your fees you make yours $0.05 less - MCI did it to AT&T and it cleaned Death Star's clock as long as it continued to do that non-sexy stuff.

I'm actually thinking in next 5-10 years we will have the likes of Capital One, Discover and Amex clean up on the banking side.

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