Monzo, Starling and Revolut: The Challenger Banks Growing Up

All three banks have established a foothold in the UK, but none have ever recorded a profit. Once the funding dries up, which will survive?

All three banks share a lot of similarities: they generate revenue mostly from interchange, focus on app over web, have no physical branches and do not offer first-party mortgages, credit or extensive insurance programs.

However, the differences between them are starting to emerge, as each attempts to find new revenue models and users.

For Revolut, the last few years have been about expansion into new types of finance, like investment and cryptocurrency. Possibly due to the holdup receiving a UK banking license, Revolut has expanded its platform to new forms of finance, making it the least like a typical bank out of the three.

Monzo is more like a bank than Revolut, but still has that challenger mentality, which has backfired at times. With its third-party savings accounts, we may see Monzo open up its platform to become a marketplace for finance to millennials, although it has launched its own loans and overdraft services.

Monzo and Revolut users deposit on average of £300–350 per month, while Starling customers deposit over £1,000.

Starling is the most like a regular bank, which is why the average customer deposits a lot more per month in it. Monzo and Revolut users only deposit on average of £300–350 per month, while Starling customers deposit +£1,000.

Revolut and Monzo have eyes on the US market. While the UK has been an ally for challenger banks, it has been more difficult in the US, which is why its contactless payments rollout was so far behind Europe. In the next five years, we are bound to see a lot more activity in this sector, although Monzo and Revolut are one of hundreds of fintech startups fighting for marketshare.

Starling does not seem interested in international expansion however, it has placed more investment in building services for the UK. This, again, speaks to its rather bank-like structure and leadership.

So who has the most chance to succeed?

Revolut is ahead of both in revenue and users. It generated £160 million in 2020 with 12 million users. Monzo generated £67 million and Starling £30 million during the same period; Monzo has four million users, Starling 1.5 million.

That said, Revolut scores lowest when it comes to customer deposits, which makes it less of a bank and more of an app used for withdrawing money on holding and investing in stocks and bitcoin without commission.

Monzo is in the middle of the two but isn’t doing well in any area. Most use it as a secondary account, which is why it has a similar average customer deposit to Revolut.

It also has far greater losses than Starling or Revolut, although that hasn’t put put investors off. Monzo recorded £115 million in losses in 2019, double Starling’s £55 million and more than triple Revolut’s £33 million.

While it was a cool app a few years ago, Monzo hasn’t had the cultural impact of Venmo in the US — it hasn’t become a verb.

Right now, Monzo looks the least likely to succeed. While it was a cool app a few years ago, Monzo hasn’t had the cultural impact of Venmo in the US — it hasn’t become a verb. And while it has a loyal fanbase, that loyalty was tested with the failure of Monzo Plus.

If it cannot generate enough through interchange and loses some of the jazz of a challenger bank, it might not last too long.

Starling, while still unable to make a profit, is in a healthier position because of its larger customer deposits. That appears to indicate that a majority of customers are using it as their primary bank, which will then make it easier for Starling to add new revenue generating services.

Revolut is in the strongest position and has the highest ceiling of the three, which is why it has a higher value than Monzo and Starling. The company clearly wants to be an ecosystem for finance, offering all sorts of services to customers, while Monzo and Starling are constrained by attempting to be a “modern day bank”.