“Today, you can live with investing a lot of money and you can live with a loss-making operation, but you cannot live with negative unit economics,” he says.
The obvious answer for many financial technology start-ups hoping to start making serious money is to begin lending money to customers. So far, most challenger banks have only taken tentative steps in this field.
“Lending is where the revenue is made from a banking perspective,” says David Brear, the chief executive of financial technology consultancy 11:FS. “If all of them don’t have fully fledged lending products in the market by the middle of next year, I’ll eat my hat.”
“If you talk to any banker, they’re just surprised that Monzo or others haven’t come at them stronger with loans,” he adds.
The plan makes sense on paper, but an expansion into lending could upset many start-up employees who see digital banks as forces for good.
“In some of these [start-ups], their cultures are very lent toward more socialistic views on how the world should work,” Brear says. “I think it will jar a little bit.”
And the UK’s financial technology sector is desperately keen to avoid the fate of Wonga, the payday lending start-up which collapsed into administration in 2018.
Several prominent investors infamously sat in silence on a London conference stage in 2014 when asked what went wrong at Wonga, with one denying there had been issues.
Loans aren’t the only moneymaking option, however. All three major banking start-ups have expanded to offer business accounts, while Revolut and Starling are now offering cards to children.