Tag: digital banking

  • Is Revolut worth US$200 billion?

    Is Revolut worth US$200 billion?

    Is Revolut worth nearly as much as Citigroup or American Express? Both of those financial firms have market capitalizations that exceed US$200 billion. They also have annual revenue of US$85.2 billion and US$72.2 billion respectively. Revolut posted US$6 billion in revenue last year.

    Yet, the UK fintech unicorn is not letting something like modest revenue stand in the way of a blockbuster IPO, which is now planned for 2028. An April 21 Financial Times report, quoting a Revolut source, said that the company is targeting an IPO valuation of US$150 billion to $200 billion – which is double to 2.7x its current US$75 billion valuation. 

    To be sure, Revolut’s business is growing at a steady clip. Revenue rose 46% last year, while pre-tax profit jumped 57% to US$2.28 billion. Customer balances increased 66% to $67.5 billion, while the company’s user base grew to 68.3 million retail customers and 767,000 business customers. Revolut operates in over 40 markets, with licensed banking operations in 30+ countries, including Mexico and Colombia.

    It is difficult to assess how reasonable Revolut’s IPO valuation target is because there are not many large digital banks that trade in public markets. Brazil’s Nubank, which is the largest pure-play online lender in the world, has a market capitalization of about US$70 billion. Nubank posted a record-breaking US$16.3 billion in revenue last year, with net income of US$2.9 billion. 

    Revolut’s business is considerably smaller than Nubank’s, yet the UK firm is targeting an IPO in two years that would value it at more than double the Brazilian company’s valuation and the higher end, almost triple. 

    The UK firm’s backers might say that it is positioned to become a dominant banking force in Europe. On the one hand, the company recently was granted a full UK banking license, which allows it to offer full current accounts, loans, and credit products to its 13 million UK customers, with deposits protected by the FSCS up to £120,000. 

    On the other, it is expanding aggressively in continental Europe. Some analysts see rapid growth in markets such as France, Italy, and Spain as evidence that the UK fintech is increasingly being used as a primary, rather than secondary bank account. In Europe, about one in five working-age adults now uses Revolut. 

    While the UK company’s prospects in Europe look good, its ability to justify a sky-high IPO valuation will depend largely on if it can crack the U.S. market. Revolut has been operating in the U.S. since March 2020 as a fintech company in partnership with American banks. While the company boasts about its 1 million U.S. users and the US$500 million it has invested in the country, the reality is that its current American business is small potatoes. One way or another, it needs to become a full-fledged bank to make that investment pay off.

    With its own license to operate in the United States, Revolut would be able to start taking insured customer deposits. That would make it easier for the company to offer lending products like its own credit cards, which it sees as crucial for gaining American customers. To offer those right now, it would have to borrow from the capital markets. With a banking charter, Revolut would also gain access to payment systems such as Fedwire and A.C.H.

    Will Revolut succeed where other digital banks (like its competitor Monzo) have failed? 

    Revolut seems confident: The company is betting on the U.S. regulatory environment being favorable to its application for a standalone charter. 

    This seems risky to us given that the UK firm has a checkered compliance history. And unlike Mexico—where Revolut did recently acquire a full banking license—the U.S. market doesn’t really need another flashy digital bank.

  • Why is Monzo leaving the U.S.?

    Why is Monzo leaving the U.S.?

     UK neobank Monzo can’t seem to make up its mind about the U.S. market. The company first launched in the U.S. in June 2019 but withdrew its application for a banking charter in October 2021. Monzo remained in the U.S. market, though, operating through its partner bank, Sutton.

    Then on April 1, the UK online lender abruptly announced that it is withdrawing from the U.S. market. This time, the decision appears to be final. Users have full access to their debit cards until May 15. After that date, they cannot add money, get paid into Monzo, make card purchases, or make ATM withdrawals. Customers have until June 8, 2026, to transfer funds before their accounts officially close.

    The statement Monzo published about its U.S. exit is light on details. “We’ve decided to focus our efforts on our UK and EU business, where we’re seeing incredible growth. We’re sad to say goodbye to our U.S. customers. Thank you for choosing Monzo,” the company said.

    U.S. customers can be forgiven for feeling shocked. Monzo had not clearly indicated publicly before that statement that it was likely to exit the U.S.

    Indeed, the company is financially stronger than it was in 2021, with scale at home, a clearer profitability story, and a more mature risk and controls stack. And in Washington, the mood music on charters and deals is marginally more receptive than it was during the last application. Monzo had been considering shifting from a sponsor-bank model to a fully chartered presence controlling deposits, credit, and economics end-to-end instead of renting access through a partner.

    We believe that a driving force behind the decision is new CEO Diana Layfield. She aims to focus Monzo on profitability. Meandering in the U.S. market through a partner bank with no clear timetable to receive a full banking license could put pressure on margins. Indeed, the American market has extremely high customer acquisition costs at US$300 per user compared to US$100 per the global average and is crowded with mature fintech firms.

    High customer acquisition costs unto themselves probably would not be a dealbreaker for Monzo, but the U.S. is also a difficult regulatory environment because of fragmentation. Without a national bank charter, Monzo would be restricted to offering services state by state. Compared to the early 2000s, it has become harder in recent years to obtain a U.S. national bank charter, with a significant decline in approvals.

    Additionally, core revenue drivers for banks are different in Europe and the U.S. The U.S. market relies on interchange fees and lending rather than account fees, requiring a different, costlier business model for success.

    For these reasons, Monzo will be better off focusing on expansion in Europe. It is well positioned to do so after acquiring a full European banking license granted by the European Central Bank and the Central Bank of Ireland in December. This license allows Monzo to operate as a fully authorized bank across the EU 27-member single market, with Dublin established as its European headquarters.

    Following a profitable 2024 and 2025 (reporting over £60 million in pre-tax profit), the company is well-capitalized to fund its European expansion. Monzo is leveraging its success in the UK with “Monzo Max” subscriptions, investments, and business banking to compete with other European digital banks. While Monzo plans to target SMEs in Europe, this sector is becoming increasingly competitive, with rivals like Tide and Allica Bank, as well as incumbent banks, fighting for market share.

    Monzo’s European expansion is likely to see steady, calculated growth rather than an immediate, massive launch, given its decision to prioritize stability over a failed U.S. foray. With a US$5.2 billion valuation and a successful “personal-to-business” cross-selling strategy in the UK, Monzo has the tools to make an impact, provided it can differentiate its services from dominant rivals like Revolut.

  • How Ualá hit a US$3.2 billion valuation

    How Ualá hit a US$3.2 billion valuation

    In about nine years’ time, Ualá has become one of the most valuable and competitive fintech startups in Argentina. The company reached a US$3.2 billion valuation following a $195 million funding round led by Allianz X – the venture capital division of Germany’s insurance behemoth Allianz SE – in March.

    Only weeks after the Argentinian firm introduced life insurance and accident coverage, the extra cash strengthens the fintech’s relationship with Allianz, especially in embedded insurance.

    About one in five people in Argentina have a Ualá account, while overall the company has more than 11 million customers across its home market, Mexico, and Colombia. The startup has rapidly grown from a prepaid card provider to a full-fledged digital bank offering products such as debit and credit cards, lending, investments, insurance, and merchant acquiring. Ualá holds full banking licenses in each of its markets.

    According to the Argentinian startup, the capital injection will be used to boost expansion and broaden Ualá’s financial network throughout Latin America. Stone Ridge Holdings Group, Tencent Holdings Ltd., Soros Fund Management LLC, Table Holdings LP, and D1 Capital Partners were among the new and current investors who took part in the round. After raising $366 million in a Series E financing, Ualá was valued at $2.75 billion in 2024.

    Tencent’s backing of Ualá has been crucial to its growth by providing vital capital, technical expertise, and strategic mentorship. Indeed, the Chinese platform company led Ualá’s $150 million Series C round in 2019 and has continued to invest in the company, helping it to reach unicorn status.

    As important as this financial support has been, Tencent’s experience running a massively successful fintech business has also been crucial to Ualá’s success. The Chinese firm rapidly transitioned in the mid-2010s from a PC-first platform best known for gaming into a mobile-first juggernaut with a large and profitable fintech portfolio. Ualá’s CEO, Pierpaolo Barbieri, has noted that working with Tencent enabled his company to learn how to build a product that drives daily engagement.

    In 2019, when Tencent first invested in the company he founded, Barbieri said, “Tencent invests because it’s betting on what will happen in Argentina over the next 10 years, rather than what will happen in the next six months.” That has turned out to be a prescient observation.

    Ualá, which was established in 2017, obtained the funding after a difficult year for financial institutions in Argentina, where consumer loan defaults increased recently as high interest rates prevented many people from accessing loans. According to central bank data, about 10% of Argentine families are behind on loan payments, a five-fold increase in recent years.

    However, in the past few months, businesses’ confidence has been increasing. Falling inflation, declining interest rates, and a more stable macroeconomic environment that may encourage an increase in lending and consumer credit.

    Looking ahead, Mexico is likely to become ever more important to Uala’s growth prospects. With over 130 million residents and high rates of cash usage (approx. 88% as of 2023), Mexico provides a huge, underbanked market forfintechs. Thus far, Ualá has focused on the massive Mexico-U.S. remittance market, offering tailored solutions to capture a portion of this economic flow.

    Further, the acquisition of ABC Capital provided Ualá with a local banking license, allowing it to offer Mexican customers a comprehensive array of banking products. These include high-yield savings accounts that allow customers to earn up to 15% interest on their deposits. Ualá also recently announced a tie-up with digital trading and brokerage company DriveWealth for the launch of a product that will enable Mexican consumers to invest in U.S. equities.

    The Argentinian startup says that is the eighth-largest bank in Mexico in terms of accounts and the twelfth-largest in terms of the quantity of credit cards it issues.

  • Revolut doubles down on India expansion

    Revolut doubles down on India expansion

    Revolut has long had its eyes on India, the world’s largest remittances market and the country in Asia where its growth prospects are most promising. The UK fintech unicorn first entered India five years ago and has been gradually beefing up local operations.

     Revolut’s India foray now looks set to kick into high gear—but not from a customer standpoint, at least not yet. Rather, the company announced in late March that it will base about 40% of its global workforce in India by the end of 2026, expanding its global capability center with 1,600 new hires that will increase its total headcount in the subcontinent to 5,500.

    This move follows Revolut pledging last October to invest US$670 million in India over five years. “India is a critical market as we see ourselves becoming a truly global bank. We’re taking a long view on all the critical markets we enter. We’re very optimistic about the growth in India and the future success point. So, we want to build for that future,” group chief banking officer Siddhartha Jajodia told India’s Economic Times.

    If all goes smoothly, the India hub could really become the heart of innovation for Revolut—think of it as an engine driving cost efficiency and managing global processes for the firm. This might help Revolut roll out new products faster across the globe. Yet there could be some bumps along the way: regulatory changes, fierce competition for talent, or challenges in syncing operations in India with other markets. If things don’t go as planned, the UK neobank could end up facing delays in product launches or operational hiccups.

    From a customer standpoint, India offers Revolut some of its best opportunities for growth among emerging markets. And Revolut’s India leadership has been vocal about the company’s ambitions in the subcontinent, which are somewhat modest by its standards. An Oct. 2025 Tech Crunch article noted that Revolut is targeting about 150 million Indians in the long run, with plans to sign up about 20 million as customers by 2030 and process US$7 billion of their transactions.

    Revolut India CEO Paroma Chatterjee has called the high foreign exchange fees Indian banks charge their customers “criminal”—an interesting way to put it.

    That description may reflect frustration. Revolut feels restricted in India from the type of torrid expansion for which it is best known. It does hold approvals from the Reserve Bank of India (RBI) to operate as a fintech in India, including a full license to issue Prepaid Payment Instruments (PPI) for wallets and cards. The UK firm also operates as an Authorized Dealer Category-II (AD-II) for forex and cross-border remittances.

    But Revolut does not have a full banking license in India. As a result, it cannot offer traditional bank accounts, savings accounts, interest on balances, or credit cards. Because the UK firm operates as an e-money/prepaid instrument issuer rather than a bank, customer funds are not covered by the DICGC deposit guarantee scheme.

    While Revolut’s heavy investment in Indian talent and operations should sit well with Indian regulators, it is difficult to say whether this strategy will translate into faster regulatory approval for a full banking license. With the exception of Google Pay, most foreign fintech firms have struggled in India. They face intense competition from entrenched local players, complex regulatory compliance requirements, and the need to adapt to a unique, low-margin, high-volume market.

     Revolut is also a global company that is simultaneously ramping up expansion in Europe, Latin America, and the United States. While valued at US$75 billion, it does not have unlimited resources.

    A cautionary tale for Revolut is WhatsApp Pay, which thought its dominant messaging app would lead to a large market share in the Indian payments sector. But regulators slow-walked its key approvals due to data localization concerns. It has never gained a strong foothold in India.

    Fortunately for Revolut, it lacks Meta’s baggage. Time will tell if it can navigate the complex Indian regulatory environment more adroitly.

  • Nubank logs another record-breaking quarter

    Nubank logs another record-breaking quarter

    Brazil’s Nubank just might be the most successful digital bank in the world right now. After a record-breaking third quarter, it followed that up with—what else?—a record-breaking fourth quarter that well exceeded Wall Street’s expectations.

    Nubank’s net income in the fourth quarter surged 50% annually to a record US$895 million, and revenue rose 45% to US$4.9 billion, driven by customer growth to 131 million and higher revenue per user. The company reported a 33% ROE, while total credit portfolios grew 40% to US$32.7 billion.

    Total deposits reached $41.9 billion in the fourth quarter, up 29% year-on-year, while the cost of funding was 87% of interbank rates. The total credit portfolio expanded 40% year-on-year and 11% sequentially to US$32.7 billion.

    In Brazil, Nubank says that it is now the largest private financial institution by number of customers, citing data from the Brazilian Central Bank. In Mexico, Nu serves around 15% of the adult population and is the leading issuer of new credit cards in the country. In Colombia, Nu has surpassed 4 million customers, and with the recent expansion of its credit card portfolio, it is now able to approve nearly three times more applicants than before.

    “These results reflect our ability to combine disciplined growth with sustained profitability while continuing to invest in our core markets. As we enter 2026, we remain fully focused on winning in Latin America while building the capabilities that will allow Nubank to evolve into a global digital banking platform over time,” David Vélez, founder and CEO of Nubank, said in a statement.

    Looking ahead, we expect Nubank to focus on two-pronged international expansion. The first prong will be Latin America, with Mexico the most important market. The Brazilian online lender’s Mexican subsidiary, Nu Mexico, is fast approaching 14 million customers, which it says represents 14% of the country’s adult population. By several measures, Nu Mexico is growing faster than the original Brazilian digital bank at the equivalent stage of development.

    Several factors account for Nubank’s success in Mexico. On the one hand, it serves a large, underbanked population, with roughly 78% of customers living outside Mexico’s largest cities. Nearly 50% of its customers received their first credit card through Nu. Additionally, the launch of Cuenta Nu and Cajitas (savings boxes) allowed the company to quickly gain deposits by offering competitive interest rates. Thirdly, as a cloud-native bank, Nu reduces reliance on, and frustrations with, traditional physical banking infrastructure.

    The second – and more challenging – prong of Nu’s international expansion will focus on the U.S. market. While the U.S. is a mature and ultra-competitive banking market, Nu believes there are opportunities in certain regions and states. It previously announced plans to develop strategic U.S. hubs in Miami, the San Francisco Bay Area, Northern Virginia, and the North Carolina Research Triangle. Compared to Colombia, where operations have been ongoing for several years, the U.S. is a more promising market.

    Auguring well for Nu is that in late January, it received conditional approval from the Office of the Comptroller of the Currency (OCC) of the United States for the formation of a de novo national bank, Nubank, N.A. Once fully approved, the national bank charter will allow Nu to operate under a comprehensive federal framework, facilitating the launch of deposit accounts, credit cards, lending, and digital asset custody.

    Nu’s co-founder Cristina Junqueira will lead the Brazilian firm’s U.S. entity, while Roberto Campos Neto, former president of the Central Bank of Brazil, will serve as chairman of the board of directors.

    “While we remain fully focused on our core markets in Brazil, Mexico, and Colombia, this step allows us to build the next generation of banking in the United States,” David Vélez said in a statement.

  • Klarna fights an uphill battle with investors

    Klarna fights an uphill battle with investors

    Swedish payments giant, sometimes bank and stablecoin issuer Klarna is learning that it’s a lot harder being a listed fintech firm than a unicorn whose eye-popping valuation is decided by private investors who cannot resist hitting the inflate button.

    The aura of invincibility enjoyed by erstwhile unicorns like Klarna dissipates pretty quickly after an IPO “pops” and reality sets in. Investors in public markets are not necessarily more rational than their private market counterparts. They are less forgiving, though.

    The Swedish company’s  fourth quarter performance wasn’t half bad. In some respects, it was pretty good. The company posted US$1 billion in revenue for the first time, driven by rapid U.S. expansion and increased adoption of its banking products. Revenue in the U.S. expanded 38% annually. Users of Klarna’s banking services (card, financing, savings) doubled to 15.8 million.

    Unfortunately, the Swedish payments giant still lost US$47 million in the fourth quarter, equivalent to a 12-cent loss per share. The net loss was driven by high upfront provisions for credit losses, which are booked immediately, while revenue from these loans is recognized over time. For 2025 overall, Klarna lost US$241 million.

    Klarna’s share price just keeps on falling, suggesting that investors don’t like what they see. It’s lost 71% of its value since the Sept. 2025 IPO and 26% over the past month.

    We are heartened to see that investors aren’t giving the Swedish firm a free pass and that they are not moved by its AI cheerleading. In a news release, Klarna emphasized that headcount has declined 49% since 2022, “proving that with the right technology and the right talent, you can do more with less.”

    It remains to be seen how smart a move it was for the Swedish company to cut half of its staff.

    What about the company’s fundamentals? After all, it is not unusual for a high-flying fintech startup to encounter a steep learning curve after it becomes a public company.

    Auguring well for Klarna is the fact that it has achieved serious scale. As of Q4 2025, it serves 118 million active consumers and nearly 1 million merchants across 26 countries.

    Realizing the limitations of buy now, pay later (BNPL), Klarna is pivoting to banking to make its operations more profitable. However, in the U.S., which is crucial to the company’s overall growth strategy, it lacks a banking charter. Klarna currently partners with Utah-chartered WebBank to offer credit, and it partners with Marqeta to support its U.S. debit card, allowing for FDIC-insured deposits.

    But is the partner bank route the way forward? We aren’t so sure about that.

    Lacking a banking charter in the U.S. restricts Klarna’s growth by forcing it to rely on partner banks for regulatory compliance and funding, which increases costs, limits product offerings, and creates operational friction compared to licensed banks. While Klarna is a licensed bank in the European Union, its reliance on Utah-based WebBank to issue products in the U.S. limits its ability to directly hold deposits and compete on traditional banking.

    Crucially, without a bank charter to directly accept low-cost consumer deposits, Klarna is forced to fund its lending book (BNPL) through more expensive alternative debt facilities, warehouse lines, or equity.

    At the same time, without its own charter, Klarna cannot directly manage relationships with regulators. Without those relationships, Klarna will find it harder to navigate complex American banking regulations and gain approval for new, innovative financial products.

    There is also a branding problem that goes along with lacking a banking charter. State laws in the U.S. restrict companies without a charter from marketing themselves as a “bank.” If Klarna continues on its current path, its ability to build customer trust might be reduced.

    We will be interested to see how Revolut’s plans to acquire a U.S. banking charter go. If the UK fintech giant succeeds in that endeavor, it may force Klarna to reconsider its strategy.

  • Grab doubles down on fintech

    Grab doubles down on fintech

    Singaporean super app Grab reached its first full year of profitability in 2025, posting US$200 million in net income. For a company once best known for burning cash in a race to the bottom against Uber and later GoTo, this is an important milestone—even if investors remain skittish: Grab’s stock has fallen 22% over the past year despite its improved financials.

    We have been following the Singapore-based firm closely ever since it launched a bid for a digital banking license in Singapore almost six years ago, and it has come a long way in terms of fintech capabilities. In the fourth quarter, Grab reported a 34% annual increase in financial services revenue to US$99 million, up from US$74 million a year earlier.

    Financial services revenue, while growing fast, is still just a fraction of the company’s overall business. Total group revenue for the fourth quarter was US$906 million, generated mostly by mobility and deliveries.

    Grab’s digital banking deposits in Singapore and Malaysia have reached US$1.6 billion, a modest increase over US$1.2 billion a year earlier. Perhaps more noteworthy is that its loan portfolio has doubled over the past year from US$1.18 billion from US$536 million at the end of 2024.

    Still, even by digital bank standards, this is not yet a significant lending business. Brazil’s Nubank, for instance, has a US$30.4 billion loan portfolio.

    Additionally, Grab’s fintech business remains unprofitable while facing stiff competition from both pure-play fintechs and incumbent banks in Southeast Asia. Despite having millions of users in its ecosystem, converting them into active, high-balance digital banking users has proven difficult for the Singaporean firm. Most of the company’s customers have low average balances because they are not switching over from their primary banking providers.

    At the same time, Singapore and Malaysia don’t have large underbanked populations that can allow digital banks to quickly build scale. More than 90% of adults in both countries have bank accounts, and most of the analysis claiming they have large “underbanked” populations stretches the definition of that term.

    Grab does own an 11% stake in Indonesia’s SuperBank, which is also backed by Emtek and Kakao Bank. Superbank went public on the Indonesia Stock Exchange in December, raising approximately US$168 million (Rp 2.79 trillion). The shares jumped 24% on their debut after being oversubscribed 318 times.

    Superbank offers Grab’s fintech business more significant growth potential than GXS Bank in Singapore and Malaysia because Indonesia actually has a large underbanked demographic. About 60% of Superbank users come from Grab’s ecosystem, allowing it to scale up quickly. The digital lender posted a profit of about US$5 million in the third quarter of 2025.

    The most ambitious fintech-related move by Grab in recent months is its acquisition of the U.S.-based investment app Stash Financial for US$425 million in a deal expected to close in the third quarter of 2026. Grab will acquire 50.1% of Stash in a mix of cash and stock at closing, with the remaining stake purchased over the next three years.

    The acquisition provides Grab with an established platform to enter the mass-market investment segment. Stash has over US$5 billion in assets under management and over one million subscribers.

    We don’t see Grab trying to bring its super app to the United States, but owning Stash will give it exposure to the U.S. market that it would not otherwise have.What we expect Grab to do, though, is try to leverage Stash’s capabilities in Southeast Asia to offer more tailored wealth management systems to its customers. It remains to be seen, however, how much traction this move will get. Grab’s communications about the acquisition emphasize Stash’s “AI-powered ”capabilities”—which could describe just about any digital wealth management service in existence today.

  • U.S. Fintech IPOs Surge, Then Fizzle

    U.S. Fintech IPOs Surge, Then Fizzle

    After several years of a slow deal pipeline, U.S. fintech IPOs rebounded strongly in 2025. The concerns about inflation and high interest rates that had made investors risk-averse dissipated this year, despite ongoing macroeconomic uncertainty linked to the United States’ trade policy.

    2025 saw several long-awaited big-ticket deals come to fruition, including Chime, Circle, and Klarna. Deal flow has remained steady in the second half of the year, with Wealthtech making its market debut in December.  

    While the fintech IPO resurgence is welcome, it comes with a reality check. Public markets are less forgiving than their private counterparts—whose complex methodologies for calculating valuations often result in overly high expectations for startups. The process requires estimating future revenue/EBITDA multiples, a target return on investment (often 20-50% or more), and then discounting that future value back to the present. The assumptions around exit timing and target returns are subjective. 

    It is thus unsurprising that the share prices of Chime, Circle, and Klarna – all erstwhile high flyers in private markets – have fallen by double digits since their respective IPOs—though these are early days.

    Chime: Overreliance On Interchange Fees

    The June 2025 IPO of Chime, the biggest American digital bank, was a success. The San Francisco-based company priced its market debut at US$27 per share, above the expected range, raising US$700 million at a valuation of US$11.6 billion. Chime’s arrival in public markets was long anticipated and helped thaw an erstwhile tepid fintech IPO pipeline.

    Yet since then, Chime’s share price has fallen 28%. On the one hand, investors are likely reacting to a perception the stock was initially overvalued.

    On the other hand, Chime remains unprofitable. In the third quarter, revenue grew a brisk 29% to US$544 million, surpassing sales guidance, while its active member base grew 21% to 9.1 million. But Chime still lost US$55 million in the September quarter but posted a significant improvement in adjusted EBITDA of $29 million.

    With 22 million customers, Chime exceeds the size of U.S. online banks like SoFi, Dave, and MoneyLion, according to a 2024 Cornerstone Advisors survey. It has been successful tapping into a market where there has historically been limited competition given fragmentation, regulatory barriers, and hesitancy among American consumers to switch banks.

    The online lender relies on interchange fees for its core business, offering no-fee banking services, debit cards, and early paycheck access. These fees account for about 72% of revenue and are paid by merchants when customers use their Chime debit or credit cards.

    The company’s model, and that of its bank partners, is built on a regulatory exemption from the Durbin Amendment for banks under a certain asset threshold. This allows them to earn higher interchange fees than large, regulated banks.

    Yet the model is inherently risky because Chime is betting that it can continue to enjoy a regulatory exemption that may not last. The digital lender is much less diversified than traditional banks, which have revenue streams from lending, wealth management, and other fee-based services.

    Klarna’s BNPL Challenge

    After several years of delays, Klarna finally went public on the New York Stock Exchange (NYSE) in September at a valuation of US$15.1 billion, which is about 1/3 of what it was worth in private markets back in 2021. Although the fintech IPO itself was considered successful, the company’s share price has dropped 35% since September as investors worry about Klarna’s ability to generate sustained profits. 

    While Klarna’s third-quarter revenue reached a record US$903 million, its net loss widened to $95 million. Klarna says that it posted a loss mainly due to a US$235 million provision for credit losses, an accounting requirement tied to the rapid growth of its expanding Fair Financing product.

    The U.S. is a key growth area for Klarna, but its credit loss rates are higher there than in its core European markets. This is partly because Klarna must compete more directly with traditional credit cards in the U.S., where its primary users tend to be consumers who need more time to pay. 

    With its core BNPL product showing its limitations, Klarna has decided to hop on the stablecoin bandwagon as part of its diversification strategy. In a news release, Klarna explains its rationale for the issuance of KlarnaUSD, which is currently in a testing phase and will be available to the public on mainnet in 2026—likely in the middle of the year. Citing consultancy McKinsey, the Swedish fintech giant says that stablecoin transactions now exceed US$27 trillion a year and could overtake legacy payment networks before the end of the decade. 

    Launching a stablecoin does not fundamentally address the issues with Klarna’s current business model, but it could reduce the US$32.7 billion in cross-border fees the company pays, lowering its costs and allowing it to make faster payouts to merchants. 

    As Crypto Goes, So Does Circle 

    Speaking of stablecoins, Circle’s June IPO was a blockbuster fintech IPO, raising $1 billion at an $8 billion valuation. Shares surged 168% on its first day (June 5th) after pricing at $31 and opening at $69 on the NYSE. Investors rushed to snap up the shares of the USDC issuer, which benefited from optimism about stablecoin regulation (the GENIUS Act).

    Since then, the company’s shares have fallen about 50%. However, unlike Klarna and Chime, there is no fundamental shortcoming in Circle’s business model. Rather, investors are reacting to how lowered interest rates may impact Circle’s core revenue from USDC reserves. Lower interest rates will reduce the company’s income on cash and U.S. Treasuries.  

    In addition, the ultra-volatile crypto market is currently experiencing a downturn that Circle cannot escape. Macroeconomic jitters, year-end portfolio rebalancing, and high investor leverage leading to forced liquidations are all factors that have pushed crypto market capitalization to under $3 trillion, down from $4.3 trillion in October. 

    Auguring well for Circle is its strong third-quarter performance. The company’s net income tripled to $214 million, driven by increased USDC stablecoin circulation boosting reserve income, despite a lower return rate on those reserves. Total revenue reached $740 million, beating Wall Street estimates. Other highlights of the September quarter for Circle included a 60% rise in reserve income, strong service revenue growth, increased operating expenses from headcount, and an overall beat on earnings per share.

    What To Expect In 2026

    Looking ahead, the U.S. fintech IPO pipeline is likely to remain robust in 2026. One possible big-ticket deal next year is Airwallex. In mid-2024, CEO Jack Zhang said that the payments unicorn was aiming to be fintech IPO-ready by then. Airwallex’s financials have continuously improved over the past few years, and it recently closed a $330 million Series G funding round that valued it at $8 billion.

    When talking about fintech IPOs, one cannot help but think of payments infrastructure provider Stripe, whose valuation has reached an astonishing $106.7 billion in private markets. Yet unlike some of its peers, Stripe has not mooted any timeline for its market debut. Its leadership is focused on long-term growth, prefers controlled expansion, and does not feel pressured by market hype. With that in mind, we would not bet on a Stripe IPO next year.

    In contrast, a Revolut IPO next year would be unsurprising as one of the next fintech IPOs. The UK fintech unicorn recently reached a massive $75 billion valuation following a secondary share sale. Its financials are solid, having reported a net profit of $1 billion for the financial year ending December 31, 2024, on revenue of $4 billion. This marks the company’s fourth consecutive year of profitability.

    However, there is one major caveat: Revolut still does not have a full UK banking license. If that issue gets resolved in the first half of next year, it would instill confidence in investors, making a fintech IPO in the second half of the year more likely. If not, then Revolut is unlikely to go public in 2026. 

    In any case, if 2026 is anything like 2025, it will be a busy year. 

  • Are N26’s best days behind it?

    Are N26’s best days behind it?

    Are N26’s best days behind it?

    N26 is one of Europe’s most prominent digital banks, with $486 million in sales in 2024. Yet despite the German neobank’s impressive growth over the past 12 years, we cannot help but wonder if it will ever live up to the promise of the US$9 billion valuation it achieved in 2021—the height of pandemic-induced tech startup hype.

    The valuation of N26 has reportedly fallen by nearly 2/3 since then. While a $3 billion valuation is nothing to sneeze at, it is important to note that there has been no recovery in how investors value the company in private markets, in stark contrast to its peers Monzo and Revolut. Both of the UK neobanks saw their valuations fall in the post-fintech bubble hangover, but not as sharply as N26. And the valuations of Revolut and Monzo both rebounded as investors regained confidence about the UK neobanks’ prospects.

    All neobanks struggle with the regulatory learning curve. It is one reason incumbents are hard to displace. But for N26, the regulatory travails are constant—and interfering with its core business.

    In December, Germany’s financial regulator BaFin banned N26 from issuing new mortgages in the Netherlands and imposed new capital requirements on the digital lender, citing anti-money laundering (AML) shortcomings. BaFin also installed a special representative to track N26’s progress in fixing its compliance problems.

    In explaining its decision, the German financial regulator said that a special audit found lapses in N26’s business organization, risk management, and complaint handling, violating the German Banking Act. The measures mark the second time since 2021 that BaFin has ordered a special monitor to oversee N26.

    The German neobank has sought to address regulatory concerns with some personnel changes. In August, one of the original founders, Valentin Stalf, said he would step down as co-CEO and join the supervisory board. A new chief risk officer was also appointed starting on Dec 1. The bank in 2025 doubled the size of its supervisory board to six, installing a new chair who once sat on the board of Germany’s central bank.

    N26’s new CEO, Mike Dargan, who will begin his job in April, hails from the world of investment banking. He worked at UBS for almost a decade, most recently serving as Group Chief Operations and Technology Officer. Before that, he served in senior roles at Standard Chartered and Merrill Lynch.

    The appointment of Dargan, with his extensive background in traditional banking, is seen as a move to reassure regulators and strengthen N26’s internal controls and risk management.

    “What drew me to this role is both the clarity of the mission and the scale of the opportunity,” Dargan said in a LinkedIn post commenting on his job change. “The future of banking will be shaped by those who combine disruptive technology with unwavering client trust. My focus will be clear: to build on N26’s strong culture of innovation while strengthening its position as a trusted, world-class digital bank.”

    Under Dargan’s leadership, and assuming it can overcome regulatory obstacles, N26 has reasonably good prospects. Its fundamentals are, after all, strong. The German neobank has five million customers in 24 countries in Europe and has raised nearly US$1.8 billion from heavyweight investors known for backing winners. They include Singapore’s sovereign wealth fund GIC, Tencent, and Peter Thiel, as well as venture capital firm Earlybird and insurer Allianz.

    N26 also wisely pulled the plug on misguided expansion, exiting the U.S., UK, and Brazil in recent years to focus exclusively on its profitable core European markets of Germany, France, Spain, and Italy.

    Looking ahead, N26 should continue its shift to an interest-driven model, leveraging rising rates on customer deposits and growing subscription revenue from premium accounts. Building out investment platforms (stocks, crypto) and introducing business banking services could also help diversify revenue streams.

    If N26 can do these things, its best days may be yet to come. 

  • Starling Bank mulls next big steps

    Starling Bank mulls next big steps

    Technology forward with a lean cost structure and known for being customer centric, Starling Bank is one of the most successful UK digital lenders. It has operated as a licensed bank in the U.K. since 2018 with shareholders that include Goldman Sachs, Fidelity Investments and the Qatar Investment Authority. 

    In the fiscal year ended March 31, 2025, Starling Bank posted a profit of US$301.9 million on revenue of US$963.4 million.While that is an enviable performance by the standard of most fintech startups, for Starling Bank it was a bit of a disappointment. The company’s net income fell 26% annually because of a Covid-era business loan fraud issue and a regulatory fine over financial crime failings. Revenue grew 5%, but that was a significant slowdown from the 50% expansion rate in Starling’s 2024 fiscal year.

    Never as audacious as competitors like Revolut and, to a lesser degree, Monzo, Starling still faces the reality of being an 11-year-old fintech startup long past the go-go days in private markets. Investors want Starling Bank to show them the exit ramp—and for this reason, the company has reportedly engaged investment banks, including Morgan Stanley and Rothschild, to explore options for a sale, targeting a potential valuation of up to £4 billion.

    Though Starling Bank is a UK company whose largest business is in its home market, we would not be surprised if it were to eschew the London Stock Exchange (LSE) and instead go public in the United States. To be sure, a New York Stock Exchange (NYSE) listing—which we consider the likeliest destination for the offering—would signal a change in direction from what former interim CEO John Mountain said in 2024. At the time, Mountain said that London was the “natural home” for Starling, and he even emphasized that the company was not “considering other markets” for its market debut.

    That was then. Now, Starling Bank is leaning towards a U.S. listing. The UK digital lender’s CFO, Declan Ferguson, told the Financial Times in July that while no decision had been made on where the bank would list, it was a U.S. IPO. “We continue to observe what is happening externally with our peers and also what is happening on the global stage in terms of the UK versus US [stock markets],” he said.

    One reason for Starling Bank to go public in the U.S. would be to achieve a higher valuation than it could on the LSE. The U.S. IPO market benefits from bigger size, greater investor sophistication regarding technology stocks, and higher valuation multiples. UK fintechs often feel they are valued more like traditional banks in London, whereas in the U.S., they might be valued as high-growth technology platforms.

    At the same time, the U.S. has a much larger financial services market than the UK that, despite its fragmented nature, offers Starling significant opportunities. Starling’s management reckons that its cloud-native technology platform (Engine) could be a key differentiator in the massive U.S. banking market, especially when it comes to its thousands of mid-tier and community banks.

    To that end, Starling is also likely to expand in the U.S. prior to its IPO and has reportedly looked at acquiring a U.S. bank. If the UK digital lender can acquire a traditional U.S. bank, it will avoid the regulatory morass that would be guaranteed if it independently applied for a U.S. banking license. Further, an acquisition would give Starling Bank instant infrastructure and deposits in the American market, as well as an immediate opportunity to deploy Engine.

    If the UK neobank finds an attractive M&A target, we expect it would move to make the deal in the first half of 2026 and help pave the way for an NYSE IPO, perhaps in the second half of the year.