Will Monzo Become The Latest Major Fintech to IPO in 2021?

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2021 has become the year of the fintech boom. Suddenly, a perfect storm of emerging technology from the rise of retail investing in the wake of the Covid-19 pandemic to an IPO boom have combined to create an extraordinarily favorable landscape for financial tech companies to blossom. One of the latest major players in the world of finance teasing an initial public offering is Monzo, but could the fintech giants go public in 2021?

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Although the company has shied away from the limelight since its founder Tom Blomfield stepped down at the beginning of the year, Monzo’s long term vision appears to be in tact, with one executive telling Sifted that they “think we’ll see a Monzo IPO” on the horizon for the fintech firm with big plans.

Fintech

(Image: TechCrunch)

As the chart above shows, 2021 has seen an unprecedented surge in the arrival of fintech IPOs. For starters, a record-breaking 11 fintechs went public in the first quarter of the year alone, with countless others in the pipeline.

PwC

(Image: PwC)

As PwC data shows, the rise of fintechs going public is a major part of a wider IPO boom that’s taking place. In the US alone, we can see that the number of 2021 initial public offerings has already outstripped that of 2020 – which in itself was a record-breaking year.

With an influx of retail investors arriving onto the investing landscape in 2020 bolstered by government stimulus packages, we’ve seen more trading volumes go into SPAC companies, which has helped to fuel the market further.

So why are fintechs choosing now to jump onto the IPO bandwagon? Alongside the favourable market conditions, Techonomy reasons that the appeal of a successful IPO can carry a lot of influence beyond the bottom line of a company. Having a strong initial public offering can help to market businesses intent on growing, and in a crowded market with many fintechs vying for space, an uplifting floatation can help companies to stand out and use their IPO as a springboard for further growth.

It’s also worth noting that the capabilities of fintech have grown significantly over the past few years. The digital transformation of companies into online ecosystems has rapidly broadened use cases for businesses adopting fintech. Future integrations of blockchain technology will further bolster the potential for finance companies.

Monzo holds strong ambitions for borderless payments that are shared by competitors like Connectum – which has already developed 3D-secure, multi-currency, one-click borderless payments whilst teaming up with Visa, Mastercard, UnionPay and MIR to develop more advanced financial solutions. Connectum uses artificial intelligence security antifraud system called Securita all while always updating security measures with the latest tech to reduce fraudulent chargebacks.

Connectum

The realization of these technologies will only drive investor appetite for these growing fintechs.

As Monzo prepares to fly the nest from its UK base to infiltrate US markets, it could be that an initial public offering would come at an ideal time as the company looks to make a strong first impression across new markets.

Breaking America

Following a chaotic 2020, Monzo is looking forward to a fresh start that champions profitability and a measured expansion into US markets alongside plans for an IPO.

The company’s executives forecast a profitable future for the company by 2022, which will be no mean feat considering that Monzo’s post-tax losses amounted to £113.8 million for the year ended 29th February 2020 – a significant rise on the prior year’s £47.2 million.

This doubling of losses is a key cause for concern within Monzo due to the sheer level of competition that the fintech landscape possesses, and puts the company at a disadvantage to rivals like Revolut and Starling Bank. However, unlike Revolut, which only recently filed for a UK banking license, Monzo has been among the first fintechs to receive their licenses domestically.

Although weak fundamentals can’t put the brakes on any prospective IPO, addressing the company’s losses will be a priority before an initial public offering can be considered. With a key goal of breaking America, Monzo has a clear history of innovating its way to prominence. Provided the finances follow suit, anything’s possible for the company that’s daring to dream big.

Addressing the Monzo Rollercoaster

Following its founding in 2015, Monzo has become one of the strongest contenders in the race to become Europe’s largest challenger bank. Once considered the UK’s second most valuable fintech alongside a valuation of £2bn, it’s perhaps unsurprising that the company is mulling an IPO to help realise its potential.

Co-founder Tom Blomfield created Monzo after a tumultuous departure from Starling Bank. He was at the helm of Monzo until June 2020 at which point he stepped into a fresh role as the president of the company. However, Blomfield opted to depart the company in January 2021 after a challenging year in the wake of the Covid-19 pandemic.

Losses meant that the company had to downsize in April 2020, costing 165 jobs, while the company’s UK team were the subject of more redundancies and the furlough of more employees through the pandemic. However, there were more mixed fortunes during the difficult summer of 2020 which saw the company obtain $60 million in a down round of funding which prompted a 40% drop in the company’s valuation to £1.24 billion.

The future growth of the company relies on becoming profitable as a priority. The Financial Times has reported that rivals Starling Bank have been profitable since October 2020, whilst Revolut has begun turning profits, too.

Monzo’s CEO, CEO TS Anil, intends to turn the company profitable by 2022, and has announced that the company has also seen 30% revenue growth take place in December 2020.

In the unforgiving and crowded fintech landscape, it’s imperative that Monzo acts fast to catch up to its competitors. While a successful IPO will help to generate greater funds and optimism around the company, Monzo’s adverse fundamentals may lead to a more cautious approach rather than jumping on the 2021 fintech initial public offering bandwagon.

 

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