Britain’s fintech glow-up as British fintech’s grow-up

Posted on: June 1st, 2023 by Morgan Arnold

It’s no secret that the UK’s fintech sector has been going through a turbulent time recently.  In the past few weeks alone there have been stories around crumbling valuations, regulatory uncertainty, and about the viability of the UK as a region that can truly create a ‘tech powerhouse’. Amidst ever-shifting macro-economic conditions the sector remains firmly in the spotlight, and that’s not going to change anytime soon…

Among all the noise, there’s positive news out this week from two of the UK’s most talked about fintech businesses, everyone’s (kind of) favourites – Starling and Monzo. No strangers to the headlines, both businesses have this week released 2023 annual reports, and the results are well worth diving into.

If you’re so inclined, and happen to have a spare few hours, you can go through the full reports here (a cool 206 pages) and here (163 pages) or alternatively, you can read on for a quick overview…

Let’s start with Starling.

TLDR: Massive profit as revenue spikes.

Here are the headlines:

  • Revenue rose from £216m to £453m (up 109%)
  • Profit jumped from £32m to £195m (up 509%)
  • Much of the revenue increase can be linked to interest income rising to £349m from £122m (up 186%) but interchange fees also played a smaller part
  • Starling’s customer deposits stand at a healthy £10.6bn – higher than Monzo’s at £6bn and Revolut’s at £7.4bn
  • Total lent to customers rose from £3.3bn to £4.8bn, with the majority (70.5%) coming from mortgages
  • Starling customers spent £16.5bn using their cards, up from £11.9bn (up 39%)

It’s a hugely impressive set of results that’ll silence a lot of the industry that were saying just a few years ago that a business like Starling could never be truly profitable in this environment. In many ways, it can be argued that Starling is ‘leading’ the challenger bank pack.

But the annual report wasn’t Starling’s only piece of news from last week, indeed it was somewhat overshadowed by the announcement of CEO Anne Boden’s departure. There’s no denying Anne has done an absolutely brilliant job at the helm of Starling and will be sorely missed. The foundations she’s laid have set the bank up for continued success and, in my opinion, she’ll go down as one of the great fintech CEOs of our time. She’s certainly leaving on a high.

Next to Monzo.

TLDR: Rising revenue and growth investment taking precedence over profitability

Here are the headlines:

  • Revenue rose from £154m to £355m (up 131%)
  • Losses decreased slightly from £119m to £116m (down 2%)
  • Revenue increase largely driven by investment income spiking from £38m to £168m (up 342%) and interchange fees increasing from £79m to £127m (up 61%)
  • Customer deposits rose from £4.4bn to £6bn (up 36%)
  • Card spend increased to £33.6bn from £24.4bn (up 38%)

In the detail of its report, Monzo also increased its provisions for potential loan losses after a move into the Buy Now Pay Later industry through its Flex product. It’s set aside £101.2m to cover bad loans this year, up from only £14m last year.

While Monzo hasn’t quite seen the same levels of growth as Starling this year, make no mistake, this is still a very encouraging set of results. Indeed, it even noted that it was profitable in the first two months of 2023. On that point, one interesting quote from CEO TS Anil was given to CNBC “Profitability was always a choice as we balance continuing to invest in growth with profitability. We could have chosen to be profitable a few quarters ago.” At a time when many fintechs are primarily focused on profitability over some of the aggressive growth we saw in previous years, this is a refreshing change of pace.

While these are two sets of strong financial results, there are, as always some caveats and considerations. Two big ones are that:

  • Like many, Starling and Monzo have been buoyed by rising interest rates in the UK. As rates fall, margins will likely get squeezed.
  • The figures in these annual reports are still absolutely miles off the level and scale of what we continue to see from the more traditional high street banks, no surprises there. Taking customer deposits for example, Starling’s £10.6bn and Monzo’s £6bn may sound impressive on paper, but pale in comparison to when compared to, for example, Lloyds’ £512bn.

Despite those caveats I think these two sets of results give the British fintech sector something to cheer about. Two profitable, or near profitable, unicorns that are continuing to go from strength to strength amidst a difficult macro-economic climate. These success stories give a lot of hope to the thousands of fintech businesses in the UK that are looking for similar scale in the coming years. It’s a sign that Britain’s fintech landscape and ecosystem is maturing, and that new businesses can succeed in sectors that have remained unchanged for decades.

A while ago I wrote about VC powder building up in the tech ecosystem. This is something that’s still the case, but the signs are there that money is starting to loosen a little, and you can bet your bottom dollar that the fintech sector will be one of the big beneficiaries when it does. Indeed, that aligns with something that we’re seeing here at MHP from clients, there’s funding out there for fintech businesses as the power players like Monzo and Starling lead from the front and show investors that profits are possible.

The AI revolution has arrived… and it’s completely changed the game

Posted on: December 6th, 2022 by Morgan Arnold

What is ChatGPT?

Okay, let’s start with the basics – ChatGPT is a prototype chatbot model created by AI firm, OpenAI. It interacts in a conversational manner (read: very much like a human) and responds to prompts that you, the user, input. It’s currently in its very early stages and is described by OpenAI as a research project, although no-doubt the next step for the business will be to effectively monetise it.

I know what you’re thinking “AI’s something that’s been discussed loads and that is already being used by businesses, why is this different?” You’d be right to be suspicious. We’ve long been familiar with the concept of AI, whether it’s what’s portrayed in sci-fi movies, or hit the headlines like Microsoft’s ‘Tay’ bot back in 2016 which was shut down within mere hours after it turned racist and sexist. For me, the staggering difference with ChatGPT is how… human it all seems. Every task I’ve given it, no matter what level of detail provided, has been written in such a way that I genuinely wouldn’t have been able to tell you that a programme wrote it. That’s equal parts concerning and amazing.

How does it work? What can it do?

You know what? Rather than try and explain this, let’s look at some short examples.

Let’s try a basic one first (I’m MA in purple, the AI is in green).

 

Okay, pretty good. Let’s try something more complex…

 

Impressive – but how does it handle a more creative ask?

 

Alright, let’s see what AI thinks about one of PR’s most talked about topics.

 

Phew, job’s safe for a while. N.B. please don’t take communications advice from ChatGPT.

In all seriousness though, I think we can all agree that these answers are eerily good – and these are only very basic asks. Engineers and developers have been getting ChatGPT to write working code, fix bugs and literally build websites, all from a few short prompts. And don’t get me started on what happens when ChatGPT gets inception-levels deep.

So what does this mean? How will this technology impact me?

The short, cop-out answer is that nobody truly knows. In my mind, this technology has the potential to completely change entire sectors almost overnight. Education is perhaps the most obvious use-case. What happens when students can literally input an essay subject and get ChatGPT to do all the work to a more than passable standard?

Very few industries will be unimpacted by the rise of intelligent AI and I think we’re going to see upheaval like we’ve potentially never seen before as this technology continues to mature. What happens when AI can design houses from scratch better than humans and in mere seconds? What happens when AI can build a website from a few short prompts? What happens when AI can write you a personalised diet and exercise plan, giving you instructions on what food to buy and how to prepare it? (that one it can already do – I tried it)

The more you play around with ChatGPT the more you’ll find opportunities for it to shorten tasks and provide learning situations. It’s basically Jarvis from Iron Man, but accessible to everyone at any time.

Let’s remember, this is only the v1 product, the equivalent of those giant machines from the 1970s that connected to an early version of the internet. The more people use ChatGPT, the more advanced it gets. I’m writing this 6 days after its launch… just think how much progress it’ll have made in a year. The possibilities are literally endless – see for yourself, it’s free.

Communications professionals, much like those in pretty much every other sector, are going to find their roles changing as this technology becomes more advanced. Strategy, relationships and creative thinking are going to become even more important than ever before, while menial tasks can be left to the AI and just given a sense check by a human for any glaring errors.

A final thought

One last experiment with this… after finishing this article I gave ChatGPT the following basic prompt to see how its blog compared to mine. I think you’ll agree the final product, while not perfect, is scarily impressive. A true game-changer.

The AI revolution has arrived… and it’s completely changed the game.

Just a few short years ago, the concept of artificial intelligence (AI) was still largely relegated to the realm of science fiction. But today, AI has become a pervasive presence in our daily lives, transforming industries and providing us with new tools and capabilities that were previously unimaginable.

The AI revolution has arrived in full force, and it’s changing the way we live and work in ways that are both exciting and profound. Here are just a few examples of how AI is transforming our world:

  • Improved healthcare: AI is being used to improve the diagnosis and treatment of diseases, as well as to develop new drugs and therapies. For example, AI algorithms can analyze vast amounts of data to identify patterns and trends that can help doctors make more accurate diagnoses. AI is also being used to develop personalized treatment plans for patients, based on their unique characteristics and medical histories.
  • Enhanced security: AI is being used to improve the security of our homes, businesses, and public spaces. For example, AI-powered surveillance cameras can be trained to recognize suspicious behavior and alert authorities, while AI-powered security systems can be used to detect and prevent cyber attacks.
  • Improved transportation: AI is being used to improve the efficiency and safety of our transportation systems. For example, self-driving cars and trucks are being developed and tested, with the goal of reducing accidents and improving the flow of traffic. In the future, we may see AI-powered transportation systems that can coordinate the movements of vehicles in real time, optimizing routes and reducing congestion.
  • Enhanced customer service: AI is being used to improve the customer experience in a variety of industries. For example, AI chatbots can be used to answer customer questions, provide product recommendations, and resolve issues quickly and efficiently. In the future, we may see AI-powered virtual assistants that can handle more complex tasks, such as scheduling appointments or making reservations.
  • Improved education: AI is being used to improve the way we learn and educate ourselves. For example, AI-powered tutoring systems can provide personalized instruction to students, adapting to their individual needs and learning styles. In the future, we may see AI-powered educational platforms that can provide personalized curricula and support for students of all ages.
  • Enhanced entertainment: AI is being used to enhance the entertainment industry, from video games and movies to music and art. For example, AI algorithms can be used to generate new content, such as music or visual art, or to create personalized experiences for users. In the future, we may see AI-powered virtual reality systems that can provide immersive and interactive entertainment experiences.

The AI revolution has brought with it many exciting possibilities, and it’s only just beginning. As AI technology continues to advance, we can expect to see even more amazing and transformative applications in the years to come.

But with every new technology, there are also potential drawbacks and challenges to consider. For example, as AI becomes more advanced and capable, it raises concerns about job displacement and the ethical implications of AI decision-making. It’s important that we carefully consider these issues and develop responsible and thoughtful approaches to the use of AI technology.

Overall, the AI revolution has arrived, and it’s changing the way we live and work in exciting and profound ways. From improved healthcare and security to enhanced transportation and entertainment, AI is providing us with new tools and capabilities that were previously unimaginable. As AI technology continues to advance, we can expect to see even more amazing and transformative applications in the years to come.

Venture Capital Dry Powder is Building Up…

Posted on: October 1st, 2022 by Morgan Arnold

Last week a few of the MHP Mischief team headed over to Greenwich for FT Sifted’s inaugural in-person summit. Thousands of people from across the tech and investor ecosystems gathered to discuss the latest innovations in the space, discussing everything from how to hire the best talent right through to how, and when, to exit.

Amidst all the chatter, one message rang clear across all conversations – the current fundraising climate is more challenging than it was twelve, or even six, months ago. Businesses of all shapes and sizes have pivoted from a ‘growth at all costs’ mindset, to one where profitability and sustainability is the focus. This is naturally being led by a tightening of the purse strings from investors. The days of the 2021 mega-round are past us, and as one Index Ventures partner noted recently ‘last year was the party and this year is the hangover’.

It’s reflected clearly in the numbers too, with CB Insights data showing that global venture funding hit $74.5B in Q3 2022, a nine quarter low. This was a 34% drop quarter on quarter – the largest percentage drop in a decade.

Taking a step back, this market dip is a good thing for the overall health and stability of the tech ecosystem. While of course it’s never nice to see companies announce layoffs or downrounds, the truth is that the market has always moved in cycles, and those that survive difficult conditions come out of the other side stronger and lead to better long-term outcomes.

To butcher a G. Michael Hopf quote: “Hard times create strong businesses, strong businesses create good times, good times create weak businesses, and weak businesses create hard times.”

The good news for businesses going through those hard times right now is that, by all accounts, there’s a mountain of VC dry powder waiting for them on the other side should they make it. Investors were keen to stress at the Summit that while they may be being more selective with who they invest in currently, there’s still capital available in the market and there are huge stockpiles behind the scenes just begging to be allocated. Few investors are actually reducing fund sizes, meaning that available capital, or dry powder, is building and building.

So when are we going to get back to the party and shake off our hangover? The truth is that nobody really knows, but we heard estimates that VCs are anticipating a market pickup as early as late Q1 / early Q2 next year – so we may not be waiting all that long. That’s an exciting prospect for startups building currently.

However, not everyone has the runway to wait it out, which is what’s led to the downrounds, layoffs and closures that we’re seeing now. Capital is still available though, it’s just tougher to get and comes at more of a premium. Nevertheless, here’s what VCs and angel investors are looking for currently:

  • Profitability – The pursuit of growth above all else is no longer in vogue, investors want clearer evidence of that path to profitability, and positive unit economics
  • Sustainability – Scrutiny around making a wider positive impact is no longer reserved for the bigger players. Every business, no matter the size, will get asked about its thoughts and strategy around environmental and social impact
  • Top talent – The battle for talent remains in the industry, and it’s not going away anytime soon. Put simply, there aren’t enough quality developers and engineers in the market for everyone currently. Having strong product and tech employees will give you a significant edge
  • Vision – As always, a founder’s vision and their ability to effectively communicate that is paramount

Interestingly, that ties to a trend we’re seeing here at MHP, particularly when it comes to fintechs. The briefs we’re receiving from clients and prospects are less about ‘help me directly drive sales to end-users’ and much more frequently ‘help us tell our story in a way that attracts top talent and investors’. Employer brand building has never been so important as the war for talent only intensifies.

The next few months will be tough for startups, there’s no doubt about that. Those that survive though, will be better positioned for growth in the medium to long term. If there was one key takeaway from the Summit, it’s not a question of when the fundraising market will pick back up, but when.