Revolut leads the pack: Fintech IPO showdown with Klarna and Monzo - Paul J. Davies

Key topicsRevolut posts fastest growth and strongest pretax marginKlarna benefits from rate cuts but faces rising credit lossesMonzo lags on lending; relies on interest, not app loyalty.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here.The auditorium doors will open for BNIC#2 on 10 September 2025 in Hermanus. For more information and tickets, click here..By Paul J. Davies.One specializes in gathering money, another in lending it and a third in moving it around — but which of these three fast-growing fintechs offers the most compelling story to potential public investors? Monzo Bank Ltd., Klarna Group Plc and Revolut Group Ltd. are all expected to embark upon initial public offerings in the next year or two. The last of the trio looks like the best prospect — but it’s also likely to list at by far the dearest price.All three are rapidly adding customers and revenue, and each one has become profitable. Revolut generates the strongest pretax margin, has the strongest growth and has built a broader range of income sources even if card payments and foreign exchange fees — its original transaction businesses — still contribute more than 40% of sales.Fintechs tend to start by offering one strand of banking in a way that’s faster or cheaper, or just more online. The aim is to build a customer base, then sell them more services. The second part is the hardest; it’s tough to convince people that doing one thing well means a newcomer can be trusted with the rest of their financial needs. The fantasy of an “everything app” remains just that.Klarna, which paused a proposed listing in April, has stuck closest to its original mission and diversified through international expansion. It has the slowest growth of the three in terms of net revenue, although that was still 20% in 2024. Klarna is also the only one that’s been cutting operating costs in recent years, although it still has the highest cost-to-income ratio at 78% versus 76% for Monzo and 56% for Revolut..Klarna’s business is credit, specifically short-term, low-value buy-now-pay-later loans. This is relatively low risk because if a loan is going to sour it does so very quickly and Klarna can cut off further credit. But it does still suffer losses on bad debts. Klarna prefers to measure these as a share of the total value of all goods sold through its payments network, which makes the hits seem miniscule. Assessed as a share of gross loans outstanding, the losses are higher but not terrible at between 4% and 8% over the past three years. But look at credit loss charges next to annual net revenue and the cost is much more obvious: It was 29% in 2024, for example.Unlike the other two, however, Klarna should benefit from falling interest rates, which would cut its funding costs and so boost net revenue. The effective interest rate on its lending depends on the discount that merchants are charged for getting paid straight away; that remains fairly constant although Klarna’s average discounting rate is growing as it expands in the US, where these take rates are greater. This could lessen the strain of credit losses, but they’ll always be a feature of its business model.Monzo is like a mirror image of Klarna in many ways. Its revenue growth has been driven by gathering deposits and earning higher interest from holding spare cash at the Bank of England and elsewhere. It has grown net fee income, too, but that has fallen as a share of net revenue to less than 30% from more than 60% as interest income ballooned in the past four years..Monzo has increased lending, but slowly and painfully. Its provisioning and loss rates on credit are much higher than the other two, even though after improving in the last financial year to the end of March. It only lends about 12% of its deposits — versus 90% for Klarna — but credit charges last year were still 17% of total revenue.Monzo seems to skew towards a younger, poorer client base, at least judging by its low deposit value per account. The company’s strength is in its slick app and budgeting tools. It could do well from selling more to customers that stick with it as they mature and become wealthier. The trouble is that a good app isn’t a great moat; big banks might move slowly, but they can afford to throw a lot of money at technology, and many have upped their digital game in the past few years.Revolut does hardly any lending from its much bigger deposit base. It’s also benefited from higher rates, but less so because its lack of a banking license in the UK stopped it parking lots of that cash at the central bank for higher returns than it can get from commercial banks. Its recent success in finally winning a license offers some defense against falling rates.But fees are much more important for Revolut anyway, and have grown faster than interest income in most years. Net fees and commissions account for 68% of net revenue. A large chunk of this is still from payments and FX conversion, but Revolut has added growth from crypto and securities trading fees as well as subscription revenue..These fees may turn out to be more volatile and less durable than lending and deposit gathering as its business matures, but Revolut doesn’t need to become anyone’s primary bank account so long as people see it as a platform for moving money. This characteristic could also make it less vulnerable if stablecoins become a more mainstream way to hold and transmit money, too. Revolut’s fast-growth, fee-driven, capital-light business will come at a price. A potential $60 billion valuation if or when it lists would be equivalent to more than 17 times last year’s net revenue. By comparison, Klarna’s mooted value was pitched at about $15 billion, which equates to a revenue multiple below nine times. With Monzo’s listing further off, any comparison is less reliable, but it still looks likely to be cheaper than Revolut. All three fintechs have a lot to prove — and growth will bring more costs and challenges. But Revolut looks like making the most compelling investment case..2025 Bloomberg L.P.

Revolut leads the pack: Fintech IPO showdown with Klarna and Monzo - Paul J. Davies

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