German FinTech startup Monedo has gone bust, leaving the rest of the industry to speculate what this means for the sector.
Monedo’s bullishness was palpable at the end of 2019. One year earlier the company had pivoted its core services towards the near-prime lending market, placing instalment loans at the centre of its offering. Then, by November last year and following a €20m funding round in September 2019, it seemed as if the company’s gamble had paid off with its financials seeing a 76% improvement.
CEO David Chan even predicted that the company, then named Kreditech, would break even in 2020. “We are proud to report that the positive cash trends have continued in 2019 and will result in a projected break even in 2020,” he said. “This is a clear indication that our strategic decisions are making Kreditech a healthy, profitable and growing business.”
However, ten months later Monedo, once celebrated as one of the key drivers of the German FinTech sector, filed for bankruptcy. With that, the company launched as Kreditech in 2012 and rebranded to Monedo in March 2020, has become the latest victim of the Covid-19 pandemic.
Finance Forward has reported that laws to protect borrowers introduced in Spain and Poland – two of the startup’s largest markets – proved particularly problematic for Monedo. These laws allowed people to postpone the repayment of debts, meaning Monedo saw no returns.
So, last week representatives from Hamburg-based law firm Brinkmann & Partner filed for bankruptcy on Monedo’s behalf.
In the aftermath, other players in the industry are left wondering what the implosion of the scaleup would mean for them.
“[The] news of Monedo going under is likely to make other digital credit companies think very carefully about the sustainability of their lending strategy and their overall business model,” says Justin Basini, CEO and co-founder of ClearScore, the credit score and credit marketplace, when speaking with FinTech Global.
“It also serves as a stark warning to other FinTech businesses to factor in a clear route to sustainable and resilient profitability, with a focus on data insights and unit economics.”
Basini also argued that more companies in the digital credit segment could face similar problems. “The Covid-19 pandemic has already seen lenders begin to adopt tighter and different criteria and affordability assessments, and relying less heavily on credit files alone,” he says. “I anticipate this trend will continue into a post-Covid world, with open banking adoption rates increasing and more bespoke affordability assessments becoming a necessity.”
However, other FinTech sectors have also had reason for concern. In the first half of 2020, investments in the global WealthTech, PropTech and CyberTech sectors have slumped dramatically, for instance.
And it is not as if the headlines have been lacking of examples of FinTech companies struggling because of the pandemic. When Monzo reported its annual results in July, revealing that they had doubled from £47.1m to £113.8m, it noted that the global health crisis had put the UK neobank’s ability to continue as a business in “significant doubt”. Monzo has also suffered a 40% down round that saw its valuation shrink from $2bn to $1.24bn.
Similarly, Revolut and Starling Bank have tripled and doubled their losses respectively in the last year. Additionally, Tandem has reportedly suffered a 40% down round just like Monzo. All these companies’ struggles have made some people wonder how strong the challenger bank industry’s ability to survive the pandemic is.
FinTech Global noted early on during the pandemic that the global health crisis could make investors less inclined to invest in new startups due to the uncertainties of the markets.
“Even if you innovate in terms of selection and risk scoring you will always build up a bias towards a certain type of customer,” says Fredrik Daveus, CEO and co-founder of WealthTech100 company Kidbrooke. “Hence the only true risk management technique is diversification so you will be protected against future unknown changes in credit quality. This has been made clear by Covid which is an event that clearly changes all the previously known rules of the martlet place and riskiness of customer segments etcetera.”
Back in March, Monedo employed over 350 people across seven countries and was developing its technology in its teams in Germany, Poland and Thailand. It reportedly had over one million customers as Monedo filed for insolvency.
Although, this might not be the end of Monedo after all. The Brinkmann & Partner lawyer appointed to manage the insolvency proceedings, Christoph Morgen, is hopeful that he kind find an investor to keep the company going.
“I plan to continue operations and have already started talks with possible financiers,” said Morgen in a statement seen by Sifted. “It is my goal to bring the investor process, which was started before the insolvency application and which according to the Monedo management looks promising, to a successful conclusion.”
Update: A previous version of this article suggested that Experian had acquired ClearScore in 2018. While there were indeed talks about a transaction at the time, nothing came of it.
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