Britain is getting MORE banking app startups - can they all survive?

Two new startups are gunning to get their cards into the wallets of tech-savvy Brits.

Soldo and the "U" account are entering an already crowded market of startups pitching some form of card tied to a mobile app.

There are app-only startup banks (Atom, Monzo, Starling, Tandem); foreign exchange cards (Revolut, SuperCard); spending management apps (Loot); business accounts (Tide); accounts for migrants and the low paid (Monese, Pockit); and even a card to help you manage all your cards in one (Curve). Collectively, these startups have raised hundreds of millions of pounds.

The question is: can they all survive?

'I'm not going after the digital glitterati'

The latest new entrants are Soldo and the "U" account. Soldo, which began a PR push this week, is a banking services app that lets multiple people use one account. It's pitched at parents who want to people able to give money to their children digitally.

CEO and founder Carlo Gualandri told Business Insider: "I can give my son £100 but then say you cannot spend more than £20 a month on your PlayStation."

Parents can allocate money and control multiple cards from one app. "We've actually been testing this system live for over a year," Gualandri says. "I've actually personally been living out of Soldo since Spring 2015. If Soldo doesn't work, we don't eat. Now my son is living in the US and spending and living through Soldo."

Meanwhile, digital current account Ffrees pivoted earlier this month to launch a new app-based product, the "U" account. The "U" account offers a pre-paid card linked to an app which allows people to put their money in different digital sub-accounts to help them budget and save.

"U"'s CEO Alex Letts told business Insider: "I'm not going after the digital glitterati, I'm not going after the lending and savings market, I'm going after providing a bank account to people who live in Blackpool, Burnley, Hull, who are really struggling to manage their bank accounts properly and feel very badly let down by the banks."

The "U" account and Soldo face the same two challenges all the other card startups do: competition and a fear that they may struggle to make money.

Gualandri says: "The UK is very rich in offerings. Every other country possibly has one, perhaps two. The UK market is very crowded." Soldo is launching simultaneously in Italy, which helps its chances.

Gualandri is a serial entrepreneur who made a fortune setting up a digital bank in his native Italy. He has self-funded Soldo and believes it will stand out because of its focus on parents, rather than chasing the millennial market like most other startups.

"We do only one thing and what we do I don't think there are many, or possibly even any, who do it," he says. "We want to be complimentary to your bank. We're not against banks."

Letts, who comes from a background in advertising, is also confident that the "U" account will stand out. While others are targeting young, rich millennials with "hipster hype", he is only interested in pitching his product at "people who are not noticed by the metropolitan elite but who are the backbone of the population in many respects."

'Quite frankly, I couldn't find a business model'

On to the second big question then: can they make money?

Gualandi isn't worried - Soldo has its business model sorted out. The startup charges a subscription fee for its services of £2 per user per month. The "U" account also charges a monthly subscription fee of up to £10, depending on how much you pay in each month, and charges for bolt-on services such as opening each sub-account.

But, having surveyed the competition, Gualandri says: "Quite frankly I couldn't find a business model that was compatible with customer expectations. The customer there wants to have things like free ATMs and so on. Those things cost money but it's cool only if it's free - you're in a very challenging situation because you are building a product that will be forever marginally negative."

Startups like Monzo, Atom, Revolut, and Loot for instance offer their product for free. This is despite the fact that things like ATM withdrawals, card top-ups, and small payments made using the cards cost these companies money. Monzo CEO Tom Blomfield tells me his startup bank loses on average £40 per year per user at the moment.

German app-only startup bank N26 closed 160,000 customer accounts in June, admitting at least some of the closures were because users were making too many ATM withdrawals, which was costly for the startup. (We raised the issue of fintech profitability back then too.)

Gualandri says: "You are lucky if between tapping on the tube and buying something bigger once in a while you don't end up negative in terms of cost of the user, especially in the UK. The more users you have, the more money you lose."

He isn't a lone voice. I've heard similar things said often over the last year by investors, industry insiders and entrepreneurs. ING's head of fintech Benoit Legrand told me in April: "They're flourishing everywhere but we're still waiting for the business model to show up. Where is the money? Where is the return?"

Letts says: "I think one of the big problems at the moment is the fintechs are in danger of believing their own hype. We need to be extraordinarily careful not to get too smug and self-satisfied given that we've only just done lift off. A lot of people haven't even done lift off yet and they're talking as if they're going to be the next Ronaldo or Messi - I don't see it."

'There are real, serious challenges ahead'

Monzo recently gained its banking license and Blomfield says losses on customers will be cut by about £20 a year when it launches its own current accounts early next year. Monzo will do more processing work in-house, rather than paying fees to third parties. The banking license will also allow Monzo to start making money - it plans to offer overdrafts, for example.

Blomfield adds that £40 loss per user per year compares favourably to banks, which will regularly pay over £100 in marketing and offers to acquire a single customer.

Still, it's costly work nonetheless. Monzo recently raised £4.8 million, in addition to £6 million earlier this year, and is in the process of raising at least £15 million.

Feeling the pressure on their balance sheets, some startups are starting to add additional revenue streams. N26 recently announced that it was launching a "N26 Black" account, a "Premium" account that comes with insurance from Allianz and costs customers €5.90 a month.

Monese, a bank account pitched at migrants, also switched from a freemium model to a subscription model, with VP of growth Mulenga Agley telling BI at the time: "A lot of people now are having to look at their entire business and figure out whether it can actually stand up to monetising early on."

Longterm, Blomfield thinks many of the startups in the space will aim to become finance platforms - the Facebook for your money. Monzo's long-term goal is to become a hub for people's financial lives, selling third-party products like insurance and loans through the app and taking a cut of each sale. N26 has set out a similar vision.

Letts is skeptical. He says: "Under PSD2 [European legislation that will require banks to share customer information] requirements that is a viable long term future, but I've been around long enough to know that an awful lot of people run out of money before the longterm comes around. I'm building a business that is about today's way of doing business, not about tomorrow's way of doing business."

Whatever happens, most agree that the market will not remain this crowded forever. Letts says: "It is a huge market so I think theoretically it can sustain them all. Do I think they'll all be successful? I think it's extremely unlikely. In any commercial equation, there are winners and losers. Some people execute well and some people who execute badly."

Blomfield tells me he sees it as a "winner takes most" market, with there likely to be one or two startups that emerge from all this competition. He likens it to the price comparison sites that rose to prominence 10 years ago: today MoneySupermarket.com and GoCompare control the lion's share of the market.

Letts says: "I think people need to be careful. There are real, serious challenges ahead for some of these people. I think there's a lot of risks involved."