Fintechs claiming to be profitable but not for growth are talking "claptrap”, says Zopa co-founder

By John Reynolds on Wednesday 11 November 2020

Alternative LendingDigital Banking

Giles Andrews said fintechs which say that they would be making money if they weren’t investing for growth don’t know how to acquire customers for less than their revenues.

Fintechs claiming to be profitable but not for growth are talking
Image source: Giles Andrews speaking at AltFi's 2019 London Summit.

Fintechs that say they would be profitable if they weren’t investing for growth are talking “absolute claptrap”, according to the co-founder of Zopa.

Giles Andrews, co-founder of Zopa, was speaking alongside Matt Briers, chief finance officer of Transferwise, at the AltFi Festival of Finance yesterday on a panel called ‘Fintech Profits: A Prophecy’.

Andrews, who was CEO of peer-to-peer lender Zopa between 2007 and 2015, said: “I get quite fed up hearing endlessly about people who say ‘we would be profitable if we weren’t investing for growth’ because I think that’s generally absolute claptrap.”

Andrews said the biggest cost typically in a growing business is acquiring customers.

“So when companies say ‘we would be profitable if we weren’t investing for growth’ what that means is they don’t know how to acquire customers for less than their revenues,” he added.

The panel, moderated by Isabel Woodford, the fintech reporter at Sifted, discussed different growth models, comparing hitting profitability to chasing customer growth at the expense of turning a profit.

Andrews said some European fintechs were pursuing top-line growth without worrying about margins which he said was a “shame”. He compared fintechs in Europe to the US and Asia, where unicorns he said had stronger margins.

The Zopa co-founder said one reason for this pursuit of growth might be attributable to European investors being jealous of fintech valuations in other markets, pushing young management teams to growth at all costs strategy.

Briers said it had been “pretty difficult” to convince everyone at Transferwise that hitting profitability was crucial. He added it was important that Transferwise was gross margin positive from the outset.

He said: “The sooner you train your customers to value and pay for your service, the easier life is going to be in the long-run.”

“If you build a customer base, based on it being free" he said, then later you will have to have an "awkward discussion" about charing them for products.

He added that being EBITDA profitable had bought huge discipline to Transferwise, and the pair also discussed fintech valuations in the session.

Andrews said that it was “quite easy’ for fintechs to be seduced by valuation deals as they grow but “the only funding deal you ever do that really matter is the last one.”

 

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