Lunar/Ken Villum Klausen
“Maybe we can acquire Monzo” - An interview with Lunar’s CEO Ken Villum Klausen
A push for profitability in 2023 has brought about a surge in revenue generation for one of Europe’s leading neobanks
Last year Lunar, the Nordic neobank valued at $2.2bn, was like many of its fintech unicorn peers engaged in a heightened push for profitability.
Unlike most, however, it was reportedly also exploring a merger with the UK-based fellow neobank Monzo, which raised many an eyebrow in Europe’s racy but fintech market at time of challenging funding conditions.
So far, large fintechs - and their investors - in Europe have largely avoided any meaningful M&A as part of their growth strategy. But a flurry of neobank consolidation brought about by the shift in the venture capital funding environment has been often touted as inevitable for companies seeking a sustainable financial footing.
So was there any truth to the Monzo rumours?
“TS Anil [Monzo’s CEO] is a great source of inspiration. It's amazing what he's been doing with Monzo,” Lunar’s CEO Ken Villum Klausen told AltFi.
Lunar, though, he adds, is not “actively searching…especially not being the acquired target.”
“In this new market situation where everybody's discussing what's going on and what's going to happen in Europe over the long term. I think there will always be discussions back and forth from all the stakeholders,” Villum Klausen added.
Lunar has a previous form when it comes to M&A. It previously made a bid to scoop up Nordic rival Instabank in September 2022, a deal that ultimately fell down owing to a lack of regulatory approval. Nonetheless, Lunar’s ambitions were clear.
“I know a lot of the founders and CEOs of the other challenger banks and I think it's fair to say also that in Europe, especially the European mainland, we haven't seen any European champion emerge,” he said.
“We have seen a lot of regional champions, but not a generational play where you're really competing against incumbents on a European basis. We haven't seen any of those. I think we're all discussing how the future looks on a five or 10-year trajectory,” he added.
M&A vs profitability
Lunar launched in August 2015 and has its own banking licence issued by the Danish FSA, making it one of Europe’s original neobanks.
“We came alive in the same cohort as all the other challenge banks but with one big difference, and that is that we had our eyes set on the Nordic Region,” Villum Klausen said.
There are a couple of reasons for its regional focus.
“One is that it [the Nordic region] is probably the most profitable banking landscape on the planet. The population here tends to bank with one bank and then buy all their products from that specific bank. Then the second component is there are massive walls around the Nordics, like an oligopoly,” he said.
“In many ways I compare it with a drug cartel, because there are only a few providers and you have to buy from those.”
Lunar meanwhile has built its own infrastructure rails connected to the payments clearing system in all Scandinavian countries - Denmark, Sweden, and Norway setting it apart from rivals.
“In contrast to the UK, where you have seven or eight challenger banks with bank licences and other types of licences we are the only one live in the Nordics.”
Last year (2023) has been about accelerating along its path to long-term profitability for Lunar, Villum Klausen says, as it inches towards monthly break even this year.
“Profitability has been the works from the start because we had a banking licence. You need to show a path to profitability as a licensed bank, but after an insane 2022 and also continuing that into 2023, we wanted to create that path much faster than we originally set sail for.”
Villum Klausen says Lunar looking at profitability in early 2024 on a monthly basis. Despite a “challenging market” owing to “really active users” among its 800,000 customers and a high revenue per user count
This has been achieved through scaling out with business accounts, which are subscription-based.
“[Business accounts have] seen a tremendous growth. Around 50 per cent of all newly established businesses in Denmark are applying for a Lunar account, which is really great.”
For consumers, a similar trend is occurring with subscriptions now being taken on by 12- 13 per cent of all onboarding customers previously but has now leapt to nearly a third of all customers choosing a paid plan already when they sign up.
“Those two components have driven a lot of revenue growth”
In addition, average revenue per user is also increasing alongside the number of products Lunar offers.
“We have lending. We have savings, we have wealth, we have stock trading, we have crypto, we have multiple accounts, shared accounts, family plans, etc.”
Lastly, Lunar is also pursuing more and more platform-based banking services to other banks and fintech.
For example, Trustly who has been using Lunar for its Nordic payments and pay-outs.
“It is, frankly exploding, because we're kind of the only partner you can pick if you want to, do business on a payment or account basis in Denmark, Sweden and Norway. It has been an amazing development over the last six months.”
All this should help with its immediate goal of a new funding round, following its last cash injection a €35m 'top up' in February 2023.
Alongside its profit push is also a launch into Finland, a move that will help establish itself further in the Nordic market.
"There's room for maybe a 10 per cent Nordic market share for Lunar over the next coming year or so," Villum Klausen said.
This new launch will act as a "great stepping stone" beyond the Nordics into Germany, he adds.
"When we think about Europe, you'll never see Lunar launching in 10 European countries at the same time. We see Europe country by country. If we're expanding beyond the Nordics a year or two years out, we'll look for one country and as we feel like we're dominating that country, we'll pursue the next one," he said.
"Let's see where that takes us. Maybe we can acquire Monzo"