Innovative Start-Ups: A Comparison of Metro Bank and Funding Circle


Fintech, Retail Banking

Michael Pearson


Clarus Investments

If you were investing in a new financial services business in 2010, would you have chosen to invest in a multichannel bank or a disruptive fintech? Metro Bank and Funding Circle from the UK provide us with an interesting comparison. Both companies are regarded as a success, although only one so far has realised any value for investors.

Metro Bank was launched in 2010 as a multichannel bank and in the 6 years of operation to the end of 2015 had opened 40 branches around the South East of the UK. Customer deposits reached £5.1bn and customer loans were £3.5bn. The loss before tax was £57m in 2015, on revenues of £120m and the bank had yet to make a profit. Total share capital raised in the 6 years to the end of 2015 was £629m. The company then carried out a successful listing on 10th March 2016, including a private placement of shares, which raised a further £399m. On the day of listing, the market value of the company was £1.4bn and, as of December 2016, it was valued at £2.6bn. Metro Bank has recently reported results for 2016 and although it lost money for the whole year, it was breaking even in the 4th quarter.

Funding Circle was also launched in 2010, as a peer-to-peer platform for SME loans. By the end of 2015 the company had originated a total of £1.0bn of loans and had expanded into Germany, Netherlands, Spain and the United States. The loss before tax in 2015 was £40m on revenues of £32m. The total share capital raised in the 6 years to the end of 2015 was £196m. At the Series E round of £109m, in April 2015, the company was valued at approximately £1bn. Funding Circle has not reported results yet for 2016 but has stated that it was breaking even in the 4th quarter.


Comparison of Selected Statistics


Funding Circle had a slower take-off in revenues than Metro Bank but is using less capital because it is a funding platform and not a bank. On revenue and profit projections, Funding Circle is probably roughly 2 years behind. However, Funding Circle has already expanded into several other countries through acquisition, including the United States and Germany, so it has substantially enlarged its potential market.

In January 2017, Funding Circle raised a Series F round of £73m at the same price per share as the Series E round, so there has been no value increase over the period of 21 months from the Series E round. Metro Bank, however, continues to grow in value reaching £2.9bn as of 25th February 2017.

Valuations are very difficult to compare as both companies are loss making or just breaking even, and longer term predictions of growth and profitability are very difficult. However, Metro Bank’s valuation is subject to more public scrutiny with detailed performance reporting and analyst coverage. The fact that it has listed its shares means that there is already liquidity for the original investors.

In summary, it may be too early to say which model is more valuable but in terms of value realised so far for investors then the more successful new venture is Metro Bank.

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