“Some challengers don’t want to make a profit” says Cashplus boss
With plans to raise external investment and a new chairman in tow, challenger bank Cashplus is going full steam ahead just weeks after securing its full banking licence.
Earlier this month the Prudential Regulation Authority (PRA) granted Cashplus a full banking license.
Like its digital peers, Cashplus offers current accounts for UK SMEs, currently serving seven per cent of all new businesses, alongside a growing pool of retail accounts.
But as the UK’s newest licensed challenger bank Cashplus faces a very crowded market. Chief executive Rich Wagner spoke to Morning Wire about his plans for the future and why Cashplus’ offering is more sustainable than other neobanks.
Cashplus seeks new funding from external investors
After hiring a new chairman, as revealed by Morning Wire, Cashplus is now focusing on its future as a licensed bank and seeking funding.
Wagner told Morning Wire he had told the board they were seeking £50m in fresh funding from traditional growth investors.
It would mark the bank’s first outside investment, aside from backing from California-based private equity firm Trident Capital, which has committed £20m to date.
“It may be individuals that may have been late to the digital challenger market game but are looking for something a little different,” Wagner added.
The fresh capital will be largely used on introducing new products like cashback on business products as well as some geolocation activities.
One thing Cashplus will certainly not be spending the fresh cash on is snazzy features like savings pots and metal cards a la Monzo and Revolut.
Wagner is adamant profitability comes first and is pretty scathing when it comes to his neobank peers.
“We’ve always had a discipline of creating digital innovation which solves real problems… Building something sexy and creating these pots… people don’t need that. It’s a cool feature but does it really solve a problem? I don’t think so.”
“I don’t agree with other challenger models”
Although Cashplus started its banking application three years ago it has been going for 16 years. Unlike its challenger peers, like Monzo and Revolut, Cashplus has delivered operating profit for nine consecutive years.
Wagner tells Morning Wire its application to the PRA differed from newer banks: “Very few new banks have half a billion balance sheet, a million customers and have been trading for 16 years with an operating profit.”
It is in large part because Cashplus has stayed away from the heavy-loss, subscription-free model often associated with other challenger banks.
“I’m true to the fundamental philosophy of good business sense where you create a win for the customer first and foremost… but at the same time you need to provide a win for the shareholder and the regulator,” he says. “It’s trying to do that all equally well which at Cashplus is where I think we try to differentiate far more than the other neo challenger banks.”
It is clear Wagner, who has worked in financial services for more than three decades, is unimpressed with his neobank rivals.
He notes comments made by N26’s chief financial officer a few years ago: “You had the CFO saying profit isn’t a core metric – are you kidding me? That’s where fundamentally the world went upside down for me.”
“The other challenger banks have a different model I don’t agree with… it seems absent of the desire to get to profitability. They always talked about the cool and sexy things but never really talked about the business dynamics.”
The crux of the problem for Wagner is that investors were rewarding the new banks for customer growth rather than profitability: “Customer growth is really what drove valuations.”
Monzo, Revolut and other digital challengers are slowly but surely starting to roll out products to hike revenues, such as premium accounts. It is only a matter of time before they start posting sustained operating profits.
What Wagner seems to think is Cashplus is more sustainable given its lending capabilities and a banking licence will accelerate that further.