HSBC writes off $35 million stake in UK fintech Monese

HSBC Holdings Plc has fully written off its minority stake in Monese Ltd., a UK-based fintech once touted as a potential unicorn. The decision, made just two years after the bank invested $35 million into the software company, reflects the challenges faced by traditional banking institutions venturing into fintech partnerships.

In filings from March and April, HSBC revealed that it had “completely impaired” the remaining $5.86 million value of its stake in Monese. This came as the fintech embarked on a restructuring process aimed at salvaging the business. Monese’s banking-as-a-service (BaaS) platform has since been spun off into a standalone entity called XYB, while the consumer banking arm is reportedly set for acquisition by British fintech Pockit Ltd., which focuses on serving financially underserved customers.

Despite its initial optimism, HSBC’s investment in Monese has not yielded the expected returns. The bank had acquired a 5.4% stake in the fintech as part of a strategic partnership to integrate Monese’s BaaS technology into its own services. However, the writedown illustrates the risks inherent in the fast-paced fintech sector, where the line between success and failure can often be razor-thin.

Rising losses and increased competition

Monese, founded in 2015 by Estonian entrepreneur Norris Koppel, was once seen as a trailblazer in the digital banking space. It was the first UK mobile-only app-based bank, addressing the difficulties that new arrivals to the country faced in opening traditional bank accounts. Yet, despite its promising beginnings, the fintech was soon overshadowed by competitors such as Revolut, Monzo, and Starling, which rapidly captured market share.

The company’s financial struggles became evident earlier this year when Monese warned of its uncertain future amid difficulties in raising additional capital. Monese’s pretax losses ballooned from £18.7 million in 2021 to £30.5 million in 2022, despite a 58% rise in revenue to £27.7 million. Escalating administrative costs, which jumped from £18.5 million to £31.3 million over the same period, further weighed on the company’s performance.

Broader fintech challenges for traditional banks

HSBC is not the only investor to have written off its stake in Monese. Swedish investment firm Kinnevik, one of the fintech’s largest backers, took a similar decision at the end of last year. Kinnevik acknowledged that while there was “still significant value in the company,” Monese’s future remained uncertain.

Monese had initially aimed for a valuation above £1 billion in a funding round in 2020, a level that would have granted it unicorn status. However, its inability to secure the necessary funding, combined with increased competition in the digital banking sector, has led to its current predicament.

HSBC’s experience with Monese underscores the risks traditional financial institutions face when investing in fintech. While banking giants such as JPMorgan Chase, Citigroup, and NatWest have made significant investments in the space, not all ventures have succeeded. For instance, NatWest closed its digital bank Bo just months after its launch, while Citigroup’s partnership with Alphabet’s Google failed to materialise.

Despite this setback, HSBC remains committed to fintech innovation. The bank continues to pursue opportunities in the sector, notably through the launch of Zing, an international payments app designed to compete with the likes of Wise and Revolut. This follows HSBC’s successful acquisition of Silicon Valley Bank’s UK assets in 2023, which further solidified its presence in the venture finance space.

The writedown of Monese reflects both the potential and the risks that fintech partnerships pose for traditional banks. As Georges Elhedery, HSBC’s newly appointed CEO, embarks on his own restructuring of the bank, balancing innovation with financial prudence will be key to ensuring future success.

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