The CEO of Nordic challenger bank Lunar has distanced the bank from reports that it could merge with UK peer Monzo, saying “We don’t have any intention to merge”.
In July this year, reports emerged that UK neobank Monzo was in early-stage talks about a possible tie-up with Lunar, which was last year valued at $2.2 billion.
The reports said the rationale behind the deal, from Monzo's perspective, was that the UK challenger was looking to expand across Europe.
Asked about the reports, Lunar CEO Ken Villum Klausen told Tech.eu:
“We don’t have any intention to merge ourselves.
“We probably know all the challenger banks in both the UK and European mainland really well.
“We compare notes with them once in a while because it’s not that large a community of actual challenger banks with licences in hand.
“’We’ve done that since we launched and we keep on doing that. So I think that is probably also where the rumours came from.
“I know T (Monzo CEO TS Anil) as well, he’s a great guy, a source of inspiration in many ways.
“I think it was overhyped. I know the CEOs of most of the challenger banks, we have investors who have other challengers and other really large fintechs in their portfolios.
“And once in a while we get together, we share notes, we discuss the future outlook for Europe and we have been doing that for many years.
“Lunar’s purely focussed on our Nordic expansion. We don’t have any intention to merge ourselves.”
Businesses of all stripes, including fintechs, love Hollywood stardust and Lunar is fortunate enough to have Hollywood comic actor Will Ferrell on its investment roster.
Not only is the Elf and Anchorman star a repeat investor in Lunar, but he has previously fronted a Lunar advertising campaign, appearing in a spot that paid homage to a legendary Swedish commercial.
“We are really happy to have Will on board as an investor,” says Klausen, who is 41 and has been the CEO of the bank since he founded it in 2014.
For the time being, Lunar is focusing on tactical messaging, highlighting areas like price and functionality, but Klausen says a brand campaign featuring Ferrell — whose wife is Swedish — in the future should not be ruled out.
Lunar, which has raised over €500 million to date and is the only notable challenger bank in the Nordics, reported a doubling of revenue in the first half of the year, and Klausen says it will be “definitely” annually profitable next year.
In the first half of 2023, it lost approximately €28.5 million after tax, compared to an approximate €105.5 million loss the year previous.
Net interest and fee income doubled year-on-year to €24.6 million in the six months.
The reasons for the jump in revenues, says Klausen, can be attributed to several factors.
These include benefiting from high interest on customer deposits and a bounce in customer numbers, driven by Lunar “getting close” to product parity with incumbents (across the Nordics, unlike other parts of Europe, customers typically shop for everything, including banking, lending, and mortgages, with one bank).
Unlike some of its European peers, Klausen says a big chunk of its main customers, retail clients, who on average tend to be middle-income and late 30s in age, are primary account holders.
It now has more than 750,000 retail and business customers in total, across its home market of Denmark, Sweden, and Norway.
Lunar offers four current accounts; one free and three paid options, those that offer perks like insurance products and lower fees on bill payments.
It also has three paid business accounts and also offers an account aimed at teenagers.
The ambition of creating a “financial ecosystem"
Like other challenger banks, Lunar wants to create a “financial ecosystem” for private and business customers, and so has spread its tentacles into BNPL, lending, and crypto organically and through acquisitions.
Its crypto offering, launched in 2022, has not been a runaway success, says Klausen, but Lunar is prevailing with it.
“We don’t see that much activity increasing on it. It is definitely a limited part of our revenue compared to some of our European competitors.”
While Lunar has been acquisitive, it suffered a setback last year after the collapse of a €132 million acquisition bid for Norwegian counterpart Instabank, after it fell short of "capital requirements".
Nordic incumbents “not super active”
The Nordic banking market is dominated by incumbents such as Nordea and Danske, which have millions of customers.
Klausen says Lunar is eating away at their market share and thinks it can more than double the roughly seven percent market share in Denmark it currently has over the next five years.
He says Lunar's gains are partly down to incumbents’ inertia.
He points out that incumbents are not “super active” on innovation, but are instead focused on updating their antiquated infrastructure.
Soon to launch in Finland
Next year Lunar, which acquired a Danish banking licence in 2019, will launch in Finland, meaning it has a clean sweep across the Nordics.
Lunar’s strategy, Klausen says, is to go “deep and not going broad” in each country, aiming to saturate each market, gaining high revenues per customer, before moving into the next market.
A move across into mainland Europe could be possible in the future, Klausen says, pointing out that its Danish banking license was issued by “ probably one of the fiercest regulators in Europe” and represents a big asset when talking to other European regulators.
In 2022, Lunar — which is heavily leveraging AI in new products — raised €70 million from existing investors including Tencent, Heartland, IDC Ventures, and Kinnevik, and an additional €35 million round in 2022, valuing it at around $2.2 billion.
A fresh funding round could come in as early as the summer of next year, says Klausen, depending on market conditions.
He points to an uptick in market conditions compared to the dank days of 2022.
There are “more positive vibes in the market,” he says, pointing to more deal activity in the market.
Enjoying being CEO
Klausen has been in the hot seat since 2015 but says he has no plans to step aside as CEO, despite “looking like 75 years old after being nine years in a startup”.
Admitting that he sounds “Amazonian”, Klausen says, with so much going on at Lunar, it still feels like day one at the Danish challenger bank for him.