What's up you guys, sasha, here challenger, banks have become one of the hottest trends of the past decade, springing up everywhere from singapore to london to san francisco. The hype is, unlike anything, we've seen before the apps look pretty and everything is given to you for free. So why wouldn't you want to go and open an account, but here's the problem when everything is free, especially things that actually cost the bank money and with the vast amounts of money spent on the development of the app in the first place, these banks are broke And they're losing colossal amounts of money every single year, where still these banks don't seem to actually want to make money, because making money is not in fashion these days. So why is that? Let me explain: governments around the world have simplified the process of becoming a bank, the united states, european union, united kingdom, singapore and dozens of other countries have relaxed the regulations to enable new fintechs to join the crew and compete with existing banks.

The technology looks and feels decades ahead of the traditional banks. You don't have to go and queue up in the branch to do menial tasks. You don't have to wait several weeks for some paperwork to process. Everything is super, easy and everything just works like it should best of all the accounts are free, you do not have to pay for anything, transactions are free, sending money is free, receiving money is free, withdrawing cash or depositing cash is free.

Spending money abroad is free, in fact, pretty much. Everything that you might want to do with a bank account is always free and naturally enough somewhat. Unsurprisingly, customers have been signing up in their droves, n26 has over 5 million customers in different countries. Stanley bank has about 1.8 million, monzo are on about 5 million, and varro money is on about 1 million customers as well.

Even the big banks have decided that they want to join the party with goldman sachs, setting up marcus bank and nat west setting a bow, but the issue is that either these don't even offer checking accounts or current accounts, or they fail spectacularly within a few months. Simply because they can't compete with free. Unsurprisingly, the challenger banks that offer everything for free don't make very much money. Sure some of them have tried.

We've seen monzo and revolut offer premium versions of their accounts for a monthly fee, but there is very little that they actually give to the customers in exchange for that fee and some of the challenge banks have decided to try lending, but without the necessary experience and Actually, knowing what it is they're doing, those attempts have failed as well. In the latest available filings, monsoo bank has lost 140 million pounds, revolut has lost 106 million pounds and viral money who've recently become the first fintech in the us to get a banking license has raised 241 million dollars in june 2020, which kind of suggests that they Are not swimming in cash either. Uk styling bank appears to stand out from the crowd when they recently announced that they are now in fact profit making. They made a big fanfare out of it, except they forgot to mention that the only reason they are profitable is because the uk government is paying them huge amounts of money as interest payments for loans that the bank was giving out over the past 12 months to Businesses as interruption loans, loans that are underwritten by the uk government in the first place.

You think that profit numbers will be somewhat important for a bank, but it is very difficult to actually find them. There buried dozens and dozens of pages into their annual reports, because making money is just not that important, it isn't a fashion who cares. You know what people do care about, how many customers they have and how cool their app looks. So why is it that these challenger banks and their shareholders don't seem to care at all whether their businesses actually make money? Why is it that their losses are increasing by over a hundred percent year on year, but their valuations are still in the billions and the reason is really simple.

The answer is this: is one giant fintech investment bubble, one fintech startup after another are getting their seed funding series a b c, whatever the money is coming in so easily that investors have to compete with each other for the privilege of being able to invest companies That lose literally hundreds of millions of dollars and have no hope or any kind of game plan of how they actually might make money or when they might make. It are rewarded with huge fundraisers that allow them to go and live for another year until the next investment money comes in. So what gives? How are these companies surviving? Why are people continuing to plow their money into them because nobody cares about profits? Profits are not where the real money is made. The only thing that these investors are interested in is selling these banks and letting whoever buys them worry about making money at some point in the distant future, we've already seen some examples of big banks snapping up challenges, and there are constant, ongoing rumors about other big Banks looking for their next big acquisition, but the really big bugs these days comes from doing an ipo because with an ipo, you don't have to spend several months explaining your books to a potential buyer.

You go and list on a stock exchange and a flurry of potential investors are able to go and buy. You shares the moment they turn up in their investment app job done. The insane valuations mean that the founders and investors are in for a huge payday. Styling bank have publicly announced that they're looking to do an ipo at some point in 2022 and with a valuation of a few billion.

The likelihood is that the founder, ann bowdan will walk away with over 1 billion dollars from doing that. Ipo, that is a heck of a lot more than you'd ever be able to earn by charging a few fees. You see when things come for free. One of two things is certain: either you're going to be sold, something that is completely not free at some point down the line or you the customer, are the actual product.

The issue here is that when customers are used to everything being completely free the moment you try to go and charge them by introducing fees by introducing paid versions of the same product. The interest is just: isn't there they're too, used to not having to pay anything? The moment that some of the banks have tried to go down that path, those attempts failed within months. The idea is that, at some point down the line, the new owners of the new management will have to go and figure out ways of making money. Everyone is obsessed with the facebook principle, the facebook principle of building a big audience and then at some point in the future, being able to figure out how to actually make money from it.

Except banks are nothing like social networks and they are certainly not in any way genuinely unique. So how will this bubble burst? Well, nobody knows some of these challenger banks will probably fail the next time an investment round doesn't actually come through, and we've seen examples of that already with moven others will probably go and sell out to a big bank and the cool app will suddenly become slightly Less cool and the things that used to be free will magically stop being free. Others will do an ipo and they'll sell their shares for a huge valuation, which will mean they'll never have to worry about money again, but what will happen to the customers? You can bet your top dollar that the people who are going to get mighty rich in the process don't really care if only the regulators actually apply their own rules to these banks, which stipulate that they have to have profitable business models. Maybe things would be a bit different sure it's nice for customers to have completely free products that are super jazzy, but when the business model is not sustainable, the end might not be so pretty.