Truelayer: Fintech unicorn boss says ‘scale is everything’ as he takes on Visa and Mastercard
The chief executive of fintech unicorn Truelayer has suggested bottom-line profitability and a potential IPO are some ways off as he focuses on scaling up to challenge Visa and Mastercard’s payments duopoly.
Francesco Simoneschi, who co-founded Truelayer in 2016, told City PM that “scale is everything” for the most successful payment processing companies.
“This is a network business,” he said. “The more scale you have, the more you can create benefits for each side of this network.”
The London-based firm uses technology called open banking to enable real-time bank payments that it claims are cheaper, faster and more secure than card processing. Clients include Revolut, Coinbase, Shopify and Trading 212.
Simoneschi said Truelayer now processes almost half of all open banking transactions in the UK. “If you chat with the vast majority of merchants, no matter their size, they will tell you they feel very captive of this payment industry, which has been built on top of card processing,” he added.
A scathing report from the UK payments regulator last month found there was “little evidence” fee hikes by Visa and Mastercard on retailers had majorly improved the quality of service and that the US giants do not face effective competition. The duo account for around 95 per cent of transactions using UK-issued cards.
A slew of open banking-focused challengers are trying to shift the dial, including Yapily, GoCardless and Volt. Despite this competition, Simoneschi insisted his main rivals are the established firms.
“We are not the kind of company that is obsessed with competition,” he said. “If we are obsessed with competition, it’s more like competition of the marketplace – how we are going after incumbents.”
‘Infrastructure business’
Truelayer’s latest accounts showed pretax losses of £40.3m for 2022, albeit down from £78.1m the previous year. Revenue rose to £4.1m from £2.6m, while payment volumes nearly tripled.
However, administrative expenses ballooned to £63.4m from £31.4m, driven by a hiring spree that saw the firm’s headcount grow to 434 from 231.
Simoneschi compared Truelayer’s focus on infrastructure to “an energy plant” and said it needed to spend more money laying the groundwork for the mass adoption of open banking in the UK.
“We are an infrastructure business. That means we are likely going to spend a lot of time and a lot of years building and spending money before actually earning,” he said. “We have been very well capitalised.”
Truelayer was most recently valued at more than $1bn in September 2021, with a Series E funding round led by Tiger Global Management landing the firm $130m. It has raised roughly $270m in total funding.
Still, profitability has moved higher up the agenda for fintech investors following a massive drop-off in funding over the last two years, driven by interest rate hikes. The UK has been hit particularly hard, with fintech investment dropping more than a third between 2022 and 2023, according to KPMG.
A raft of closely-watched fintech names and IPO candidates have posted their first annual pretax profits this year, including digital banks Monzo, Atom, Zopa, Allica and Clearbank.
“The funding environment is way tighter than what it used to be, so clearly the ability of companies to incur financial losses has been more limited than before,” Simoneschi said.
“We have seen revenues really accelerating… We’re quite happy with our financial performance. We are working towards being in control of our destiny more and more.”
IPO plans
With UK fintech funding in 2024 having already matched its total for last year and capital markets showing signs of a rebound, analysts are expecting a pickup in IPO activity.
Among UK fintechs, buy-now pay-later provider Zilch – valued at $2bn (£1.65bn) last October – is targeting a public listing next year, while Monzo – valued at $5.2bn (£4.1bn) in May – has also hinted that it will float at some point. However, Simoneschi was tight-lipped on his own ambitions.
“We generally don’t discuss such matters in a public way,” he said. “At the moment, the focus needs to be on scaling our product into ecommerce and geographies and verticals that we think are going to be successful.”
Behind closed doors, however, Simoneschi has been party to discussions with the Treasury as a member of trade body Innovate Finance’s “Unicorn Council”, which also boasts the likes of Revolut, Monzo and Zilch.
The group launched in March and is partly focused on making the London Stock Exchange a more attractive listing venue for fintech start-ups. Formal policy asks have included axing the stamp duty on share trading, while individual members have also criticised UK pension funds for not investing in domestic companies.
Simoneschi said the group gave a “single voice for a number of companies that are at a certain point of time in their scaling journey to ask the critical questions and try to come up with very practical improvements”.
He added that the IPO landscape for fintechs remained “an important topic”, partly because of the “non-negligible” effect public markets have on the private markets. “One becomes the benchmark for the other,” he said.
Looking ahead, Simoneschi said Truelayer would spend the coming years focusing on “opening up a lot of new use cases” for open banking.
“The very big endeavour is to position open banking-based payments as a reality into the broader ecommerce landscape, way more than what it is at the moment,” he added.