Digital bank execs have been scratching their heads for years about how to lure users into premium subscriptions. They've tried shiny cards, exclusive features and even cashback.
But now their attention seems to be on offering payment protection (or embedded insurance) at low cost, allowing them to undercut pricey credit card companies — as well as disrupting the €360bn alternative insurance market.
Monese, the London neobank for expats, is the latest to introduce comprehensive protection on all UK transactions, following in Revolut's footsteps. Monese will now automatically cover goods bought within the last 90 to 180 days — available for paying subscribers at no extra cost.
This is the latest sign that 'embedded insurance' is the new battleground and a 'must have' for neobanks. It comes alongside fintechs' unilateral move into the 'Buy Now Pay Later' space, vying to give consumers the most competitive packages.
For context, banks offering insurance is nothing new; even neobanks offer specific coverage for phones or foreign travel. But what's novel here is that Monese's policy will cover all items that are lost or damaged when bought on its card.
Monese is also going further by offering a form of income insurance. Under its new 'Bills protection' feature, Monese's ~2m users can get accommodation coverage for just £1.95 a month. In the event of lost income, users can claim up to £600 across 3 months without leaving the app.
This combination could be a winning recipe, says Matthew Jones — an insurtech specialist at VC fund Anthemis.
"These kinds of products are some of the better examples of [embedded] insurance products.... low premium, high perceived value," he told Sifted.
Survey data also indicates this should prove popular with consumers. A recent poll found that 71% of UK digital bank customers want transaction-based insurance. That figure stands at 44% for conventional bank customers.
That's making embedded insurance hot property for fintechs, says Sarah Kocianski, a strategist at Founders Factory.
"Offering insurance as part of a packaged/premium account... is definitely a trend [among digital banks]."
She added: "Banks offering insurance isn't a new idea; cover comes with a lot of premium bank accounts from the big high street brands. But what the digital-only banks are doing is offering different types of protection."
No money, no cry
Monese, which recently announced $90m in new funding, is not yet profitable.
Yet this new initiative is not about making money, says CEO and founder Norris Koppel. In fact, Monese will foot most of the insurance bill, having opted to keep the subscription price the same at between £6 to £15. Instead, the idea is to use the embedded insurance perk as an acquisition tool and to encourage the use of Monese as a primary account.
"We just want to add value to our customers…It's part of our longer strategy," he told Sifted. "This is about broader retention, loyalty, word of mouth... it doesn’t need to be direct revenue."
Currently, 40% of Monese's users are paying subscribers. While the new insurance features are expected to grow that ratio, offering "indirect revenue", it's still likely to run at a loss.
The new policy is powered by Belgian startup Qover, which allows non-insurers to offer coverage at a cost. Qover will be responsible for handling (and approving) any claims, and also powers Revolut and Deliveroo's insurance policies.
Sarah Kocianski warns that the partnership's success will now depend on the delivery.
"There has been a lot of attention paid to banks having mis-sold these products, and customers can reclaim the account fees at a later date if that's found to have been the case," she told Sifted.
"[If] customers that think they are covered [are denied] when they try and claim, you are going to have some very unhappy customers. You could also end up in trouble with the regulators."
Although insurance won't make Monese money, it's not completely ignoring the revenue question.
The company announced last week that it was moving into the banking-as-a-service (BaaS) space, currently dominated by the likes of Railsbank and Clearbank. Fellow digital bank Starling has also dipped its toe into the BaaS sector, while US neobank Moven pivoted completely into BaaS after closing its consumer arm.
It isn't an obvious move for Monese, given its tech stack relies on several third parties too. But Koppel hints that Monese isn't competing with the large BaaS players — instead, it'll be "complementary" to them, providing some unique modular "features".
The team is therefore optimistic about the new BaaS division.
"There's not a massive sales team there yet...[But] in terms of revenue, I'd say in the next 3 to 4 years, it will be as big as [the] consumer [side]," says Koppel.
Elsewhere, Monese is also looking to introduce a new credit offering. However, unlike its peers, Monese won't be adopting Buy Now Pay Later tools, Koppel tells Sifted.
"We've got a new announcement coming that's closely connected to credit. But it won't be Buy Now Pay Later... we have no plans there. It's a different approach."
Monese is currently looking to close its Series C, having secured the first $90m tranche last week. Koppel declined to comment on specifics.
Last year, before the Covid crisis hit, Monese was reportedly looking for a £1bn valuation.