Monzo in talks to combine with Nordic rival Lunar

U.K.-based digital bank Monzo is in talks to combine with Nordic rival Lunar as a way to grow its operations in Europe, per Bloomberg.

Why it matters: A difficult fundraising environment has wreaked havoc on the valuations of fintech startups, causing a dual push toward profitability and consolidation in the industry.

Context: The preliminary discussions are taking place not long after Lunar raised €35 million in funding from insiders in February.

• The company said the round would be used to “shorten its path to profitability,” but came just months after it laid off 40 employees in January.
• It was also a big step down from the €280 million in Series D funding it closed the previous year, which valued the company at €1.72 billion pre-money, according to Pitchbook.

Meanwhile, in May Monzo reported that it had already reached profitability — at least for the first two months of the year — and expects to reach full-year profitability by the end of 2024.

• A jump in its lending business, where volume nearly tripled year-over-year, spurred the company to profitability.
• The London-based neobank was last valued at $4.5 billion after raising $475 million in late 2021.

The big picture: A business combination could make sense for both companies, as Monzo looks to expand its footprint in Europe and Lunar looks to shore up its balance sheet.

• Monzo now has more than 7.5 million customers using its mobile app, while Lunar serves more than 650,000 customers in Denmark, Sweden and Norway.

The bottom line: The current challenges of late-stage fintech funding has companies that need money considering strategic options — and those that have money value-hunting for potential acquisitions.