EXCLUSIVE: ‘The bank of fun’ – Morten Sønderskov, Lunar in ‘The Fintech Magazine’
Lunar is the Danish challenger that’s ready to ‘change the way people do banking’ by using a Cloud-based architecture that’s ready to embrace open finance. With more than 200,000 users already, many acquired during the pandemic, COO Morten Sønderskov says the bank’s off to a good start
“Spending is fun, but banking is boring. Unfortunately, you can’t do one without the other,” says Morten Sønderskov, chief operating officer with Danish challenger Lunar.
The thrill of signing up to a subscription service to see the latest blockbuster release that now won’t be premiered in cinemas, or enjoy a monthly download of 100 games on Xbox Series X to relieve lockdown boredom; the guilty pleasure in being able to buy now but take your time to pay for it; and the buzz from getting together with friends and family over a financial social platform that allows them to share in your purchasing decisions… all these trends have taken off in the past 12 months as the pandemic upended our daily lives and exaggerated an existing but gradual shift in spending habits.
Trouble is, our cashflow is now so complicated, so impulsive, that it’s increasingly difficult to get a handle on it.
And that’s what Lunar, which started life as a personal financial management (PFM) app in 2015, aims to correct. By 2019 it had obtained a European banking licence from the Danish regulator and began building a bank fit for a generation of digitally-savvy Scandinavians.
Its mission was to create a bank that suited the busy, online universe they live in; designed to help users reach ‘financial zen’ by allowing them to save, invest and share their finances through Lunar’s modern financial management tools. But then the pandemic catalysed its development. Within the space of a few months, Lunar had tapped into the digital payments vein that was pulsing with pandemic-fuelled pressure and brought out three new features, partnering where necessary to speed up their delivery.
First came an in-app subscription management service with white-label software supplier Subaio. Then, it gave its Premium and Pro customers the option to have joint accounts with up to 10 people who could post messages to each other via the app. Ken Villum Klausen, founder and CEO of Lunar, said at the time that joint accounts were launched partly in response to a surge in online book clubs, cycling clubs and other groups during the pandemic, and the bank wanted ‘to support the need to share experiences with easy money management’. Most recently, just in time for Christmas, the bank added a Klarna-like buy now, pay later option, which pops up whenever a user makes a purchase from the account.
Lunar’s agility is entirely down to its Cloud-based architecture and collaborative mindset, says Sønderskov.
“We had the opportunity to, more or less, start from a blank piece of paper; to build our own back end in the Cloud from day one, which means we are in full control of the data and able to manage our service in a very agile way – how we work, how often we are able to bring new services to market, and how often we update existing services.
“Being in control of its own back end has been the core foundation for a company like Lunar to provide front-end solutions. Going forward, that whole back end is going to be even more critical, because we are integrating with so many different players to be a part of the fundamental financial infrastructure.”
By seeking out partners with the same Cloud-native approach, Lunar can double down on innovation, faster than most others could deliver it.
“We can do the integration in three weeks,” says Sønderskov. “I think our main competitive advantage, compared to the incumbents, lies in being able to bring products to market at a faster pace.”
READY FOR OPEN FINANCE
The bank now has 200,000 private users and 5,000 business users across Denmark, Sweden and Norway, most of those acquired last year. With the Lunar app, they can easily and securely manage their finances directly from their smartphone, get an overview of spending, set savings goals and budgets, receive notifications when they are about to hit limits, and make free payments and transfers.
Premium and Pro account holders can invest money via the app over a simplified trading platform developed in partnership with Saxo bank – trading costs are low and transparent, with no hidden fees and no demands for minimum expenditure on stocks. Other paid-for account benefits include exclusive discounts, travel and luggage insurance.
Social media meets banking in its account sharing feature, which sees up to 10 people issued with a card. Whether it’s saving to buy with a partner, splitting bills with housemates, sharing a travel account with friends, or a food budgeting account with family, anyone associated with the account can comment on transactions, even if it’s just to post an emoji. “If we manage to get people as engaged in our app as they would be in other social media apps, then we have come a long way,” says Sønderskov.
Ultimately, Lunar aims to go a lot further, too… to anticipate, in fact, the open finance strategy that Europe plans to roll out in 2022. Only then, says Sønderskov, when banking data can be aggregated with other information streams will the true value of the API economy be realised in personal finance. And Lunar will be ready.
“We have built an engine that will be able to combine all the data about customers, from multiple sources, and give them the right access to the right information, to show them how to navigate their finances. The aim is to have a product portfolio that reflects all kinds of financial interactions that customers go through during their lives. We are not there yet, but that’s the vision. We want to be a provider of all kinds of financial services, not just a niche player.
“We also want to integrate into national infrastructures, so that we are able to tailor things to customers in specific countries, like Sweden and Norway.
“Our vision is about bridging financial and other products, and we are already going down the path of collaborations you would not normally see with financial institutions. These combinations with other product streams will generate new revenue streams that we have not seen yet [in banking].”
Lunar’s antennae are alert to identifying where those opportunities might emerge. A key one is subscription services. Indeed, as one of the ‘freemium’ challengers, Lunar is itself based on a recurring payment model.
But it’s a trend that has undoubtedly accelerated since the outbreak of the pandemic. One estimate shows the average European is spending around €333 a month on 11 subscriptions, a number that is predicted to increase to €508 a month across 17 subscriptions by 2025.
This represents a generational shift in the relationship between the consumer (be that individual or business) and the provider – ultimately, the subscription economy will generate more data and more insight as our lives are geared less towards ownership and more towards recurring, time-limited, shared or borrowed services. But right now, it’s just a matter of keeping track of all those things you signed up for and promptly forgot you had.
So, Lunar teamed up with Subaio, a Danish white-label subscription management software company, to allow retail customers a complete overview of their subscriptions in one place, as well as the costs incurred. Users can manage their subscriptions directly in the app, and receive notifications if a subscription changes.
It’s not just consumers who have subscription fatigue and could use some help. Research from Subaio shows that employees have, on average, access to eight business subscriptions, and 30 per cent of business subscriptions are not used. So Lunar’s premium business Grow account holders have access to their own tool, too, to help them manage their subscription services and costs.
Another highly-competitive sector that has been boosted by the COVID-19-driven acceleration in ecommerce, is that of buy now, pay later (BNPL), which is famously associated in Europe with Klarna, founded in neighbouring Sweden. Many startups are hot on its tail. According to CB insights, 2020 saw a record funding year for the BNPL sector, with $1.5billion raised globally. By 2025, BNPL volumes in Europe are predicted to hit $357billion, constituting nearly half of the entire global estimate, and representing 30 per cent of all predicted ecommerce spend.
Such a sizable consumer trend hasn’t escaped Lunar, so it has developed its own BNPL service, allowing its users to postpone a payment of up to DK10,000 to the following month, or split it across three, six or 12 months. And it went a few steps further than Klarna. Not only can account holders apply the BNPL option to purchases that are up to 30 days old, but the facility can also be used for any payment, be it food shopping, household bills or emergency repairs, for a fixed price. For the challenger bank, BNPL is both a revenue stream and a way to drive customer loyalty, by giving customers much more flexibility with their finances.
Lunar has already gone through three rounds of funding, with initial investors returning for subsequent raises. In total, investors including Seed Capital, Greyhound Capital, Socii Capital and Chr. Augustinus Fabrikker, have sunk €104million into the challenger.
If its plans to expand pay off, Lunar bank could be about to grow astronomically.
“If we manage to combine all this data, and provide it to customers in a way that they think it’s interesting to follow up on; and if we are able to do that on an ongoing basis, showing how, if you adjust this, you will achieve that in the future, then I think we have succeeded as a company,” says Sønderskov.
“Because then we have truly changed the way people do banking.”