UK neobank Tandem is poised to accelerate product and international growth after raising $79 million

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UK challenger bank Tandem has secured £60 million ($79 million) in funding to boost its business, per Reuters. Tandem offers automated savings, account aggregation, and two credit cards for consumers without strong credit.

It uses advanced analytics of customer transactions to better understand customers' spending habits and build new products. The neobank acquired Harrods Bank in 2018 - the banking arm of the luxury UK retailer - through which it obtained a banking license.

Tandem didn't disclose details around what the funding will be used for, but it will likely go toward streamlining its existing growth efforts:

• The funding could help support Tandem's international expansion plans. Tandem previously announced plans to launch in Hong Kong by the end of 2020. It also partnered with Hong Kong-based financial services group Convoy Global Holdings in November 2019 to set itself up for further expansion, per Reuters. Being that the majority of Tandem's competitors operate throughout Europe - and some in the US - entering a different market could allow it to position itself for success with less direct competition. Hong Kong, specifically, is encouraging new entrants in its digital banking space, suggesting it could be a good growth market for Tandem.
• Tandem could use the funding to grow its product portfolio ahead of going public. Tandem plans to use open banking to offer personalized products. For example, it intends to launch a mortgage product that uses aggregated financial data to more accurately gauge applicants' creditworthiness, which will allow it to offer mortgages to consumers who may not have been accepted by other lenders due to a lack of credit history. Entering the mortgage market could open Tandem to a major new revenue stream: The mortgage market in the US alone is worth over $9.2 trillion, for example.

Tandem is currently making strides toward a sustainable business model, and new products and international expansion could grow its customer base and push it toward longer-term success. The neobank recently added a £5.99 ($7.86) monthly subscription fee to its flagship credit card.

Though the fee could chase away some customers, those who remain are likely to be more engaged, as they're willing to pay to use the card. The steady revenue stream offered by a subscription model gives the neobank a strong foundation to build upon when it comes to upcoming products and entering new markets, both of which could put the neobank in front of new users who could eventually be cross-sold into Tandem's credit card offering.

Acquiring new customers will be key for Tandem as it faces tough competition: Its raise comes on the heels of competing UK neobank Revolut raising $500 million, and its 800,000 user count is eclipsed by competitors whose user counts are in the millions. Funneling its latest funding toward growing its user base through product suite and geographic expansion could increase Tandem's chances of success in the neobank space.

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