About Jonathan Rowland’s “bitcoin bank”

The Telegraph had an interesting story on Sunday: Jonathan Rowland plans £40m float for ‘Bitcoin bank’. Rowland, the founder of the “bank” in question, Mode, is the son of property tycoon and Tory donor David “Spotty” Rowland. A man who, according to the Sunday Times Rich List, was worth about £612m as of 2019.

Spotty has acted as a private financial adviser to Prince Andrew, who he’s reportedly close friends with. He’s previously given Randy Andy permission to fly around in his private jet, and was invited to the wedding of his daughter Princess Eugenie. Apparently, he’s also mates with our old favourites, the Barclay brothers. And earlier this year, the Daily Mail reported that Spotty had flown to North Korea in a bid to become Kim Jong Un’s private banker. It’s a . . . well-connected clan, you might say.

We’ve had reason to write about Jonathan Rowland a few times here on Alphaville before. Let’s just say the man seems fond of jumping on a hype train.

When he was in his early 20s during the peak of the dotcom bubble, Rowland set up an “internet investment company” called Jellyworks. The company’s shares leapt tenfold on its first day of trading on Aim, with its valuation briefly soaring near to £300m in early 2000. It was a false dawn. Just seven months after it floated Jellyworks had less than £1m in cash left, and the company was eventually swallowed up by the private investment bank Shore Capital for just £60m. It didn’t work out well for Shore.

Then, in 2011, it was time for another bandwagon to be jumped upon: social media. Jonathan Rowland set up a cash shell called Jellybook, raising £11m for the firm, which intended “to seek out suitable businesses in the social media arena and provide them with the investment and currency they need to deliver their real potential”. In 2012, Rowland admitted that Jellybook had in fact done no deals so far because valuations were too high and he “refused to overpay”. The company had nevertheless managed to lose £300,000 in its first 10 months.

In 2017, Rowland junior set up a new business bank for SMEs called Redwood Bank which, in a most peculiar turn of events, managed to get £30m of investment from Warrington Borough Council. According to local news site Warrington Worldwide (!), the council is, as of 2020, still “confident this is a sound investment”, despite the fact that Redwood Bank posted a £3.8m loss in 2018.

But any hype merchant worth their salt was never going to miss out on crypto, were they? Of course not.

Some more details, from the Telegraph:

Mode offers a consumer-facing app, which it hopes to turn into a challenger to Monzo. Its products include a “Bitcoin jar”, where users can buy cryptocurrency that then offers them an interest rate return . . . 

Mode is a minnow compared to Monzo and Revolut, but Mr Rowland said while more established challenger banks had acquired millions of customers and multi billion pound valuations they were failing to make any money. “I like Monzo,” he said. “But I don’t see them making money.”

A little rich, perhaps, to talk about making money, given that according to Companies House filings Mode has been around for five years (the same amount of time as Monzo), and its losses increased fourfold to £526,000 in 2018. The company wants to raise between £5m and £10m for its listing, (about a tenth of what Monzo raised in its latest “top-up” round). We’re sure president Tom Blomfield is quaking in his boots.

Despite the fact Mode calls itself a “mobile banking app”, it’s not really anything of the sort. For one thing, it does not have a banking licence, meaning customer deposits are not guaranteed should the company go bust. And contrary to what the Telegraph reported, it doesn’t even yet have an e-money licence, though it says the regulator has said it is “minded to approve” it. (If and when the company gets it, this kind of licence provides no deposit protection for customers, which exposes them to a lot of risk should things go wrong, as we have written about before.)

The Telegraph also reported that Rowland said:

There is no other fintech doing what we do. There is no listed retail cryptocurrency or banking disruptor.

Which is strange because we really couldn’t find anything that Mode is trying to do that is different from anyone else. It lets people buy bitcoin, and charges a spread for the service, like most crypto businesses. It also has this “bitcoin jar” that it launched earlier this year, promising 5 per cent APR, similarly to other companies. Mode says it does this through a partnership with a US company called Celsius Network, which lends bitcoin to “carefully vetted borrowers”.

Last year, crypto site The Block reported that Celsius “lends to margin traders through margin trading programs run by some exchanges”, including Bitfinex, which as well as having been hacked, has been caught up in a number of major legal disputes. Carefully vetted indeed.

Mode declined to speak to FT Alphaville for this story, but sent us some written information on the back of some questions we’d asked them.

We asked how they could possibly guarantee 5 per cent APR given how risky bitcoin lending was, and they said:

As with any speculative product, customers should decide if the Bitcoin Jar fits within their risk profile.

So it’s not really a savings jar at all then. On the subject of why they call themselves “Mode Banking” when they’re not a bank:

We only work with partners who offer bank-grade custody solutions.

Ummmmm. The company says crypto assets are stored with crypto custodian BitGo, the company that Bitfinex was using as its custodian when it was hacked and had $70m worth of bitcoin stolen in 2016. (BitGo said that wasn’t its fault.)

What could possibly go wrong, etc.

Related links:
‘A company for carrying on an undertaking of great advantage’ — FT Alphaville
This is nuts, when’s the crash? — FT Alphaville
Jellybook posts £300,000 loss — FT
Publicity-shy multimillionaire denies bank deal on yacht — FT