Any visitor walking into the spacious and modern London headquarters of Revolut, an app-based provider of a variety of banking and financial services, could be forgiven for thinking that it feels like a bank of the future.
Revolut has emerged as the most active greenfield investor within the digital banking space, investing in 13 greenfield FDI projects across 11 countries since its foundation in 2015, according to greenfield investment monitor fDi Markets. This outstrips other digital bank rivals such as Germany-based N26 and UK-based Monzo, whose greenfield investments during that time number just nine and four, respectively.
Revolut has also signed a recent deal with payments group Visa, from which the digital bank plans to expand into 24 new markets and hire about 3500 staff.
Revolut’s success was initially gained from its easy-to-use platform and flagship foreign exchange product, which offers customers competitive interbank exchange rates. This success has been shored up by its diversion to financial wealth and wellbeing, adding features such as monthly budgets, money-saving wallets (which round up spare change and transfer it to a money-saving ‘vault’), and providing paid-for premium services that include metal payment cards, commission-free trading and cryptocurrency access.
“We listen to and predict what our customers want and bring out products accordingly. When we launched we were more of a remittance and travel product, and then people wanted to know how much they were spending per month, so we launched monthly budgets,” says Will Mahon-Heap, Revolut’s global expansion manager.
Prior to Revolut, Mr Mahon-Heap was a corporate lawyer and co-founder of Equitise, an equity crowdfunding platform based in Sydney, Australia. “I’ve always been passionate about the fintech sector and wanted to empower people to make better financial decisions. It’s awesome to be doing this on a global scale with Revolut,” he says.
Revolut has raised $336.4m over 12 funding rounds, with its most recent April 2018 round, led by technology investment firm DST Global, raising $250m at a valuation of $1.7bn. Successful rounds have enabled Revolut to join the much-sought-after ‘unicorn’ club (private start-up companies valued above $1bn) and driven rapid expansion into new markets to acquire customers.
“The challenge for digital banks is to reach profitable scale before their funding runs out, so the key to survival is acquiring new customers efficiently. I’d say that for now, Revolut is clearly following the blitzscaling playbook to grow fast and grab market share, and is planning to raise up to $500m from investors before the end of 2019,” says Aurelie L'Hostis, a senior analyst at research firm Forrester who specialises in digital business strategy for retail banks.
When deciding on the locations in which to expand, Mr Mahon-Heap always considers the regulatory environment and how the company will make money (or ‘unit economics’). With these fundamentals in mind, Revolut undertakes thorough analysis and research to form a 150-data point launch matrix for every prospective location alongside conversations with “regulators and industry bodies that are able to verify our initial analysis”, says Mr Mahon-Heap.
Engineering talent in locations is also a strong consideration, and “government agencies give us an insight into the geopolitical landscape, which is invaluable”, he adds.
Revolut is not shy to admit its “big focus on expansion” as CEO and co-founder Nikolay Storonsky made clear in a Bloomberg interview in August 2019. This is reiterated by Mr Mahon-Heap, who asserts that the expansion strategy is based on “growth and network effects”.
“We have pretty ambitious growth plans and recently hit more than 6 million customers in Europe, and will continue to grow in Europe and the US. Network effects are also key to build-up our customer base and driving cost efficiencies,” he says.
There are concerns over Revolut’s expansion plans, however, due to differences between the company’s European base and the regions it wants to enter. “Products that got the Revolut ball rolling, such as its multi-currency wallet and foreign exchange pricing, are not likely to get traction in the US, where few potential customers travel abroad,” says Matthew Locsin, head of innovation at digital consultancy Publicis Sapient.
Revolut also faces a challenge in the Asia-Pacific region from formidable established players such as DBS, TenCent and Ant Financial, but Mr Mahon-Heap is confident the company has a unique product. “Asia-Pacific is clearly very big market and there are some established players operating in the space but we are confident our service is unique,” he says.
Aside from its expansion plans, some wonder when Revolut will reach profitability due to its high-volume, low-margin model, and its relatively slower progress in persuading customers to use their accounts beyond travel expenses and budgeting. “Many customers might only use Revolut as a travel card, not necessarily for their day-to-day needs – and a high level of customer engagement is of paramount importance for digital banks to succeed,” says Ms L’Hostis.
Mr Mahon-Heap counters profitability concerns, saying: “Revolut’s revenues are growing at five times per year and the growing number of daily active users and subscribers to our paid services demonstrate our business model is sustainable. However, our current focus is not on profit. Instead, our immediate focus is on expansion and acquisition.”
Revolut has attracted other criticisms, which include accusations of aggressive working environment, suspected money laundering on its system and deficiencies in risk management. In terms of money-laundering checks, Mr Mahon-Heap says: “As an ex-lawyer I find what we do to be world class.” He adds: “When I demonstrate it to other global players in my role as global expansion manager, they’re blown away.”
Revolut is taking steps to strengthen its governance and tighten controls with some high-profile hires of executives with significant banking experience, such as its July 2019 appointment of new chief financial officer David MacLean, a former Metro Bank boss.
Publicis Sapient’s Mr Locsin claims that other criticisms – that Revolut’s global expansion may be slowed by risks and compliance issues – could be part of a negative campaign by larger incumbent banks. “There is a whiff of schadenfreude in this broad criticism; it typically comes from incumbent banks that have spent billions on compliance and suffered through many investigations and fines of their own,” he says.
Despite the challenges, it appears Revolut’s products offering ‘financial empowerment’ have struck a chord with consumers in the UK and Europe, enabling the digital bank to grow to an impressive 6.2 million customers. With further global expansion plans on the horizon, the digital bank is on track to become an increasingly prominent feature in the global financial services sector.