Monday, 22 April 2024

Revolut moves into US and UK online banking race

5 min read

By Dandreb Salangsang

Fintech startup Revolut has applied for a banking licence in the US and UK in a bid to make inroads into the online banking business in the two economies.

  • The company targets share of competitive US online financial services
  • Operations ceased in Canada more than a year after the launch of its beta product in 2019
  • It seeks a full banking licence in the UK to grow its business

Revolut, a financial technology (fintech) company that provides money transfer and exchange services, announced its business offerings in the US following the suspension of its operations in Canada. The fintech startup filed for a bank licence in the United Kingdom.

The company targets share of competitive US online financial services

Revolut aims to capture a share of the highly competitive US online financial market by applying for a banking licence. The path to a licence could be a long and expensive one. The newcomer is up against significant competition such as Varo that has been operating in the country for a decade and boasts of having nearly two million accounts to date. It took three years for Varo to get approval of its banking licence. Chime, an American technology neobank company which provides fee-free financial services through a mobile app, has an estimated 12 million customers in the country. 

Once its application is approved, the company can operate as an independent bank. This will lessen reliance on third-party financial institutions and allow it to provide deposit-taking, custody, and fiduciary services. Its services include accepting credit card payments directly in real-time. Companies can sign up for multi-currency accounts, issue physical and virtual corporate cards, and make no-fee cash transfers in 29 currencies. It also offers a free disposable virtual card that automatically destroys the personal information used for online transactions and generates new details in the app.

Operations ceased in Canada more than a year after the launch of its beta product in 2019

Barely a week before it announced its expansion in the US, Revolut has ceased to operate in Canada. It is a decision that has come more than a year after launching a beta version of its services in the country. It has been attempting to provide services to Canadian customers since 2019 by offering early access to account users ahead of an official launch. The launch was derailed due to the complexity of getting Canadian banking licenses for newcomers. “We’d hoped to be able to bring Canada the full Revolut service, but that is not possible at the moment. We think it’s in the best interests of our customers to pause for now. We hope in the future we’ll be able to return to Canada when we can offer the full suite of Revolut services,” said Nikolay Storonsky, founder and CEO at Revolut.

Revolut has an estimated 200,000 customers in the US to date. The company has been offering financial services since operations began in 2020. It partnered with Metropolitan Commercial Bank for the banking infrastructure and deposits of up to $250,000 are insured by the Federal Deposit Insurance Corporation. Revolut is investing in the banking business to expand revenue streams and bring new services to existing customers.

In search of a full banking licence in the UK

Revolut also applied for a full banking licence in the UK, its home country and biggest market.  Approval of a full banking licence in the country usually takes one to three years. Monzo was granted a licence after three years while Starling took five years. Monzo and Starling are neo or challenger banks that can provide the full range of banking services, most importantly deposit taking and lending.

The expansion will allow the company to offer overdrafts, loans, and fully-fledged current accounts to its more than three million British customers. It will address some factors like reassurance that comes with the Financial Services Compensation Scheme where deposits of up to $100,000 will be paid back in case the bank collapses. However, it is technically not a bank in the UK which has limited its profitability, revenue opportunities and product offerings. The grant of a full banking licence could address these concerns. “A UK banking licence allows us to provide the essential financial products British customers expect from their everyday primary bank accounts such as loans, credit cards, overdrafts and deposit accounts, coupled with the additional trust and security that is offered through FSCS protection,” added Storonsky.

Making presence felt in Asia Pacific

Revolut plans to expand its services across the Asia Pacific, a region that presents a tremendous opportunity to its business. However, securing a banking licence in each country in the region will be a challenge.

The company announced it will be hiring several senior management professionals in Singapore. It attracted 70,000 customers since it rolled out its services in the country in 2019. It has also penetrated the markets in Japan and Australia in 2020. The team in the three countries will be focused on supporting various product launches, market expansion, and the company’s overall growth strategy.

Revolut was established in 2015 and originally offered foreign exchange tied to a payment card. Through the years, it expanded its products and services. It has 15 million customers worldwide and a valuation of $5.5 billion to date. The company has widened its suite of services to include cryptocurrencies, stocks, commodities, and travel and mobile phone insurance products.

Keywords: Online Banking, Mobile Banking, Neobank, Digital Payments
Institution: Revolut, Starling, Monzo
Country: United States, UK
Region: Europe, North America
People: Nikolay Storonsky
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