Startup Europe — The Sifted Podcast
00:07:29 · Tom Matsuda
[00:07:29] S1: Well, as we've kind of spoken about, Revolut isn't a typical company. Over 50,000,000 customers is not a typical kind of, I guess, neobank to go through and apply for becoming a banking license. And it's likely to be, I guess, the largest ever license app by kind of looking at a kind of customer base. And yet the the PRA, the the regulatory authority that's in charge of granting banking license in The UK, they obviously need kind of robust evidence. Right? That Revolut's compliance controls, their governance controls, capital needs as well, and their kind of operational processes are all all up to standard. And that's a much higher bar for a company that's... Has millions of users, right, compared to, you know, when, I guess, Monza and Startup applied for their banking license. And they, you know, they were a lot smaller fry in terms of the kind of amount of customers that they they served at that time. Things that haven't helped as well, though, I think both in the kind of 2020 and 2021 annual results in the past, auditors have have criticized certain portions of, yeah, of their kind of revenue profile as being inadequate, and they were unable to kind of verify kind of key revenue segments in in in the past. That obviously delayed any progress with kind of the regulatory process until those accounting standards were improved. Revolut leadership itself has also publicly criticized The UK financial regulators in the past for how sluggish and slow the process as well with which likely kind of complicated the process. They've also had some turnover in the finance department. So I think during this entire process, their former chief financial officer, Miko Salavar, left and was soon replaced by somebody called Victor Stinger, who's their current CFO. He was initially put in as interim CFO. He's, you know, known as being this kind of early employee of Revolut. He joined as the founder's associate and sort of worked his way up. Although he is younger and maybe less experienced than a typical CFO, he, at least from conversations I've had, has been credited with kind of rectifying those accounting issues, which likely paved the way for for Revolut to be granted a UK bank of license.
00:09:34 · Amy Lewin, Tom Matsuda
[00:09:34] S0: And what will... Once it's out of this mobilisation phase, which we expect to happen quite soon, what will it be able to do when it has the full banking license? [00:09:44] S1: Well, Revolut will be able to roll out more kind of grown up products than it's been known for. Most people now go to Revolut for, say, things like remittances, stock trading, crypto. [00:09:56] S0: Just their bank account. [00:09:57] S1: Just the bank. Yeah. Exactly. Just holding some deposits and some cash. Getting a banking license in The UK will likely see them more mirror what has happened in Europe, where they've they've held a banking license for their Lithuania base since 2021. In Europe, in certain jurisdictions, they've been able to offer things like credit cards and even mortgages in Lithuania, which are currently kind of testing out. Getting a banking license in The UK will enable them to roll out these kind of similar lending products, which are typically in the past more associated with 100 year old banks like your your Barclays, your HSBC, your Santander, and not 10 year old banks in the case of Revolut. So I guess all in all, it's really gonna help see their kind of product portfolio grow up essentially, and that will be a key key test for them. [00:10:50] S0: And so once they have the banking license, it's highly probable that they launch mortgages in The UK. How do you think they'll go about doing that? And do we have any clues from how they've done it in Lithuania?
00:10:50 · Amy Lewin, Tom Matsuda
[00:10:50] S0: And so once they have the banking license, it's highly probable that they launch mortgages in The UK. How do you think they'll go about doing that? And do we have any clues from how they've done it in Lithuania? [00:11:02] S1: Yes. So so as as we've mentioned, they're currently testing the mortgages product in Lithuania and hoping to kind of roll that out later on to, well, it's currently earmarked for Ireland and and France as well. In Lithuania, they're currently in the kind of testing process and people being signed up to the wait list. So it's still quite early stages. And, you know, in terms of whether that coming to The UK will will largely depend on how, I guess, these kind of more European test cases go. But in Lithuania, what they're focusing on is refinancing mortgages. So these are people who already have a history of making repayments on a mortgage. They may own some equity already in their house. And, yeah, that means that from a kind of bank perspective, right, they're they're less risky because they have this history of repayments. I I imagine as they kind of roll out initially across these different jurisdictions, they'll focus on refinancing because those are the less risky customers compared to first time buyers who obviously have no history of buying a house. It goes with us. [00:12:01] S0: Makes a lot of sense because Revolut also needs to manage its risk. It doesn't wanna lend [00:12:06] S1: It does. It does. [00:12:07] S0: Millions of pounds all of a sudden and not get it paid back.
00:12:07 · Amy Lewin, Tom Matsuda
[00:12:07] S0: Millions of pounds all of a sudden and not get it paid back. [00:12:09] S1: As as we've reported as well, their remortgaging product is... They're they're trying to make it as efficient as possible. So I think through a combination of income verification checks, user data, and data from credit bureaus as well, they're hoping to kind of give pre approvals to customers within five minutes. So obviously, if you're trying to go for that very quick approach, you need to manage the risk in some in some ways. [00:12:35] S0: But that said, if it comes in, if it knows that, if it undercuts other mortgage, you know, interest rates, you can see a lot of people potentially being driven by the price itself. And then Revolut is, like, really gonna start making money, isn't it? [00:12:48] S1: Yes. Yes. So so most big banks these days, if you look at their revenue profiles, they make most of their money from lending. Revolut is quite different in that regard because it makes most of its money from fee income to the services they provide. That could be things like interchange fees when you make card payment. It could be a fee on stock trading. That's been kind of Revolut's bread and butter so far. But if it wants to kind of continue that pace of growth, it's likely going out to have to lend and push into these more kind of grown up products like business lending and and mortgages.
00:12:48 · Tom Matsuda, Amy Lewin
[00:12:48] S1: Yes. Yes. So so most big banks these days, if you look at their revenue profiles, they make most of their money from lending. Revolut is quite different in that regard because it makes most of its money from fee income to the services they provide. That could be things like interchange fees when you make card payment. It could be a fee on stock trading. That's been kind of Revolut's bread and butter so far. But if it wants to kind of continue that pace of growth, it's likely going out to have to lend and push into these more kind of grown up products like business lending and and mortgages. [00:13:22] S0: Makes a lot of sense. And what what is Revolut's big end goal? Is is Storonsky on a mission to make this the biggest bank in the world? Is it more, you know, they've moved into telecoms. Is it potentially gonna become more of a sort of a super app play going to things outside of finance? What what do you think the the road ahead looks like?
00:13:22 · Amy Lewin, Tom Matsuda
[00:13:22] S0: Makes a lot of sense. And what what is Revolut's big end goal? Is is Storonsky on a mission to make this the biggest bank in the world? Is it more, you know, they've moved into telecoms. Is it potentially gonna become more of a sort of a super app play going to things outside of finance? What what do you think the the road ahead looks like? [00:13:44] S1: I mean, it it can be both, really. I mean, it obviously started with a mission to be this financial super app. But, know, obviously, going into telecoms, it might seem quite a strange move for a neobank to make, but it's... You know, they've they've done things like this in the past. They've launched eSIM products, but you can also do things like book your holiday via Revolut. You can get insurance for your pet if you really want to. You know, what it really is is like this control center for all your financial day to day. So telecoms might seem quite out there in terms of things, but, you know, it's it's a utility bill at the end of the day, right, which is a financial product. So it it makes sense in some ways to pivot into these products that are kind of tangentially linked to financial services. [00:14:28] S0: So another question that always gets asked about Revolut is when is it going to IPO? Where might it IPO? Is it going to be London?