00:09:49 · Zubin Vandrevala, Aman Narain
[00:09:49] S1: Contested. And and here's why. Right? Like, net profit over equity audited, you know, I think it's, what, £1,300,000,000 over 4,900,000,000, but what? 26.7%. Excellent, but not 45. And on the same arithmetic, Nubank is about 28 and a half. Right? He's he's double his rival only after he redefines his denomination. [00:10:16] S0: Yeah. As we all do. And there's a real mechanism under this redefinition. So let me defend it. A pound at a central bank carries a risk weight of zero. A personal loan, 75 to 100. Over 60% of Revolut's assets are cash and reserves, so only about £22 in every 100 count against capital. JPMorgan, for example, 43. New Bank, 55, which is why his core capital ratio is 31% and JPMorgan's is 15. [00:10:52] S1: Aman, this case, except the capital, isn't all voluntary. Right? Like in June, it emerged that the ECB had raised the Lithuanian banks' pillar to requirements to, I think, four and a half percent, and the highest add on of any bank directly supervises. So some of the capital he calls excessive is capital a supervisor told him to hold. [00:11:13] S0: Yeah. And and so it isn't return on equity once excess capital is deducted. It's once the ECB's opinion of us is deducted. [00:11:22] S1: Exactly. Exactly. [00:11:24] S0: And and and twenty six point seven is still a very good bank. So [00:11:29] S1: Fair point. [00:11:30] S0: Put him next to the bank we've been arguing about since the episode 15. If you remember the flywheel that we established, the one that said that every neo bank that makes it is running.
00:11:30 · Aman Narain, Zubin Vandrevala
[00:11:30] S0: Put him next to the bank we've been arguing about since the episode 15. If you remember the flywheel that we established, the one that said that every neo bank that makes it is running. [00:11:43] S1: So let's pay that back, right? Like the wedge, the monetization ladder, and the efficiency engine. Right? So win the customers for almost nothing with one product that fixes a real pain, climb them up that ladder of a sort of higher margin product, and then run it all on a stack so effectively that every rung stays [00:12:01] S0: And both of them run it. Nubank's wedge was the purple no fee card, as you eloquently put it. Revolut's was the multicurrency card at the interbank rate. Both have the engine. Revolut's cost to income ratio is under 28%. [00:12:19] S1: But, Aman, the difference in the ladder... And I I don't think we said this clearly enough in episode 15. Right? The rally goes to different places, and the scars decide where. So Nubank climbed into credit. 58% of his deposits lend out. The net interest margin, 9.8%. 80% of its revenue is interest. [00:12:38] S0: And Revolut climbs into everything except credit, subscriptions, FX trading, wealth, crypto. Net interest margins, 2.1. 74% of revenue is fees. [00:12:51] S1: Right. And then a new back pays for its ladder. Right? Cost of risk, 520 basis points against Revolut's one fifty eight. Late stage bad bad loans, 6.1% against against Revolut's 2.4.
00:12:51 · Zubin Vandrevala, Aman Narain
[00:12:51] S1: Right. And then a new back pays for its ladder. Right? Cost of risk, 520 basis points against Revolut's one fifty eight. Late stage bad bad loans, 6.1% against against Revolut's 2.4. [00:13:04] S0: Yeah. Same flywheel, opposite ladders. Velez at Nubank turns deposits into credit and prices the default. Storonsky turns deposits into a float and prices transactions. The Lehman floor decided which ladder he built. [00:13:21] S1: Right. And let's talk about a third ladder people forget about. SoFi started by refinancing student loans, lends heavily, bought a bank charter in 'twenty two, and is also bought Galileo and and Technises, the plumbing, and sells that plumbing to other banks and fintechs. SoFi's Top Run isn't a product for customers. It's essentially the stack itself sold to its competitors. [00:13:46] S0: Which is heresy in a bank. Every bank I've known guards its core systems like crown jewels. [00:13:53] S1: Right. And SoFi rents the crown jewels out by the account. [00:13:56] S0: Which is the real story of the neobank class of this decade. The ones that made it aren't cheaper banks. Each has picked a different answer to a question banks stopped asking about a century ago. What is a deposit for? [00:14:10] S1: Right. And and neobank says credit, Revolut says float, SoFi says soft.
00:14:10 · Zubin Vandrevala, Aman Narain
[00:14:10] S1: Right. And and neobank says credit, Revolut says float, SoFi says soft. [00:14:16] S0: And JPMorgan says all three on a $4,000,000,000,000 balance sheet, which is sort of why the incumbents aren't dead, I suppose. And and we said that episode that incumbents can run the flywheel to Chase UK, Trust Bank here in Singapore. What they lack isn't the idea. It's the nerve to cannibalize themselves. Storonsky had nothing to cannibalize. [00:14:40] S1: Yeah. No scar tissues from a branch network. Right? His only scar is probably Lehman. Well, let's watch Revolut run the wedge somewhere new, Aman. Right? Because it shows how far he goes to avoid the lending ladder. Take Mexico, January 2026. The launch offer is 15% a year on savings, which, you know, when you think about what the Central Bank has got maybe 12 times to about seven. [00:15:04] S0: Eight points underwater, Zubin, on every peso he doesn't lend, and he isn't lending. [00:15:11] S1: Yeah. Yeah. And it isn't an interest rate. Right? It's a marketing budget. And I think we've kind of mentioned this before. Right? Internal estimates report puts his acquisition costs in Mexico, I think, under $12 an account against more than maybe about 65 for a branch bank. Right? So 550,000 accounts by August on a, what, $167,000,000 of capital, and behind it, the $65,000,000,000 remittance corridor from The US. [00:15:39] S0: And and same move as the 2015 card. Give away the spread to get the customer. In eleven years, he has never once acquired a customer by lending Yeah.
00:15:39 · Aman Narain, Zubin Vandrevala
[00:15:39] S0: And and same move as the 2015 card. Give away the spread to get the customer. In eleven years, he has never once acquired a customer by lending Yeah. [00:15:49] S1: Which is a flywheel adapting to the market. Right? In London, the wedge was a card. In Mexico, it was a deposit rates. The first step changes. The refusal to climb onto the credit rung does it. [00:16:00] S0: And the float has a weather problem. Analysts rule of thumb, every 100 basis points of rate cuts costs a digital bank with a 5% loan book, 15 to 22% of its float revenue. Nubank is naturally hedged. Cheaper money means more credit demand and fewer defaults. Revolut is the one who dressed for one kind of weather. [00:16:24] S1: Yeah. Interest is about a quarter of his revenue. Right? 74% is fees. [00:16:30] S0: And look at the purest float and fee business that's listed, Wise. As rates eased this year, its growth slid from over 30% to 19. Same species, same coal. [00:16:43] S1: Yeah. Then then the honest summary. Right? You removed credit risk and accepted rate risk. A choice, not a free lunch. [00:16:49] S0: He he... He'd say it's cheaper risk. [00:16:52] S1: And and he might be right for a decade at a time. Right? Rates don't default. [00:16:56] S0: And every risk we've named so far, he's either removed or priced. Not one of them is inside the building. So let's go inside.
00:16:56 · Aman Narain, Zubin Vandrevala
[00:16:56] S0: And every risk we've named so far, he's either removed or priced. Not one of them is inside the building. So let's go inside. [00:17:05] S1: Yeah. Let's go inside. Right? 15,000 staff from 110 countries on his own count. And at the top, more than 40 direct reports. Yeah. Confirmed. Right? Including the three people whose job is it to tell him, essentially, finance chief, the general counsel, and the credit risk officer. [00:17:22] S0: Picture that diary. Twenty minutes each of a week is thirteen hours of one to ones before he even opens dashboard. [00:17:30] S1: His version has no layers, nobody between him and the numbers. The version from former executives, it's... Isn't a structure. [00:17:37] S0: You know, we've been trained classically in business school about span of control and things. But before we judge it, put it next to the most valuable chipmaker in the world. Jensen Huang runs NVIDIA with around 60 reported direct reports. [00:17:51] S1: I I knew you would go there. [00:17:53] S0: And no one on ones at all. I mean, I would love to work for Jensen for multiple He says he can't. So so he puts a problem in front of all of them, and and then they will attack it together. [00:18:05] S1: So funny isn't crazy. It's two third of Jensen. [00:18:08] S0: Which is the real question. Is this the new way of running a company, Zubin, where dashboards and AI replace the middle layer, if you'd like, and the chief executive talks to everybody all at once? Or is it that span of control that works right up until it doesn't?