Sanjeev Kumar & Risav Chakraborty
Revolut’s Playbook to Build a Global Financial SuperApp
The Neobanking sector seems to have evolved and matured significantly over the last 3-5 years. Having survived the pandemic, the neobanking landscape has undergone a significant transformation in business models where neobanks have stretched their product offerings, built credit-centric revenue streams, expanded their geographical footprints, diversified to serve new segments such as SMBs, and unlocked new revenue streams through Banking-as-a-Service offerings.
Previously, we have analysed Revolut’s quest to become a global financial super app by expanding its product lines and growing its geographic footprints. It has also launched credit products leveraging its banking licence in Europe and credit licence in Australia and is betting big on the small-medium business segment as well. While a few neobanks and digital banks are expanding product lines and geographic footprints to countries closer to their home location, there’s almost no one trying to be a financial super app globally. This sort of global proposition of a one-stop financial super app for multiple customer segments is what separates Revolut from the rest of the neobanking lot.
This time, we look beneath the surface and try to analyse Revolut’s playbook of building a global financial super app. What separates Revolut from the rest is not only the speed and scale of their innovation and expansion strategies, but also the road they are taking to bring the insanely complex proposition to life. There seems to be an uncanny bias at Revolut towards building and controlling assets on which the FinTech innovation juggernaut rolls on. Whether the asset is in the form of key technology modules or regulatory licences – there is a deep appetite to build, procure, and nurture these assets so that it acts as a formidable moat in the medium to long term, not just against the fellow challenger banks and FinTechs but also against the incumbents who have started to catch up the lost ground by making strategic digital banking bets.
While most neobanks still tiptoe around their approach to procuring licences, Revolut boasts an excess of 45+ regulatory authorisations in the form of licences, extensions, approvals, temporary registrations, and being appointed representatives of principals. In the words of Revolut’s CEO Nik Storonsky – “generally in each country where we expand, we’re going to seek a banking licence with them”. In this blog, we traverse the road Revolut has taken to procure regulatory assets to build a full-stack global financial super app.
Revolut’s Regulatory Approach: The Road Less Travelled
Revolut’s regulatory roadmap can be traced back to 2016, when it acquired its first-ever e-money licence from the Financial Conduct Authority in the UK. Revolut’s claim of being a truly global financial super app hasn’t only been restricted to its product prowess. Throughout the years, the FinTech has deployed experienced and capable legal teams across countries to help secure authorisations in most of the locations it has expanded into. Since 2021, the digital bank has witnessed a flurry of activities on the regulatory front – having applied for and received several permits across different categories. With its core cross-border transaction business taking a massive hit in the wake of the pandemic, Revolut has massively diversified its business by procuring a wide variety of licences, such as trading licences for stocks and commodities, insurance distribution licences, and crypto trading licences. Revolut also obtained a full banking licence from the ECB at the end of 2021, which enabled it to launch deposit and credit products in several European countries. Recently, an approval was granted to Revolut by the Cyprus Securities and Exchange Commission that will allow the firm to operate as a regulated crypto business across the entire European Economic Area (EEA). Sometime back, Revolut’s CEO Storonsky light-heartedly quipped, “regulators across the world have all been very friendly so far”; however, at times, the FinTech goliath had to show patience with regulators taking a principle-driven approach to evaluate licence applications. Currently, the digital bank still awaits a decision on its banking licence applications in the UK, the US, Australia, and Mexico.
Reimagining the Banking Stack from the Grounds-up
Retail banking is extremely diverse as one moves from one country to another. Different countries mean different consumer behaviour, different currencies, different monetary policies, different interbank payment infrastructures, and above all, different regulatory and licensing approaches. There is a reason we have BigTechs ruling industries like advertising, e-commerce, mobile, cloud computing, etc., across the globe but no BigFin, especially on the retail side, ruling banking and finance across the world.
When it comes to global propositions in finance, we do have megabanks like HSBC, JPMorgan Chase, and BNP Paribas operating in multiple countries, but their proposition is more focused on corporate and investment banking. We also have Visa and Mastercard running global businesses in banking, but they also focus on the infrastructure layer and benefit from the network effects of their B2B propositions. On the retail side, we don’t really have a global giant that rules the financial industry.
Obtaining regulatory licences is a critical step in driving original and impactful innovations and building sustainable business models in the banking industry. Regulatory licences enable FinTechs to build trust with the customers, attract low-cost deposits, access interbank payment infrastructure, and launch an extensive set of financial products. Revolut seems to be aiming to build a business that puts all these pieces of the puzzle in order so that they can unfurl a cross-sell strategy en masse and become the lowest cost distributor of financial products globally.
The licences secured by Revolut to date can be broadly classified into payments, banking, credit, capital markets, insurance, and crypto.
After securing an e-money licence, the Financial Conduct Authority granted Revolut an issuing licence, further strengthening the FinTech’s foothold in the UK. Revolut’s aggressive expansion strategy remains pivotal in receiving authorisations in foreign markets. In 2018, Japan’s Financial Services Agency granted Revolut a funds transfer service provider licence, and in a couple of years' time, the London-based firm secured a financial service licence from the Australian Securities and Investments Commission. The FinTech juggernaut expanded its presence in Asia when it obtained a major payments institution licence from the Monetary Authority of Singapore. Although the Central Bank of Ireland also granted an e-money licence to the digital bank, Revolut chose to leverage its newly acquired full banking licence to offer services to its Irish customers.
Banking and Credit Licences
2021 remains a significant year in Revolut’s regulatory roadmap as the FinTech applied for banking licences with the Federal Deposit Insurance Corporation and the California Department of Financial Protection and Innovation in the US, and with the Financial Conduct Authority and the Prudential Regulation Authority in the UK. In December, Revolut secured a full banking licence from the European Central Bank, an upgrade to its previous specialised European Union banking licence obtained through the Bank of Lithuania in December 2018. The global FinTech achieved another milestone when the Australian Securities & Investments Commission granted it an Australian credit licence, allowing it to offer credit and personal lending products in the country.
Capital Markets and Insurance Licences
Although Revolut is yet to secure a banking licence in the US, the digital bank has already obtained a broker-dealer licence from the Financial Industry Regulatory Authority, enabling it to offer commission-free stock trading to its US customers. Revolut’s financial super app proposition received further backing in Australia as the Australian Securities and Investments Commission extended its Financial Services Licence, authorising the digital bank to launch stock trading in the country. Lithuania and Singapore have always been happy hunting grounds for the FinTech. By the end of 2021, Revolut secured a category B securities broker licence in Lithuania – its fourth permit in the country, having already obtained an electronic money institution, an insurance broker, and a full banking licence previously. Insurance related-products for Revolut’s customers in the UK are provided by Revolut Travel Ltd which is authorised by the Financial Conduct Authority to undertake insurance mediation services and by Revolut Ltd, an Appointed Representative of Revolut Travel Ltd in relation to insurance distribution activities.
The Monetary Authority of Singapore granted a capital markets services licence to Revolut along with approval to allow customers to trade gold and silver on its app.
Revolut introduced crypto trading way back in 2017, but it took the digital bank nearly four years to secure its first authorisation. In January 2021, Revolut was granted a temporary permit by the FCA to offer crypto services. The following year, the watchdog extended the deadline for the approval of its crypto operations. The Monetary Authority of Singapore granted approval to Revolut, allowing the FinTech to offer digital payment token services under the Payment Services Act and also permitted it to operate a fully regulated cryptocurrency service along with merchant acquiring services. On August 15th, Revolut received approval as a crypto-asset service provider from the Cyprus Securities and Exchange Commission, enabling the digital bank to offer crypto services across the European Economic Area.
Charting The Course Ahead
Revolut has shown stellar success in obtaining banking and finance licences across multiple countries and delivering on its global financial super app claims. However, they seem to have several glaring chinks in their armour. The first is their never-ending wait to procure a banking licence in their home country, the UK. Secondly, their US banking licence application has also seemed to be stuck somewhere in a regulatory quagmire. And finally, the big one involves their risk and compliance heads abandoning the ship en-masse. According to several media reports, Revolut has seen two risk officers, two money-laundering reporting officers, a chief compliance officer, and a chief finance officer leave the firm in a short interval.
Despite these setbacks, Revolut seems to be comfortably placed in the neobanking pecking order, having amassed regulatory licences, technology assets, product suite, and active operational teams in multiple countries across continents. The next orbital jump may come once they build a full-stack financial business on top of their low-cost cross-border payment offering in key remittance corridors such as the US-Mexico and US-India. The remittance offering to expats in the US and the UK, coupled with their presence in local remittance recipient markets such as India and Mexico, has the potential to unlock massive value pools for Revolut and accelerate their path to profitability. The availability of licences to enable stock trading, FX trading, commodity trading, and crypto trading also puts Revolut in a pole position to generate fee-income as well as unlock market-making revenue streams. Banking and credit licences are a great asset in Revolut’s aim to take on the incumbents and launch credit products to build interest income revenue streams. And finally, the insurance distribution business, which is still in a nascent stage, can help Revolut unlock synergies with its core business related to remittance, multi-currency offerings, and travel propositions.
Having a ton of banking and finance licences in different parts of the world will also expose Revolut to the continuous scrutiny of regulators. This will help them build expertise and gain experience in maintaining a regulated entity's governance and reporting standards, which will be immensely valuable when they choose to go public. Whether the tide of the political headwinds turns in its favour, or it charts out an expansive customer growth in its embarked global journey – we’re equally buckled up as eager spectators of the upcoming endeavours in Revolut’s playbook to build a global financial super app. *roll credits*