Fintech is the great new hope of the post-Brexit city. It’s great that in recent weeks profitable payments specialist Wise has debuted on the London Stock Exchange and that JP Morgan has shown its confidence by snatching up online asset manager Nutmeg.
But there is a danger that investors will become too addicted to technological breakthroughs. The potential weaknesses of online payday lender Wonga, Wirecard in Germany and more recently Greensill have been overlooked by lenders.
Regulators were caught up in the excitement of poorly understood models.
Champion Fintech: Banking App Revolut is headquartered in London, but its banking license, which it uses to go to other parts of Europe, has been granted by Lithuania
It seems that the lessons of these flops have been learned and that the next generation of fintech is closely watched for risks and vulnerabilities.
Despite this, the £ 24bn valuation placed on Revolut in its latest fundraiser this week, placing £ 577m worth on Russian founder Nikolay Storonsky’s stake, is cause for pause.
The support of Softbank, known in the United Kingdom for its astute acquisition of Arm Holdings, should be reassuring.
Softbank also trusted Lex Greensill. The first stopover point for anyone trying to figure out what Revolut is doing, and how it’s going to make future profits after making a pre-tax loss of £ 207,875 in 2020, is the annual report.
One comforting aspect is the composition of the directors, which includes former CEO of Standard Life Aberdeen Martin Gilbert as chairman and former Goldman Sachs trader Michael Sherwood. Both offer in-depth finance experience.
What is a little more worrying is that Revolut’s banking license, which it uses to go to other parts of Europe, has been granted by Lithuania.
With all due respect to the Baltic nation, it is not known as one of the major financial centers in Europe.
Encouragingly, the firm is audited by BDO, which is not one of the top four audit firms, but at least the second tier. Revolut’s value comes from explosive growth.
At the start of 2021, it carried out 150 million transactions per month for 15 million individual customers and 500,000 professional customers, and was present in more than 35 countries.
So what exactly is it for? There are three main sources of income.
The Revolut card, which brought in £ 95million in revenue; currency and wealth, responsible for £ 80 million; and a service called subscriptions, which grossed £ 75million.
The fastest growing sector is Forex and Wealth, where income soared 150% last year. We know from Wise how fintech is revolutionizing access to foreign currencies by replacing clunky systems used by large commercial banks and eliminating the exchange rate “curve”.
The richness aspect of Revolut seems fascinating. Cryptocurrency dominates this part of the business and the annual report is dotted with the “crypto” world which appears almost 90 times. There is also an implication in the trading of precious metals.
Crypto had an incredible run in 2020, but this year has generated a regulatory review. The UK regulator, the Financial Conduct Authority, has warned newbie investors of the dangers of being overly exposed to bitcoin and the like due to the extreme volatility.
This is even before we consider how the crypto Wild West became a stronghold for crooks and money launderers.
Revolut’s subscription service, administered by an app, is a good tool. In an age where we all load subscriptions, sometimes inadvertently, the device keeps track and offers one-shot cancellation.
As helpful as it may be, as commercial banks adjust to the online world, it won’t be difficult for them to add a similar service, including instant cancellation.
For most established financial players, adding one or two new products per year and adapting the model can be considered sufficient innovation.
Revolut is much more ambitious. It lists a dozen new products added over the past year, ranging from gold and silver trading to four new cryptocurrencies.
It’s all incredibly dynamic, but it must be a nightmare for Lithuanian regulators and others looking to keep track of what’s going on under the hood.
Accounts show Revolut has a £ 538million safety net for regulatory capital and liquidity purposes.
In addition, some £ 5 billion of “restricted cash” is in the secure accounts of central banks and other banks. Customers should be grateful for the little mercies.
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