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.

Payments Licences

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.

Crypto Licences

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*