The financial landscape in the UK is about to shift with the latest milestone achieved by Revolut. The financial technology company has secured a UK banking licence after three years of perseverance.
This achievement is poised to revolutionise the services it offers, providing loans, overdrafts, and more. Meanwhile, consumer protections are set to improve for its nine million UK users.
Introduction of Revolut’s UK Banking Licence
The financial technology company Revolut has finally secured a UK banking licence after three years. This milestone allows it to offer loans, overdrafts, and additional lending products.
The licence approval by the Bank of England’s Prudential Regulation Authority (PRA) means that customer deposits up to £85,000 will be protected under the UK’s Financial Services Compensation Scheme (FSCS). This development significantly boosts consumer protections for Revolut’s nine million UK customers.
Long Journey to Approval
Revolut’s quest for a UK banking licence spanned three years, much longer than the typical timeframe. Throughout this period, Revolut encountered various hurdles that delayed the process.
Several factors were scrutinised, including its rapid growth and accounting practices. Notably, its auditor raised concerns regarding £477 million of its 2021 revenues, resulting in a qualified opinion. These concerns were addressed in the 2022 report.
The complexity of Revolut’s ownership structure also presented challenges. To facilitate the licence approval, the company simplified its structure, making it more straightforward and transparent.
Immediate Impact and Consumer Protections
With the new licence, Revolut will be able to compete directly with traditional banks in the UK. This is a significant shift from its previous operations under an e-money licence, which restricted its ability to offer lending products.
Once banking services are launched, customer deposits up to £85,000 will be protected by the FSCS. This added layer of protection is a substantial benefit for Revolut’s users.
During the initial “mobilisation” period, which typically lasts about a year, Revolut can only hold £50,000 in total customer deposits, continuing to operate under e-money regulations.
Historical Context and Growth
Founded nine years ago by Nik Storonsky and Vlad Yatsenko, Revolut started as a money transfer and foreign exchange service. It has rapidly expanded since then.
Today, Revolut serves over 45 million retail customers across 38 countries. Its offerings range from cryptocurrency trading to insurance services, making it a versatile financial platform.
In 2021, Revolut was valued at $33 billion, marking it as one of the leading fintech firms in the UK. Its revenue for the last year was £1.8 billion with pre-tax profits of £437.8 million.
Challenges Faced
The approval process for Revolut’s UK banking licence involved intense scrutiny. The company’s rapid expansion was of particular interest.
Accounting practices came into question when its auditor BDO highlighted issues with £477 million of Revolut’s 2021 revenues. This resulted in a qualified opinion, though these concerns were later resolved.
Revolut also had to simplify its complex ownership structure. This step was necessary to meet the regulatory requirements for the banking licence.
Next Steps and Mobilisation Period
The granting of “authorisation with restrictions” means Revolut is in a “mobilisation” phase. This period, typically lasting about a year, will allow it to build the systems and processes needed to operate as a full-fledged bank.
During this phase, Revolut will only be able to hold £50,000 in total customer deposits. It will still operate under e-money regulations for the time being.
However, this transitional period is crucial for setting up the infrastructure required for offering comprehensive banking services in the UK.
The Significance for the Fintech Sector
Revolut’s achievement is a major milestone for the fintech industry in the UK. It demonstrates the potential for fintech firms to evolve into comprehensive banking service providers.
The company’s journey reflects broader trends in the financial technology sector, where digital-first companies are increasing their capabilities to offer traditional banking products.
This development could pave the way for other fintech startups aiming to secure banking licences, thereby expanding their service offerings and consumer reach.
Future Prospects for Revolut
With the UK banking licence, Revolut is positioned to significantly enhance its service offerings. It can now provide loans, overdrafts, and other banking products directly to its UK customers.
This is expected to attract more users and boost its market presence. The company will likely continue its trend of rapid growth and expansion into new areas.
The successful approval also sets a precedent for other fintech companies, highlighting the potential for digital platforms to compete with traditional banks.
In conclusion, securing a UK banking licence is monumental for Revolut. This move not only enhances its service offerings but also boosts consumer protections.
The licence approval signifies a new chapter for the fintech giant, setting a strong precedent for others in the industry. Revolut is now well-positioned to compete directly with traditional banks, offering a broader range of financial services.