What is the deal with Revolut💳UK banking license?
Hi sharks,
do you follow the drama?
No, it’s not soap opera, it’s Revolut trying to acquire a UK banking license and all the connected fanfare that goes with it.
But, very few people actually understand why is it so important for Revolut to acquire a UK banking license. Luckily, you have us to 💡you!
Before we start, in case you are reading this because a friend showed you, and you are not our subscriber you can correct that injustice below 👇
Also, if you like this post enough to share it…
Now, let’s start our Revolut journey from the beginning.
Revolut story
Like any neobank, Revolut had an interesting journey so far filled with VC funding, losing money, gaining customers and expanding into new markets.
It does sound like a good Hollywood movie script 🤔
Short overview
Even though all milestones presented above are important, some milestones are very important for the UK banking license story.
These milestones are:
UK E-money license
$33 billion valuation
Full banking license in the European Economic Area (EEA)
Reports first full year of profit
If you just read these milestones, things look good, right? Revolut is a highly valuable company according to valuation, they have a banking license for EEA, and they are profitable.
So, where is the catch?
Catch numero uno - I want ROI
Revolut so far received $1,7 billion in investment. The majority was from VC funds and banks, but there were some private investors as well.
After the last funding round in 2021 (Series E), Revolut shareholder structure looks something like this 👇
Like with any business, investors want to see ROI, they want to earn as much as possible. The are only 2 ways how Revolut investors can get their money back:
Someone buys Revolut (not likely to happen)
Revolut goes public (IPO)
The second option is the option that almost every startup wants, it’s a sign that you’ve done it!
So why Revolut hasn’t done it yet? Well, it was never the right time, according to them.
Kinda contradicting, right?
Catch numero due - are we really profitable?
It’s a great milestone for a neobank to turn profitable. For them, it’s proof that your business model is working and that you would be crazy not to bet on their “let’s dominate the world” strategy.
Revolut reported a 20£ million profit but…is Revolut Foundation good?
Let’s see how Revolut makes money 👇
If you compare this with your regular bank, there are more potential revenue sources, but a typical bank earns money on “Loans&Overdrafts”, and Revolut.
If you look at this, it turns out that Revolut is first and foremost trading platform and not a bank. If we go into history, it looks even “worse”.
2020/2'021 were years when crypto trading was at its finest so this “Foreign Exchange & Wealt” revenue boom is because of that. The problem is that in 2022 crypto was down so it’s not logical to expect that this type of revenue will grow in Revolut's case. They have to replace that revenue somehow…and what type of revenue is missing?
Loans & Ovedrafts 😁
Catch numero tres - please don’t let my valuation go down
If you are a public company, your valuation is subject to constant change, depending on the stock price.
However, if you are a private company the only benchmark you can have is your perceived value by your investors. Higher the value, the more money for a certain equity %.
Current market conditions are not favorable for fintech startups. Just type into Google “Fintech startups valuation drop” and you can read “horror” stories about fintech valuation and how hard it is for them to raise money. Even if they manage to raise money, it’s under a lower valuation, and that is the key.
Revolut didn’t have any new funding rounds since 2021, so their valuation is still “protected”. However, if 2022 financial results are not favorable, and Revolut needs more funding…it’s a problem.
Also, if they decide to go public, they want the best conditions possible. That means the highest valuation possible.
Oh, did we mention that crypto is down and that Revolut was profitable because of trading-related fees?
Catch numero quatro - the UK is our home and largest market
The UK is where all has started, and the UK is Revolut's largest market.
Check this out 👇
Aaaannd this 👇
Without a UK Banking license, Revolut can’t offer loans to its UK customers. That is a shame because Revolut strongest market is the UK. As a matter of fact, they are so Europe-focused that they can’t get new revenues from the rest of the world any time soon.
Check out the “Rest of the World” category 👇
Conclusion
It’s obvious that Revolut’s goal is to go public, but failing to acquire a UK Banking license would be a serious hit. Why?
How can you go IPO if you are Europe-focused, and on your largest market you can’t offer the most profitable product bank has to offer - loans?
Yes, 2021 was profitable, but what are 2022 results? Crypto trading was down for sure, and Revolut has to cover that revenue somehow.
If they manage to acquire a UK banking license they can tell the story of how their presence in Europe is strong, they have an EEA banking license, and they have a UK banking license. Investing in Revolut stock would be a smart move because their business will continue to grow in Europe, and in the meantime, they will expand into other markets.
No UK banking license, no IPO.