Revolut – The 'WeWork' of Banking At It Again!

Positioning for Australian banking licence on paper thin revenue

A full court press over two months by Revolut Australia may end up with nothing as they apply for a Banking License.

Why would a regulator approve this business?

Australian Results are Poor

There are 11.4 million pre-paid cards in Australia - Revolut claims 100,000 prepaid cards, that’s not even 1% for all their spin - funny how that 1% number comes up often with Fintechs.

That gives Revolut sales of $34.1 million, based on average prepaid sales $3.895 billion (ex RBA) - you couldn't run a corner store on that - mind you the corner store is not losing ￡207 million (US$380 million) a year.

Much worse when you include the total cards (debit, prepaid, credit and charge cards) are 71 million spending $749.5 billion, with pre-paid cards average spend a paltry $341.60.

Revolut Red Ink Prevails

Revolut raised ￡584 million (US$800 million) in new capital in July 2021, which will last 2 to 2.25 years at best.

Revenues per customer are pathetic at ￡14.80 per customer, these need to triple quickly or else!

Revolut the UK’s prepaid card issuer masquerades as a bank (with a Lithuanian bank license), claims to operate in 35 countries – yet, 88% of revenue comes from the UK and that’s after 6 years - see 2020 accounts below - the rest of the world is rounding error!

Accounts show major revenue is still from card interchange built on travel - will this ever come back?

Revolut decided to continue to expand aggressively during Covid-19 which has dramatically increased cash burn.

BUSINESS SUMMARY

Revolut claims to operate in 35 countries

14.5 million customers

2200 FTE’s

F20 ACCOUNTS

Revenue 2020 ￡222 million

Losses 2020 ￡207 million*

Accumulated losses ￡492 million

Deposits?￡49.8 million

(*includes interest payments)

Revolut also added staff and increased marketing spend during 2020, these numbers do not reflect a full 12 months in F20 accounts, so will be more than 186% increase in 2020.

Mega Valuation

Softbank is at it again ably supported by Tiger, using a WeWork style valuation of US$33 billion (￡23.9 billion) for Revolut, a business with revenues of ￡222 million and claimed ‘customers’ of 14.5 million.

That gives a valuation of 108 times revenues!!

Not a pretty picture for any of these major Neo Banks

The customer number looks very dodgy, using a credit card definition for pre-paid cards?

What everyone needs to know is weekly active customers – which given the very low customer revenue is probably 15% or less or 2.2 million active consumers, hardly any scale.

WeWORK Fiasco Continues

Softbank’s big bets can be seen at the extreme margins of start-up investing. WeWork is a classic case study of the hype and lack of substance in many of their investments. Is Revolut another WeWork?

Founded in 2010 with one New York lease WeWork create temporary shared workplaces for entrepreneurs, freelancers, start-ups and small businesses. Softbank has invested $17 billion in WeWork.

WeWork then went on a spending binge, leasing high priced properties and assuming fixed long-term commitments based on presumption of rapid and continuous customer growth.

This starts in unravel in 2019 as WeWork gears up for an IPO.

WeWork went from a valuation of US$47 billion to US$8 billion in a matter of weeks. The IPO had to be cancelled amid lackluster demand from the public markets, while stock spruikers talked excitedly about $100-125 billion plus public value.

Founder Adam Neumann demonstrated perfectly the ‘cult of the CEO’ and was paid US$2 billion by Softbank to depart.

Revolut positions for deposits tilt

BANKING DAY?7 September 2021??George Lekakis

Revolut’s Australian business seems so determined to enter the local retail deposits market that it could begin marketing transaction and savings accounts before it secures a banking licence from APRA.

While local chief executive Matt Baxby confirmed to a senate committee in late August that Revolut was engaged in talks with the prudential regulator on plans to launch a bank in Australia, recent amendments to the company’s ASIC-issued financial services licence indicate it might be preparing to strike a distribution deal with an established bank.

According to the ASIC database, the financial services licence of Revolut Payments Australia was amended on 24 August to allow the company to market and give general advice on basic deposit products such as transaction and savings accounts.

However, the authority given by ASIC is qualified to the extent that Revolut can only deal in such deposit products “on behalf of another person”.

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This raises the prospect of Revolut entering the deposits market as an originator for local ADI products.

Given that Revolut claims to have more than 100,000 customers signed up for its financial products in Australia, there would be plenty of banks and credit unions interested in striking a deal.

Potential candidates might include Heritage Bank and Volt Bank.

Revolut already has a service relationship with ANZ.

The Melbourne-based bank manages the trust accounts that hold customers’ funds that have been loaded on to one of Revolut’s electronic money products.

However, Revolut’s aggressive brand positioning as a challenger to the four major banks would likely render ANZ a non-starter as a strategic partner for deposit products.

Baxby underlined the company’s the anti-major bank sentiment at a senate committee hearing in late August, where he also revealed the company planned to lodge an application for a banking licence.

“We've engaged with APRA and are intent on filing an application to become an Aussie bank,” he told the parliamentary committee.

“Our mission is to directly challenge the incumbent banks. They've got wide margins.

“They offer a suboptimal user experience, and their business model's really quite reliant on customer apathy.

“We want to give value back to consumers where they've been under-served for so long, and we want to put Australians back in control of their finances.”

Baxby also highlighted Revolut’s commitment to build a significant presence in the booming cryptocurrency market.

“Revolut aims to increase the accessibility of crypto assets and strives to be the easiest and safest place to trade, use and learn about cryptocurrency,” he told the committee.

“We're not a crypto exchange ourselves, but through our unique model, which partners with crypto exchanges, we offer a simple way for customers to buy, hold and sell crypto assets.”

Revolut to offer no-brokerage share trading, applies for bank licence

AFR James Eyers ?October 11th

?Revolut is preparing to launch zero-brokerage trading of US-listed equities for its 100,000-plus Australian users and has applied for a banking licence to let it offer deposits, as it pushes towards creating a “super app” to manage financial services.

The application for a banking licence will require the Australian Prudential Regulation Authority to consider a subscription revenue model for a bank for the first time. If the licence was approved, it would also be the first time a guaranteed deposit could be held in the same app as crypto given Revolut customers can trade 21 cryptocurrencies, including bitcoin and ether.

Revolut is one of the best-known fintechs in the UK, with a user base that has grown to 16 million since it was founded six years ago. Share trading has been a popular feature in UK and Europe, and it will also roll it out to customers in the United States, where it is also expanding. Australian users will be able to buy NYSE and Nasdaq listed stocks for no brokerage fee (the number of free transactions depends on the subscription package) and fractionalised trading will allow parts of stocks to be bought, with a minimum investment of $1.

Revolut will face?stiff competition in broking from Stake, which has a decent head start: its Australian users accessing US equities tripled over the past year to 300,000. Stake is also launching ASX trading. Meanwhile, Commonwealth Bank said at its full-year results that 550,000 new CommSec accounts had been opened in the past year and 70 per cent of trading is going through its app. However, CBA still charges relatively large trading fees: for US equities, this is $US20 per trade.

With Revolut’s international appeal driven by providing retail customers with wholesale foreign exchange rates, when gains from US stocks are translated into Australian dollars, there will be no mark-ups to the forex spread, an area major banks reap in large profits. When Revolut adds Australian equities, it will also compete with Superhero and Sharesies, which have raised awareness about cheaper ways to trade.

?Revolut’s six-figure user base in Australia after it?launched in August last year?comes despite international borders being closed; much of its international growth has come off cheaper offshore spending via fee-free currency exchange and offshore ATM withdrawals, and it expects the Australian user base to lift when travel returns.

Revolut’s subscription model, like Netflix or Apple’s services, contrasts with banks which earn from customer fees and net interest margins. Revolut has three levels of subscription: standard, premium and “metal”. The latter, which provides users with an 18 gram reinforced steel card and features such as cashback offers, costs $25 a month.

Matt Baxby, CEO of Revolut Australia, said customer engagement was the core metric for measuring performance and crypto and trading would result in customers coming to the app more often, driving some users to the subscription plans.

In trading, standard and premium customers will receive a monthly allowance of commission-free trades, while metal customers will be able to trade commission-free.

“Our experience on other markets is customers transition through to paid plans if you can demonstrate value,” he said. “This contrasts to big bank business models, which are more reliant on apathy. They are ‘set and forget’ on a mortgage, get repriced over the years and rely on people not shopping around.”

Prominent global investors are backing Revolut’s expansion. Tiger Global, a large investor in Afterpay, led a $US800 million round in July that was also supported by Softbank, valuing Revolut at $US33 billion, up six times on a year earlier. Tiger Global is also an investor in Stake.

In the US, Revolut is joining the race to build a financial “super app”, where competition includes PayPal and?Square, whose $39 billion takeover of Afterpay?is partly driven by a desire to add more retailing and credit features for its 90 million US users.

The super app moves in the US are a few years behind China, where Ant Financial and WeChat built full-service apps that hold numerous features in one place, a strategy that being adopted by Paytm in India.

Entire financial life

In Australia,?Afterpay is preparing to launch Afterpay Money?to expand its feature set, including deposits, while?Zip said last month it was pushing into crypto, as apps initially created for one purpose look to add features to lure users back more often.

“We have a vision to build the world’s first truly global open banking platform, and we do that by creating this financial super app that lets you manage your entire financial life in one place,” Mr Baxby said.

“Customers don’t confine us to purely an offering of banking-style products. They are open to adjacency, like exposure to commodities, crypto and, over time, a bank account or some credit product. That is a natural extension of managing their financial life, spreading payments over time.”

The Australian Securities and Investments Commission allowed Revolut to amend its AFSL to allow share trading, and it plans to bring Australian equities and ETFs on to the menu in the coming years.?Revolut is regulated as a “stored value facility”?and funds stored in its digital wallet are not guaranteed like bank deposits.

Prudential standards

Mr Baxby, the former retail boss and CFO of Bank of Queensland, said Revolut’s UK leadership team was committed to operating under strict prudential standards including holding regulatory capital in Australia to back any licence if it was awarded, and APRA approval would help it lift trust with users. The APRA application was formally submitted last month.

There is recent precedent for APRA approving a London-based unicorn for a licence: it?granted Wise a restricted licence last month, allowing it to directly access the payment system?without needing to use a local wholesale bank.

Revolut does not disclose users of particular Revolut features, but Mr Baxby said, “we have seen really strong uptake of crypto”. Fintechs enabling crypto investment contrasts with?banks, which have been refusing to even provide banking services to crypto companies?in Australia, due to the absence of regulation and fears of triggering anti-money-laundering liabilities.

The Senate select committee on Australia as a financial and technology centre?will release a report this month expected to recommend a new licensing regime?for cryptocurrencies.

“Australia has a real opportunity to be a leader in crypto and, with the right kind of licensing and regulatory settings, that is achievable,” Mr Baxby said.