Revolut has 30 million retail customers. So what?

Written by Kapronasia || June 05 2023

They say it’s lonely at the top, and once you get there, someone always wants to take you down. Revolut must feel that way. It towers above most fintech startups in this era of slashed valuations, more-demanding investors and scaled-down expansion. Though Revolut’s valuation has fallen from the absurdly high US$33 billion of 2021 to a still-lofty $18 billion today, its ambitions have not diminished. The company is trumpeting the fact it now has 30 million retail customers. But there remains one factor that could cut Revolut down to size: being denied a banking license in the UK.

Though Revolut has a banking license in Lithuania that theoretically lets it provide banking services throughout the UK, the UK license is probably more important. The UK is Revolut’s home market, and if it can become a full-fledged bank there, chances are that it will be approved in other key markets too. We think a UK license could help pave the way for one in Australia – one of Revolut’s key Asia-Pacific markets – and perhaps elsewhere in the region too eventually. Revolut eschewed applying for a Singapore digital banking license, but still provides a slew of non-banking financial services in the city-state. It also has big plans for India.

So why are UK regulators taking so long to review Revolut’s application? First of all, there is a lot of paperwork to review. Revolut has doubled down on international expansion despite a broader slowdown in the fintech sector. It has 30 million retail customers, 500,000 business customers, and offers everything from crypto trading to remittances to buy now, pay later to stock trading.

Secondly, its accounting practices may have some irregularities. When Revolut published its (delayed) financial accounts for 2021, it caused quite a stir. Its auditor BDO suggested that 75% of Revolut's 2021 revenues — that's £477 million of £636 million — “may be materially misstated.”

Of course, Revolut denied anything was awry and says that it turned a profit for the first time in 2021 with £100.3 million of adjusted EBITDA and net income of £26.3 million. Even if we take the company at its word, the fact that crypto trading during a long-defunct bull market was the main driver of profitability, one wonders how sustainable Revolut’s business model is. Also, how is a company that earned £26.3 million worth US$18 billion?

Meanwhile, coincidentally (or not), in early May Revolut Chief Financial Officer Mikko Salovaara announced that he would leave the company “for personal reasons” after two years on the job.

Chances are, that unless some clear red flags show up in the company’s books, that it will eventually be approved for the UK banking license. UK regulators, cognizant that their country has lost some attractiveness to the financial sector post-Brexit, would be unlikely to deny a banking license to the country’s most prominent fintech without a very good reason.

That said, the breakneck pace of Revolut’s expansion cannot continue, especially if it plans to offer investors an eventual exit via an IPO. India, Mexico, the United States, the European Union, the UK, Australia, Japan, Singapore – Revolut wants to be a big player in all of these countries and more.

Eventually, the company will have to narrow its business scope a bit if it expects to justify its valuation to investors ahead of an IPO. Basing the valuation on customer numbers alone might have worked five years ago, but not any longer. Revolut should aim for reduced costs, greater profitability and better cash flow even if requires operating in fewer markets with fewer retail customers.