The British fintech sector is in a celebratory mood after news broke that UK challenger bank Revolut has joined the tridecacorn club on the back of a $800m funding round, pushing its valuation past the $33bn mark and making it more valuable than traditional lender NatWest. NatWest currently has a $32.4bn market cap.
American investment firm Tiger Global Management and Japanese conglomerate SoftBank injected cash in to the loss-making neobank as part of this round, which made Revolut the most valuable fintech in the UK.
Revolut is now also one of the most valuable fintech firms in Europe ever, second only to Swedish buy-now-pay-later (BNPL) company Klarna, which secured a $45.6bn valuation in June on the back of a $639m round also led by SoftBank. However, the BNPL business’ massive raise apparently helped Revolut scale beyond the $15bn valuation it told shareholders it was aiming for just months ago, Sky News reported.
While falling short of the rumoured $1bn figure that circulated earlier in July when whispers of the upcoming raise first started to make the rounds, the company’s leadership is confident that the $800m will go a long ways towards founder and CEO Nikolay Storonsky’s goal of making Revolut a “global financial superapp”.
“This funding round makes Revolut the UK’s most valuable fintech, demonstrating investors’ confidence that we can deliver products that raise the bar for customers’ expectations across the whole financial services industry,” Storonsky said, adding that he wants the freshly-minted triedecacorn to offer 10 times the value, service and security provided by its rivals.
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“We are building a full financial product suite in a single app, where you will always find the product that best meets your needs,” Storonsky added. “Our services will be increasingly personalised, responding to our customers’ daily needs, always with low and transparent fees. As we expand into new markets we are encouraged by our customers’ enthusiasm for Revolut and we look forward to using this investment to further our mission.”
Karol Niewiadomski, senior investor for SoftBank Investment Advisers, motivated the decision to invest in Revolut by it having “redefined the role of financial services” and that the tridecacorn was “at the forefront of Europe’s nascent neobanking sector.”
“The company’s rapidly growing user base reflects a sustained demand for Revolut’s expanding suite of services,” Niewiadomksi said.
UK fintech market stakeholders have been quick to add their voices to choir celebrating Revolut becoming a tridecacorn.
“Revolut’s funding [news] signals that British fintech is booming!” says Darren Westlake, CEO and co-founder of Crowdcube. “This is a huge validation of British fintech and everything we’ve all achieved over the past decade.”
Echoing the sentiment, Russ Shaw, founder of Tech London Advocates and Global Tech Advocates, tells Verdict that Revolut’s tridecacorn status is a “landmark valuation and demonstrates that the UK can generate the volume of private capital needed to take digital businesses into the realm of the Silicon Valley giants,” despite the UK’s divorce from the EU.
“There were genuine fears prior to Brexit that financial services regulation, a flight in talent and a capital exodus could leave UK fintech high and dry,” Shaw adds. “UK fintech should be applauded for proving resilient and able to innovate and adapt in ways that consumers and businesses demand. Investment in the sector continues to increase rapidly and we are likely to see more later stage private rounds reaching similar levels to Revolut in the coming years.”
Chancellor of the Exchequer Rishi Sunak also commemorated the raise, which is hardly surprising given his pledge to ensure the UK remains a powerhouse of technological innovation past Brexit.
“It’s great news that Revolut has raised a further $800m and plans to expand even further – creating more jobs here in the UK,” Sunak says. “We want to see even more great British fintech success stories like Revolut, which is why I’ve published a roadmap setting out how we will ensure the UK sector remains competitive, forward-looking, and dynamic.”
Jaimini Pattani, senior analyst at GlobalData, notes to Verdict that it’s “evident that the government is keen to expand and help the UK fintech sector as much as possible to aid competition in the market.”
“As discovered in our digital challenger’s report, we feel that Revolut is one of the most aggressive of the challengers as it rapidly expands into new markets, successfully attracting millions of customers with its core currency exchange product being the driving force behind its popularity,” Pattani says.
“The new funding will undoubtedly help the bank expand further as it plans to do so in many more markets. What is clear is that there is a demand for fast growth fintech and businesses across the sector, something that traditional players have lacked as fintechs such as Revolut and BNPL firms have experienced mega growth and investor interest over the past year (i.e. Wise and Klarna), which in turn is concerning for more prominent players.
“No doubt we will soon see Revolut listed on the LSE and much sooner than expected.”
Tridecacorn or not, Revolut is still in the red with its pre-tax losses almost doubling last year to reach £207m last year.
However, in a recent interview with Sifted, CFO Mikko Salovaara tried to make it sound as if the neobank was in ruder health than what the numbers suggested.
“That loss for financial year is not really what I think is reflective of the business itself,” he said, pointing instead to the “adjusted” loss metric of £122m and describing it as the amount “invested into the business.”
Revolut has also suggested that it had been “strongly profitable” in the first quarter of 2021, after breaking even in the final two months of 2020.
“[So] there are indications that its losses may come to an end,” Nick Maynard, lead analyst at Juniper Research, tells Verdict. “At present, even loss-making businesses continue to be attractive for investment if they can demonstrate high user growth.
“Therefore, given the practice is not exactly unique, there is not an immediate cause for concern. Signs that other digital banks, such as Starling Bank, are starting to become profitable will also be of comfort around the fundamental business models involved.”