Challenger bank Revolut has become the most valuable fintech startup in the UK after its valuation tripled since 2018 to £4.2bn.
This follows a series D funding round that raised $836, led by Technology Crossover Ventures, which has also backed Spotify and Netflix.
Revolut has ten million users, including seven million in the UK, reporting revenue growth of 350% in 2018. In 2019 it was named the UK’s fastest growing tech company by Deloitte.
Offering pre-paid debit cards, fee-free currency exchange and cryptocurrency exchange through user-friendly app-based banking, Revolut is one of the fast growing startups transforming the banking industry.
Rob Straathof, CEO of Liberis said:
“Revolut’s impressive valuation is built off the back of their relentless focus on their intuitive and rapidly evolving customer proposition, which has seen them achieve unrivalled customer growth to over 8 million customers worldwide. FinTechs such as Monzo, Starling and Revolut have helped to shift external perceptions of the banking and payments industry. Once seen as a traditional sector, tied down by archaic legacy systems, FinTechs are progressively being seen as transformative and are winning the trust of consumers by offering ground breaking ease of use and great value for money, converting historically reluctant-to-switch customers into early stage adopters.
“The challenger bank environment is incredibly competitive in the UK as we’ve seen by N26’s recent withdrawal from the market, so this funding round and valuation represent a real vindication of Revolut’s position in the industry. The next challenge for Revolut and others, will inevitably be turning their fantastic customer offering into a profitable proposition.”
The rise of challenger banks
The latest valuation puts it ahead of rivals Monzo and Starling, despite criticism in 2019 over its employment practices.
Although Revolut is yet to make a profit, its rapidly increasing valuation signifies that investors are willing to put their money behind challenger banks.
Supported by the introduction of Open Banking regulations, which allow third parties access to banking data and APIs in order to develop innovative products for customers, many digital-only banks have become household names over the past few years.
Revolut obtained a banking licence in Lithuania in 2018, indicating that it will be able to further expand its offerings in the near future.
Although incumbents are now working to improve their applications for customers, the rapid rise of fintech and challenger banks has meant that they often lag behind when it comes to providing a connected, personalised experience and innovative banking products.
Alex Kwiatkowski, Principal Industry Consultant, Global Banking Practice at SAS said:
“The success of Revolut is a sign that the traditional retail banking model is disappearing.
“The arrival of FinTechs and challenger banks has kickstarted a period of transformative change that will see established players fade away if they fail to act. Part of this change involves implementing the necessary technologies to leverage the volume and variety of data with which banks are inundated on a daily basis.”
“The challengers are winning these customers over”
According to research by finder.com, there was a 165% increase in the number of people who have a digital-only bank account in 2019, with 23.2 million Brits expected to have a digital-only bank account by 2025.
Rene Hendrikse, EMEA MD, Mitek:
“It’s not news that banking customers are unsatisfied with the service they’re getting from the big banks – and that the challengers are winning these customers over. This is because customers these days demand speed and simplicity above all else. Having said that, given the mounting regulatory pressure banks are under, security is still the most important piece of the onboarding puzzle.”
This comes as HSBC has announced that it is closing 27 branches across the UK this year, and is cutting 35,000 jobs after a fall in profits.
Although a significant proportion of the population is yet to make the switch to digital-only banking, and research from finder.com shows that nearly half of people with digital-only accounts had less than £1,000 in their accounts, it is clear that incumbents are feeling the pressure to innovate.
Research conducted by Mulesoft showed that younger users in particular are dissatisfied with the customer service or digital featured offered by traditional banks, with 49% of those aged between 18-34 saying they had changed or considered switching banks in the last 12 months in order to receive a better digital experience.
Incumbents are innovating
Jon Ostler, CEO at finder.com said:
“Of course, there are still many who have no plans to try digital-only banks, and events like N26 announcing their decision to leave the UK market won’t help convince sceptical consumers that they can trust these challengers. Some customers are satisfied with their bank and see no reason to change – especially with the big players significantly improving their app offerings recently. In response, the challengers are all playing to their budgeting, visualisation and spending insight strengths and Monzo have gone one step further, offering an incentive which allows people to be paid a day early.”
Although it is perhaps premature to forsee the death of traditional banking, the valuation indicates that challenger banks continue to establish themselves as major players in the industry, with incumbents having to collaborate and innovate in order to remain relevant.
Tim Waller, partner at law firm TLT LLP, commented:
“This theme of open banking leading to new digital channels, rather than a revolution in banking is borne out in other trends in the industry such as the number of new banks attempting to disrupt the UK banking market. While things haven’t moved as quickly as they might have over the course of 2019, with just two new banking licences being issued, the sector is changing and is under increased scrutiny.
“Fintechs and challenger banks are making inroads, although it is too soon to say whether these new connected organisations are revolutionising banking.”