Revolut is a digital, branchless challenger bank based in the UK that offers frictionless low-fee banking and free intra-currency transfers for both consumers and businesses.
How Does Revolut Make Money?
Revolut offers free Basic bank accounts, and subscription Premium accounts that cost £6.99 per month/£70 per year (€7.99/€82), and Revolut Metal accounts that cost £12.99 per month/£120 per year (€13.99/€135). #Subscription
Revolut will also charge you 0.5-1.5% exchange rate fee between currencies on weekends only. During the week it is free. Similarly, they allow you to draw out money free from ATMs, but only up to certain limits depending on the account (ie. £400 per month on premium); therefore, while Revolut is free/low-fee sometimes, customers are time-limited and rate-limited for certain services. #RatchetFees
They also offer value-added services, similar to traditional banks but at cheaper rates. They allow users to trade Cryptocurrency (for a 1.5% upfront fee) and offer P2P loans at 9.9% APR. #Services
Finally, Revolut offer Business accounts with added options for business, many of which are far more seamless than traditional banks. #Business
Community-Centric or Commercial-Partner Strategy?
Revolut seems to have achieved it’s rapid Unicorn status (2015 > 2018) by focusing on community referrals and product virality.
“Here at Revolut, we don’t believe in big marketing budgets for acquiring new users. Instead, we focus our time and resources on building a kick-ass app that has virality written all over it. Essentially, our users are our marketing budget.”
Revolut Blog
They have a strong online community (community.revolut.com) and generally seem to be willing to do anything to spread the Revolut Gospel via community, even if sometimes it means crossing some lines and creating an aggressive culture; nonetheless, Revolut is a community-first brand with a loyal and rapidly growing user-base. 42% of Revolut’s user base is between 25 and 35. The company surpassed 3 million users in just over 3 years. (Currently at 7mn users as of Q3 2019).
Fundraising and Valuation
Last year, the company was valued at $1.7bn USD. Speculation is that the company will try and raise $500mn this year at a valuation north of $2.5bn.
“The company, co-founded by CEO Nikolay Storonsky in 2015 and last valued at $1.7 billion, operates in 28 European countries and has reportedly been in talks with SoftBank.”
Quartz
Part of the company’s fundraising strategy was linked to a very successful equity crowdfunding campaign that raised £4mn and was oversubscribed in 24 hours.
Only disclosed P&L numbers are £12.8mn Revenue with a £14.8mn loss in FY’17. Main valuation metrics disclosed are users and transaction volume:
Revolut Business Model Canvas
A business model is defined as:
“the rationale of how an organization creates, delivers and captures value.”
Alex Osterwalder et al invented the Business Model Canvas to help individuals and organizations conceptualize how to analyze, create, and develop business models.
Revolut Value Proposition
Banking redefined:
- No Fee/Low Fee Banking
- Frictionless, feeless FX currency transfers across multiple global currencies
- Branchless banking, strong digital app and easy money transfers across multiple mediums
Revolut Business Model Analytics
In a recent interview with Bloomberg (Q4 ’22), Revolut CEO Nikolai Storonsky disclosed the following about how they approach customer acquisition:
We are very scientific in how we attract our new customers. Basically on all the channels we have for marketing, we target a payback of 18 months. What it means, is if we are offering someone £100 to refer customers to us, we will make £100 in gross profit within 18 months. We are very rigid in identifying which channels work for us and which channels don’t.
Bloomberg
In relation to Business Model Analytics – Channels, we can see the strategy is to identify how to use different channels to optimize CAC (Customer Acquisition Cost) relative to the 18 month target payback period. It is not necessarily to always have the lowest CAC, but to optimize different channels to achieve the best LTV (Lifetime Value) payback.
That means that Revolut will target different incentives across different channels. A £100 referral could be used on one channel, whereas a £20 target could be used on another paid marketing channel. We can only assume Revolut has very advanced attribution to measure these analytics with such precision across multiple Cohorts/Channels.
The Super App Business Model
We wrote in 2021 about how Revolut was rolling out the ‘Super App’ business model that would include – one day – virtually all of the major banking products/applications in one place.
Revolut is really the first major Fintech Digital Bank to target this vision outside of the Asian market.
As of Q4 ’22, they have now hit 25 Million retail customers globally, with about 500,000 in the U.S. That is about double where they were in early 2021. On top of that, they have gained considerable standing against many of their U.S. competitors in 2022, many who have faltered badly during a very tough year for Digital Banks.
The UK is still the primary market for Revolut, where it boasts more than 6 Million users (Q4 ’22). Expansion into Brazil – where Nubank has built a dominant foothold – Mexico, and India headline Revolut’s expansion efforts in 2022. These markets have a much different customer profile than markets like the UK and U.S., along with much lower CAC costs.
Revolut is not public and was late filing its private financials in 2022 (2021 audited accounts), so we don’t know the full details of their business model, but looking at 2019 and 2020 we can get a rough picture of how their model breaks down at scale.
The pandemic hurt Revolut’s core business model in 2020 because of the large reduction in interchange revenue from less travel/transactions in the pandemic years. This forced them to diversify their business model and further prepare the model for what is know referred to as the ‘Super App’ business model.
As of Q4 ’22, they are still waiting on a UK Banking License, drafted a U.S. Banking License, and applied for an Australian Banking License. They continue to see the majority of their growth across the UK and the EU, but are ‘going global’ in 2023 and beyond.
Revolut’s Crypto Strategy
Revolut made a big push into cryptocurrency trading in 2020/2021, but now it only accounts for about 3% of current revenue as of Q4 ’22 according to the CEO, down from 30 – 35% in 2021.
No doubt after FTX and the other mountain of ‘Crypto’ scandals throughout 2022, many are skeptical about the future of digital currencies and pivoting away, but not Revolut.
Crypto has enormous potential for the financial system
Bloomberg
The Revolut ‘Crypto Team’ is larger in 2022 than it was in 2021/2020, giving an indication of how bullish the company is on digital currencies as a whole. There are many different ways to slice and dice the future opportunities, one of which is remittance/cross-border transfer.
I’ve seen less than 0.1% of cross-border payments done through Crypto
Bloomberg
Their newest ‘Pay with Crypto‘ rollout allows users in select markets to pay with their cryptocurrency of choice and receive 1% cashback in that same currency.
Last month Revolut was added to the Financial Conduct Authority’s crypto asset register, officially giving it the right to offer crypto services in the UK.
AltFi
The ‘Pay with Crypto’ strategy is initially being rolled out in the UK and Switzerland in a very experimental way. This is one of the ways Revolut’s data-driven, aggressive style can work in their favor as they scale out globally, testing certain innovative products/services in one market before scaling it into others.
Revolut Outlook – 2023 and Beyond
Given the bloodbath among Digital Fintech Banks in 2022, Revolut seems to have been one of the winners among its peers.
The global environment of rising rates and inflation have proved extremely problematic for most Fintechs, especially those who were exposed to over-leveraged consumers in developed markets like Klarna and Affirm, down about 85% and 90% from their respective highs in 2021.
Revolut did not raise money in 2022, a significant feat as it would have likely been a huge down round. They rolled out a lot of fixed income products in their developed markets to try and give savers better interest rates. They have hinted at future products such as mortgages, very much in line with the core banking model.
Simultaneously, they have continued to push the limits in products revolving around payments, as evidenced by Pay With Crypto and other similar initiatives. They continue to grow their Business Banking portfolio, and generally remain diversified from a revenue model perspective.
Challenges remain due to a delayed audit release of their 2021 financial numbers until early 2023 and the continued wait on a UK Banking License. There always seems to one or two major problems/doubts surrounding Revolut given the way they operate, yet they continue to grow without some of the major swings of other competitors in the space.
They are set to launch Revolut Lite – a streamlined version of the Super App – in new markets like Latin America and the Middle East, while further developing their Super App business model in core markets.
As the company did not raise any capital in 2022, it would not be surprising to see a capital raise in 2023. Their last fundraising round in Q3 ’21 valued the company at $33B. Since virtually every Fintech in and around Digital Banking took a haircut of 50% or more in 2021, they will likely wait until later in the year and announce any future strategic fundraising initiatives around IPO plans.
The big problem for Revolut as a whole is that the market looks challenging for any banking business in 2023. Consumers are stretched, debt levels are astronomical, and recessionary signals are flashing. Their strength going into 2023 and beyond is the adaptability of their business model and the seemingly laser focus on using Business Model Analytics to ‘scientifically’ acquire customers without losing money.
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Strategy & Business Model – Revolut Super App