FinTelegram recently reported that Revolut, the leading UK fintech, was allegedly valued at $40 billion. An impressive number, especially before the background of the still missing UK banking license. Revolut remains entangled in its prolonged quest for a UK banking license. Revolut‘s struggle to secure this license highlights deeper operational and regulatory challenges. Cyberfinance rating agency PayRate42 explains the situation.
The Strategic License Limbo
Revolut‘s dilemma stems from the distinction between an e-money institution (EMI) and a traditional bank. While EMIs can handle electronic money and provide payment services, they lack the authority to lend and do not offer the robust deposit protection that banks do. This limitation hinders Revolut‘s ability to deliver a comprehensive suite of banking services, putting it at a competitive disadvantage.
This is particularly true of the attractive UK market, which traditionally also acts as a bridge to the US market. The direct competitors Starling and Monzo have held a banking license for years, although they are nowhere near as large and ambitious as Revolut. Perhaps this is also one of the reasons why the regulators are hesitant.
Being authorized as banks, Monzo and Starling are able to offer a broader range of services. Revolut is pressured to keep pace or risk losing its market position. The ability to lend and provide insured deposits could transform Revolut from a fintech disruptor to a mainstream banking powerhouse.
Trust Issues and Safeguarding Concerns
A significant issue is customer trust. Traditional banks benefit from deposit insurance schemes that protect customer funds up to a certain limit, offering a safety net that EMIs like Revolut cannot match. For instance, the UK Financial Services Compensation Scheme (FSCS) guarantees deposits up to £85,000, a reassurance Revolut‘s current safeguarding mechanisms do not fully provide.
Regulatory Scrutiny
Revolut‘s journey has been marked by regulatory scrutiny. The UK’s Financial Conduct Authority (FCA) demands rigorous compliance and robust risk management. Revolut has faced regulatory criticism in the past. Delays in financial reporting and high executive turnover have further raised concerns, casting doubt on the company’s internal stability and governance.
Speculation surrounds Revolut‘s delays, partly due to allegations of money laundering. The FCA has scrutinized Revolut‘s handling of potential money laundering activities, raising concerns about the transparency and robustness of its anti-money laundering controls.
Internal instability and high turnover of senior executives are rumored to be major red flags for regulators. The departure of several key figures has led to speculations about governance issues within Revolut, which could be affecting the licensing process. The PRA prefers stable leadership, and these changes have not helped Revolut’s case.
=> Go to the Revolut profile on PayRate42.
Strategic Stakes
Securing a UK banking license is more than a regulatory necessity for Revolut; it is a strategic imperative. Although Revolut holds banking licenses in Lithuania and Mexico, the UK market remains crucial due to its significant customer base and the prestige of operating as a bank in one of the world’s leading financial centers. Without this license, Revolut‘s expansion and competitive edge are significantly hindered.
Complex Ownership Structure
Another significant hurdle is Revolut’s complex ownership structure. The Prudential Regulation Authority (PRA) has urged Revolut to simplify its share structure to meet regulatory standards. Prolonged negotiations with major investors, such as SoftBank, to consolidate shares into a single class have added another layer of complexity to their application.
Conclusion
Revolut‘s ongoing battle for a UK banking license underscores the challenges of transitioning from a fintech innovator to a mainstream banking entity. The company’s ability to navigate regulatory hurdles, build robust internal processes, and gain customer trust will determine its success in breaking free from the license limbo and securing its place among the banking elite. Until then, the saga continues, with the fintech world watching closely.
