Revolut, a new way of doing banking

Revolut describe themselves in their own webpage as: “Better than your bank account”, a wise way to position themselves as the disruptive Digital Banking unicorn[1] startup that aims to change banking. Back in 2015, when the company was founded by Nikolay Storonsky, they presented a commission-free bank account that offers interbank FX rates, free ATM withdrawals worldwide and free bank transfers worldwide.

 Three years have passed since the company was created, and reality looks much more promising that it did even in their Investment Book. In the last 3 years the bank has acquired 2.5 million users in Europe and is currently adding 6.000 users daily (Figure 1). In April of this year the company raised US$ 250M, boosting its valuation five-fold to US$ 1.7B.

Figure 1: Present the evolution in number of clients that was forecasted in the Investment Book presented in 2015 and the real growth experienced by Revolut 

I will risk arguing that the outstanding success of this Fintech has something to do with its obsession to ease and improve the banking experience of their clients.  

The revolutionary venture, started by offering free currency exchanges as well as free international transfers, but now they plan to expand to trading platforms, just like Robinhood has done in the US.

The value proposition is straightforward, offer the best banking solution at the least cost possible. They keep the client at the center, they know that convenience and simplicity is key and that clients do not want to pay unless is for additional services.

The business model is a bit trickier, but they are one of the few startups to be able to reach profitability, in only two years of life and with such incredible growth. But how does a commission-free banking model make money?

1.    Clients do not pay commissions, companies do:

Any given company needs revenue streams and traditionally clients would pay for services. Google defied that basic concept by offering their services for “free” and not going bankrupt[2]. Instead, Google capitalized on the data users would create when navigating through their search engine. Likewise, Revolut do not charge commission to their clients to spend, send or exchange money in any currency all over the world. Instead, they charge the businesses that receive that money.  

2.    Third financial parties can sell their products to our happy customers:

The customer base of Revolut is a growing base of educated young nomads with mid-high economic status who are open to new business and digital concepts. This is a good audience and thus third parties will be happy to pay to advertise their services to them.   

3.    Clients like to pay to be (feel) special:

People is complex but we all prefer to choose than to be told. This is especially true when the question is regarding our money. Revolut knows that and this is why it offers a free base service that appeals to the masses and then offers additional services at a premium. On the 22th of August 2018, they launched their first executive metallic card. This card presents even a personal assistance and costs about US$ 15 monthly (just like Amex Gold). 

All in all, with this Business Model, Revolut is disrupting the banking industry just like Netflix, UBER, iTunes, Amazon or AirBnB disrupted their industries. As you may have noticed, we haven’t talked about the technology that powers Revolut, and that is because the technology itself is not the disruptor, but being customer-centric is.   

[1] Unicorn startup: A unicorn is a privately held startup company with a current valuation of US$ 1 billion or more. 

[2] As of August 27th of 2018 Alphabet Inc. (former Google) is worth US$ 865B and reported a 2017 yearly profit of roughly US$ 12B