Here's what you need to know about banking 'disruptor'
Revolut’s digital accounts hit New Zealand shores next month. Their offer looks and feels like a bank account and calls itself a “global financial superapp”. In its most basic form, it’s a debit card with either Mastercard or Visa on it.
Staff talk about being rockstars and joining the Rocketship (Revolut’s branding sports a cartoon rocket). There’s already 25 million global customers and an estimated company valuation of £28 billion (NZ$55b). Russian/British owner Nicolay Storonsky has a neon sign on the office wall saying “get s... done”.
That might feel a bit mid-2010-unicorn, because it is.
This is a private company which launched in 2015. It is incorporated and licenced in the Republic of Lithuania, headquartered in London and is now the UK’s most valuable financial technology company. It has only just turned a profit, but is already worth three-quarters of the value of ANZ Bank. There are aspirations to be the Amazon of banking.
That might feel a bit mid-2010-unicorn, because it is.
This is a private company which launched in 2015. It is incorporated and licenced in the Republic of Lithuania, headquartered in London and is now the UK’s most valuable financial technology company. It has only just turned a profit, but is already worth three-quarters of the value of ANZ Bank. There are aspirations to be the Amazon of banking.
The red flags
But before you launch your money into an account, pause and cool the jets before you click.
I’ve been following Revolut for a number of years and see a lot of red flags. It comes from watching it grow, having friends with cards and dealing with problematic fraud control and shocking customer service.
Only a few weeks back, I wrote about a UK-based customer who lost $16,000, when their Revolut Visa debit-card data was stolen and loaded on an iPhone using Apple Pay. The customer has never used Apple Pay and is being held liable for the loss.
Revolut suffered a major data breach in 2022, exposing 50,000 customers to attempted scams. Separately, there are ongoing complaints on frozen accounts, with customers losing access to money for weeks and months. Their in-app chat service is run by algorithms and often leaves customers with no one to contact.
Don’t get me wrong, I’m not immune to the warm glow of a disruptor in the banking market. Revolut has competitors in the UK such as Monzo and N26 Bank in Europe. I’ve got accounts with both. Both have full banking licences in the UK and Germany. Neither are immune to problems, but don’t seem to generate the same complaint levels, or deal in cryptocurrency and multi currencies. Monzo is subject to different fraud resolution rules applied to UK banks.
The Telegraph in the UK reports in the last six months of 2022, Revolut saw fraud cases triple. Between 2020 and 2022, cases reported to the Ombudsman doubled. The BBC published a list of fraud cases Revolut failed to refund.
The elusive bank license
Via Lithuania, Revolut has a European banking licence. This has allowed the launch in multiple countries, faster, with lower capital requirements.
After seven years it has failed to obtain a UK banking licence and remains an electronic money institution. Subtle, but important, when it comes to the UK’s deposit protection system. The licence is said to be “close” according to Revolut. In New Zealand, it will have a similar non-bank status, but money will be held in trust accounts with a licenced local bank (as yet, not named).
A mix of politics and regulatory worries are holding it back in the UK. The two founders are a Russian and Ukrainian, with British passports.
Nicolay Storonsky is an ex-derivatives trader with Lehman’s and Credit Suisse, an unfortunate CV in hindsight. His father is the director of a division of Gazprom (the Russian Gas company half-owned by the Kremlin). Both Storonsky and Ukrainian co-founder Vlad Yatsenko strongly oppose Russia’s war in Ukraine along with another Cayman Islands-based shareholder, DST Global, owned by Russian-born Israeli Yuri Milner.
The British have now granted Revolut approval for crypto trading, but needed agreement on extra money laundering and fraud systems. Regulators must be nervous. Reports in the Financial Times remind readers that Revolut accidentally switched off its money laundering detection systems for several months in 2018. Bloomberg point out the Lithuanian Central Bank has fined Revolut for issues around collecting customer information and report the Americans are holding back on a full banking licence and watching the British situation.
Meanwhile more negative PR hit Revolut this month, when its auditor, BDO, issued a late and qualified report. Regulators’ stomachs don’t enjoy these situations.
Reflecting on its imminent entry to the New Zealand market, I don’t believe our own regulator or ombudsmen are well placed to handle this new firm. Whichever disputes resolution provider it signs up with, is bound to be run ragged.
My advice; think very carefully before using it for any more than coffee money and educate your kids on fraud, scams and the Visa/Mastercard protection evaporating with Apple Pay fraud.