Revolut is the most hyped fintech in Europe. Can it grow up?

Investors have so far put more than $800m into the online bank

Revolut app logo. Revolut is a digital banking alternative that includes a pre-paid debit card, currency exchange, and peer-to-peer payments.

Revolut app logo. Revolut is a digital banking alternative that includes a pre-paid debit card, currency exchange, and peer-to-peer payments.

 

On a chilly Wednesday night earlier this spring, a hundred or so Dubliners gathered over pizza and cans of Brooklyn Lager at the top of The Academy, the trendy co-working site. The people in The Academy were celebrating a shared passion: their bank. 

They were there to attend a “RevRally”, an event held periodically in cities across the world for fans of Revolut, a London-based fintech company that has gained cult brand status. More than a decade after the financial crisis, most banks count themselves lucky if their customers view them with indifference rather than abject hatred; the industry has become a byword for unfair fees, poor customer service and nefarious practices.But since its launch in 2015, Revolut has managed to build a small army of diehard fans among its 12 million customers. “My brother says I could be a salesman for them,” says Keith Lally, a 40-year-old in software sales who was attending the event.

Revolut was originally set up to help travellers avoid expensive foreign exchange fees by offering a mobile phone app and card that let them change money into about 30 different currencies at market rates. For the vast majority of customers, it is still not a full-service bank – it does not yet write any loans, for instance – but the app has expanded rapidly to offer a wide range of products from stock and cryptocurrency trading to daily budget management.

This is all part of an effort to turn customers who downloaded it for an occasional holiday into daily users. Its weighty steel cards – available only to those who subscribe to its £12.99-a-month (€13.99 in the Republic) “Metal” service – have become a fashion accessory for some users.

After an hour of chat, the RevRally-goers in Dublin took their seats to hear presentations from company executives. “It was very informal and relaxed,” recalls Lally. “They had senior leadership there, talking about their vision and taking questions from everyone.”

Attendees are asked to spread the word and Lally, who regularly recommends the service to others, is only too happy to oblige. “They say the referral model is important for them because they don’t want to spend too much on conventional advertising,” he says. “That gives them more of an ability to invest in their product.”

The commitment of customers like Lally has encouraged investors to sink more than $800 million (€742 million) into Revolut, making it Europe’s joint most-valuable financial technology start-up along with Swedish store credit company Klarna. Its $5.5 billion valuation has cemented Revolut’s status as one of the most promising companies in fintech, a loosely defined group of businesses that are trying to fuse traditional financial products with more sophisticated technology, and stealing a march on established lenders struggling to modernise due to their ageing IT systems and costly bricks-and-mortar branch networks.

Yet Revolut’s transformation from insurgent start-up to global financial services player has been bumpy – and is far from complete. Its disdain for the norms of the “corporate world” has been a key part of the company’s appeal to customers. But it has also helped stoke controversy. An aggressive approach, overconfidence and resistance to criticism have strained relations with politicians, regulators and even a vocal subset of customers and former staff. In April last year, as the negative headlines started to concern investors, the company promised it would “grow up”.

The Financial Times spoke to more than a dozen current and former senior Revolut executives, along with investors, customers and rivals, to determine whether Europe’s most-hyped fintech has really changed into a financial services company with the potential to upend the banking industry.

As the coronavirus crisis poses the biggest test Revolut has faced in its short five-year history, its attempts to mature are more urgent than ever. Its response will not only determine whether the company can meet its founders’ grand ambitions, but also have a knock-on effect on the wider fintech universe that has developed alongside it.

Revolut’s success thus far has made one of its founders the UK’s youngest self-made billionaire. Nikolay Nikolayevich Storonsky was born in 1984 in Moscow. The son of a senior engineer at state-owned gas company Gazprom, he studied physics and became a champion swimmer at the Moscow Institute of Physics and Technology. Having started his career as an equity derivatives trader at Lehman Brothers, he switched to Credit Suisse in 2008, shortly before the financial crisis. It was there that he met his co-founder Vladyslav Yatsenko, a software engineer who previously worked at Deutsche Bank and UBS.

Despite having lived in the UK for 14 years, Storonsky speaks with a thick Russian accent and fixes whoever he is talking to with an intense stare. He spends less time in the pool these days, but still has an athletic build. In an interview in Revolut’s recently expanded Canary Wharf headquarters in early March, he said he was confident that the company would become a “financial superapp”. He wants to follow in the footsteps of companies like Alipay and WeChat Pay, which have revolutionised financial services in China by replacing cash – and banks – as the main way to pay for more than $17 trillion worth of transactions a year.

Storonsky’s ambitions have grown exponentially since his first interview with the FT in May 2016, when he talked about taking on supermarkets and the UK Post Office to win a foothold in the market for foreign exchange services. However, as for almost every other business, coronavirus has dramatically changed the outlook. Two weeks after Storonsky made his optimistic forecasts this year, the company had to start contacting customers to dispel viral online rumours about its imminent collapse.

The pandemic, he wrote in an email, allowed “rumours and false information to spread quickly”, but he wanted to reassure people that “it’s business as usual”. That wasn’t entirely true: Storonsky was one of just 10 employees left in its headquarters, while its 23 other offices were empty with 2,500 employees forced to work from home. The company also had to ask staff to swap their salaries for shares in an effort to conserve cash.

Storonsky tends to avoid the gossip traded by other executives in London’s loose-lipped fintech industry, although he enjoys an intensive debate on the future of banking. He quit Credit Suisse to start a business on the same day he received a British passport in 2013. “I had several ideas, but the reality is you can’t build a business and be in a normal job on the payroll ... [and] what was keeping me in the job was my visa.”

His long hours and commitment to his work have become notorious.

“He’s one of the most focused, intense individuals I’ve met,” one early staff member says. “I was there nine months before I knew that he was married with children ... And I didn’t learn it from him.” Defenders say this uncompromising attitude has been key to Revolut’s success. One investor says the top team “sacrifice everything, it’s like being an elite athlete ... I couldn’t do it.”

But this approach has fuelled accusations of a toxic working environment for staff, especially at the lowest levels. Reports last year highlighted several cases of prospective employees being asked to perform unpaid work as part of the recruitment process. The company’s press team said it stopped the practice “immediately” after learning about it, despite having previously used the same exercise when advertising for PR roles.

Turnover in some key areas has been unusually high: the company has had four heads of compliance – the individual responsible for ensuring it meets regulatory rules – in five years. The first specialist brought in to help reform the group’s culture left after just 12 months.

Revolut has aggressively pushed back against any criticism of its regulatory controls, but sometimes struggled to maintain a consistent response to concerns about its culture. Within minutes of acknowledging the company had suffered some “growing pains” in an interview last year, Storonsky returned to defensively insisting that “I just don’t think anything is wrong” with its approach.

The technology industry has long fostered a cultish obsession with visionary founders. The legendary Palo Alto garage where William Hewlett and David Packard started their company in 1938 has made it on to the National Register of Historic Places as the “birthplace of Silicon Valley”. But the trend cuts both ways.

In recent years, investors have voiced concern about the outsize influence of founders. WeWork had to cancel its initial public offering in part because of disquiet over its founder Adam Neumann, who was eventually forced out. Travis Kalanick had to leave Uber, the ride-sharing app he helped set up in 2009, following a shareholder revolt.

Banks are different. They derive their strong-and-stable image in part from the fact that their leaders are easily replaced. With the exception of JP Morgan, which is inextricably linked to Jamie Dimon, its charismatic and long-serving chief executive, most lenders style themselves as institutions in which high-ranking executives are interchangeable cogs in a larger machine.

Revolut’s founders like to joke that they’re unimportant, since the company’s ultimate aim is to build a technology platform of such sophistication that they are no longer needed. “We’re automating ourselves now,” Yatsenko says. Despite their protestations, however, fintechs have developed more like tech companies in terms of the symbiosis between firm and founder.

There are certainly echoes of Storonsky’s background in the hard-charging world of trading in the image he has created for Revolut. Whereas rival Monzo’s coral-pink colour scheme and anthropomorphic mascot highlight a playful ambition to “build a bank with everyone”, Revolut’s gunmetal steel cards suggest something colder and cooler than its peers. Anecdotally, at least, they are popular among the “finance bros” who work in the City of London.

The average customer looks almost exactly like Storonsky: 35 years old, professional, urban and male. The company says 60 per cent of its total account holders are men, but doesn’t provide any data on the split among its most active users.

While most fintechs have focused on one or two geographic markets or specific products, Revolut has followed the sometimes controversial approach of US-based start-ups like Uber and WeWork, quickly planting flags in as many places as possible. It now operates in more than 30 countries, helping it storm ahead of Monzo and other UK-focused rivals such as Starling (led by former AIB executive, Anne Boden) in terms of revenue and customer numbers. With more than 12 million accounts opened, Revolut also has more than twice the number of customers of its closest European rival, Germany’s N26.

“Focusing on travel at first helped,” says Pinar Ozcan, professor of entrepreneurship and innovation at Oxford University’s Saïd Business School. “Rather than going for a full banking licence from the beginning and spending months going through regulators, it became popular before a lot of others were even able to launch their current accounts.”

As business faces the worst pandemic of modern times, the February fundraising deal that valued Revolut at $5.5 billion, more than twice as much as Bank of Ireland, Ireland’s largest traditional bank, is another factor in its favour. The company entered the crisis in a more secure position than most of its peers, some of which have already had to sack or furlough hundreds of staff.

“You’re going to have winners and losers, and quite a few losers,” says Aurelie L’Hostis, fintech analyst at Forrester Research. “The crisis is going to massively impact the fintech sector. Revolut has been pretty lucky to raise a huge amount of money just before the crisis hit.”

If it is unable to make it through and complete its transition into a major financial institution, investors will question whether any fintech can survive.

Scrutiny of Revolut has not been limited to its workplace culture. Combating financial crime has proved difficult even for the largest global banks, especially those that have built a network of customers far beyond their home base. Danske Bank is still under criminal investigation in several countries over a €200 billion scandal centred on its Estonian branch. The string of departures in compliance has exacerbated concerns that start-ups such as Revolut will be similarly vulnerable to regulatory mis-steps.

“A lot of fintechs, because they have limited resources, first focus on the customer-facing technology and make the user interface as good as possible, but then in the back end they rely on third parties, which gives them less control,” warns Ozcan.

Revolut discovered a spate of attempted money laundering activity in 2018 and some former staff have criticised its past compliance practices, but it has never been publicly criticised by regulators, unlike some rival banking start-ups. It has, however, faced scrutiny over the decision to base its European bank in Lithuania – not a major centre for international finance.

Revolut received a banking licence in December 2018, saying it had picked the country for its “incredibly fintech-friendly environment”. However, the Baltic region has been involved in a string of banking scandals in recent years and some worry about whether such small economies can safely support a major multinational bank.

“Fintech is prone to the same risks that the financial sector faces ... [and] the technology brings its own new risks,” says Stasys Jakeliunas, a Lithuanian MEP who has waged a political campaign against Revolut. “It is difficult for supervisors to control because of a lack of resources and the huge number of companies arriving at the market.”

Jakeliunas, whose parents were exiled for criticising Lithuania’s Soviet rulers, was initially worried by local media reports that attempted to link Revolut to the Russian government. Storonsky’s father is the current deputy director-general of Promgaz, the research institute of Gazprom, while DST Global, one of Revolut’s largest backers, has previously invested money from Russian state-owned businesses elsewhere.

Storonsky issued a carefully worded letter in January 2019 trying to address such concerns about Russia while being “respectful of the history” of Lithuania. He said his family background was “irrelevant”, denied any suggestion Revolut was funded by the Kremlin and cautioned that “scaremongering campaigns” could deter foreign investors. However, his comments didn’t assuage Jakeliunas’s more fundamental concerns about its presence in the country: Revolut plans to use Lithuania as a base for banking activity across the rest of central and eastern Europe, potentially leaving the small economy exposed if the bank runs into problems elsewhere.

Jakeliunas led an unsuccessful attempt to block Revolut’s licence on national security grounds last year, when he was an MP and chair of the Lithuanian parliament’s budget and finance committee. Now he has brought his concerns to Brussels, where he sits on the European Parliament’s economics committee. A new fintech working group is set to interrogate regulators and firms over the opportunities and risks in the sector. After the failure of his local campaign, Jakeliunas says “this issue is of systemic importance, and potentially not only for Lithuania”.

Yet the majority of Storonsky’s critics are more concerned that Revolut has simply grown too fast to stay on top of the complexity of running a global financial services platform. “I never saw a clear mission or vision,” the early employee says, pointing to the decision to introduce cryptocurrency trading just as the price of bitcoin hit an all-time high in late 2017. “The crypto add-on was just because crypto was hot ... I cannot for the life of me tell you what overall problem Revolut is addressing.”

Storonsky admits the company hasn’t always followed a grand plan. “You try things, sometimes they work, sometimes they don’t,” he says. In his telling, rapid expansion and shifts in focus are a sign of strength. “We built another product and another - some didn’t work out, but we became much better at building as a team, and much more precise in our ideas.”

The company lost more than £55 million between 2015 and 2018 – but it has not been particularly spendthrift by industry standards. Royal Bank of Scotland, which is controlled by the British taxpayer, spent almost £100 million to prepare for the launch of Bó, its in-house attempt at an app-based bank that closed after less than six months. Goldman Sachs’ effort to move into consumer banking, Marcus, lost $1.3 billion in its first three years. Speaking last year, Yatsenko said that, if anything, “internally we get depressed because we could be a few times faster”.

Growing pains are a problem for any tech start-up that expands quickly - customer numbers can swell before a company has the resources it needs to service them. As Revolut has added account holders, some report their experience has started to deteriorate. The company’s attempts to ensure that money launderers cannot infiltrate the platform has resulted in some genuine customers having their accounts locked for lengthy periods of time.

The company has tried to bat away accusations that its efforts are starting to impact its clientele. However, emails sent by Revolut staff in December and seen by the FT confirm that it has been struggling under the weight of rising demand. “Having to wait for so long without a reply is definitely not a part of the normal process and has been due to some internal issues, coupled with a great demand for services,” one Revolut staffer wrote to a customer whose account had been locked for several weeks.

Revolut initially put its faith in the power of technology to help it avoid the friction that has hurt more established banks. But the company has started to tacitly admit that computing power alone is not enough to repel financial criminals while also servicing its genuine users.

Although it is relatively easy to scale up cloud computing technology, the same cannot be said for human compliance and customer service specialists. Revolut has had to hire 1,000 of these since last June. “In the end, it’s all about people,” says Storonsky, a startling admission for someone who once said “the whole point of a fintech is about automation”.

The company’s attempt to transform into something more akin to a traditional bank is also evident at the top of Revolut, which has recently hired a string of executives and directors from the very industry it is trying to disrupt. In part, these changes were pushed on the company by its investors. Its February fundraising took longer than planned because shareholders demanded evidence that it was on the road to becoming a more mature company that could turn a profit.

“We’ve always loved the scale of Nik’s ambition ... even if it sounded totally fanciful at the beginning,” says Martin Mignot, a partner at Index Ventures, which first invested in Revolut in 2016. “Now they need to take that next step which is all about managing the governance and the complexity ... and yet maintain the nimbleness and the speed of innovation that has made them successful in the first place.”

Storonsky’s choice for Revolut’s inaugural chairman highlights its attempts to move towards the mainstream. Martin Gilbert, who joined in January, is co-founder of fund management giant Aberdeen Asset Management and the prototypical City grandee: a whisky-swigging bon vivant who has golfed with Donald Trump and is a regular at the World Economic Forum in Davos. Revolut declined to make Gilbert available for interview.

One person who used to work closely with Storonsky says that in the past he “had no respect for experience” and that “he used to say ‘30 years in the industry is just 30 years learning the wrong things to do’”. Now Storonsky insists that Gilbert’s decades of experience are “invaluable”, although he explains that this is because “he found all the wrong ways to do things so you don’t need to experiment again. More experienced board members pass their experience to you.”

Organisationally, the business is also behaving more like a bank. A year ago, Storonsky said one of the company’s biggest strengths was the way it avoided “bureaucracy” by having dozens of small decentralised teams “ [moving] in different directions”. Today, he says that approach led to bottlenecks.

The regulatory team, now headed by Chris Singh, a former banking supervisor, has changed its tune to one of more collaboration with peers and regulators. This is a marked shift from its previous stance that some critics simply didn’t understand Revolut’s business model.

A year after the company promised to “grow up”, coronavirus is now providing the first real test of whether the transformation has taken root. Some things haven’t changed. Storonsky remains unapologetic about his own attitude to work, arguing that “if you just relax, at some point the company will stagnate”.

Catching up via video chat from the company’s near-empty office in late April, he says Revolut has had to become more efficient. “It forced us to look at our whole structure,” he says. Teams have been centralised and contracts with suppliers have been renegotiated. “The business became much better organised and structured.”

It will need to be. Despite its efforts to diversify, Revolut’s biggest source of revenue is still the transaction fees generated whenever someone makes a purchase with their card. With global travel frozen and economies around the world in lockdown, transaction volumes are down around 45 per cent, Storonsky says.

He says that will translate into a “double digit” revenue fall, although he declines to give precise details. He believes the company will be profitable by the end of 2020 despite the impact of the virus. However, a planned secondary share sale allowing staff to cash in their stock options after the February investment has been slashed in size because of a lack of investor demand.

Still, the timing of its last fundraising round puts Revolut in a better position than many of its peers. “We’re cash rich,” Storonsky says. “Some companies just became very cash poor.” He hopes to take advantage by looking for new ways to reach its original audience, through potential bargain acquisitions in areas such as selling flights or car rentals.

The bigger test of investor belief is likely to come after the economy emerges from the current crisis. Revolut will eventually have to win over public investors for what could be one of the UK’s largest ever IPOs. In part, this is because Storonsky believes customers have more faith in the safety of publicly traded banks. But it is also because Revolut is running out of other options to fund its growth.

The company’s rise has certainly caught the eye of executives at Europe’s biggest banks, many of whom quietly carry one of its cards. But retail and business banking has so far been more resistant to disruption than other sectors. Although these executives admire Revolut’s achievements, few have either the ability or appetite to pay a premium for a company that is already worth $5.5 billion. “At the kind of valuation they’re heading towards, that leaves you with about five potential acquirers who have that kind of cash to hand,” one ex-employee said.

Some in the City salivate at the idea of working on such a high-profile listing, but completing it could be easier said than done. Markets have grown more wary of domineering founders in recent years – and Revolut’s have cashed in some of their stock, a move that often raises eyebrows among investors. Storonsky and Yatsenko sold $25 million worth of shares after an earlier funding round in 2018 – representing only a fraction of Storonsky’s total but almost 20 per cent of Yatsenko’s holding at the time.

“If you compare it with something like WeWork – it is less extreme, but there is a bit of that here,” says the former colleague. He said many of the recent changes designed to show Revolut has grown up were pushed on them by regulators at the Financial Conduct Authority, and not all staff have welcomed them.

“You’ve got to find a balance – there’s a risk you start getting in a few bankers because of regulatory pressure and, before you know it, the culture changes,” one long-serving employee says. “I hope that isn’t the future.”

Storonsky admits that along with growth comes pressure to change. “As we became bigger and bigger, we began to be treated [like] a bank ... ” But he insists the company’s soul will stay intact, and still peppers his conversations with references to technology companies and their founders. “We’re still in this mode of acting like it’s day one, that’s what really excites me,” he says. “We’re still a start-up.” – Copyright The Financial Times Limited 2020

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