It’s an odd thing but every six months the UK government ranks the country’s best banks.
More precisely, the UK Competition and Markets Authority, in accordance with the reforms that followed its own 2016 investigation into the retail banking sector, asks two independent companies, Ipsos and BVA-BRDC, to conduct surveys of bank customers.
Ipsos asks personal current account holders and BVA-BRDC asks business current account holders how likely they would be to recommend their bank to a friend, relative or another business.
Showing customers how their bank is ranked on quality of service is meant to make it easier to compare providers and so to encourage competition.
The results are embarrassing for the country’s national champions.
Talk to people inside Revolut and the alarm bells should be ringing for incumbent banks
In February 2024, BVA-BRDC found in a survey of 1,200 customers across England, Scotland and Wales that the top two banks for business customers were Monzo and Starling Bank. Tide and Handelsbanken came in joint third, followed by Metro Bank.
The highest ranked incumbents were Santander and Lloyds Bank in joint sixth position.
At the same time, Ipsos surveyed 1,000 customers at each of the 16 largest personal current account providers in the UK and found that here too Monzo and Starling were the top two, followed by First Direct and Nationwide. The highest ranked incumbent brand was Halifax, part of Lloyds Banking Group, which ranked joint fifth together with Metro Bank.
When the next results are next published, it might look even worse.
That is because on July 25, the UK’s lead bank regulator, the Prudential Regulation Authority, granted Revolut a UK banking licence with restrictions. It will now go into what is known as mobilization as it builds out its UK banking operations.
Nik Storonsky, co-founder and chief executive of Revolut, described gaining the UK banking licence, three years after Revolut first applied for one – back when it was much more renowned as a trading app with a heavy dependence on crypto – as an important milestone on the way to “making Revolut the bank of choice for UK customers.”
Here’s the thing. Even while it is regulated as an e-money institution in the UK, Revolut already has nine million customers in the country and 45 million globally, most of those in Europe where it has been passporting a banking licence from Lithuania.
Talk to people inside Revolut and the alarm bells should be ringing for incumbent banks.
Moving accounts from one leading bank to another is normally a momentous decision for any customer, personal or business, and one that might be taken once or twice in a lifetime.
The customer journey for new users of Revolut and for other new banks is very different. Revolut knows that many new customers will first use it for low-cost money transfers when on holiday. Any given cohort might start by using Revolut once a year or once a quarter.
The analogy is trying out a snack at the new restaurant rather than sitting down each day and consuming the whole set menu. Revolut may want people to do that eventually, but it is still methodically working up a product bill of fare.
At the start of July, it reported that in 2023 revenues doubled to $2.2 billion and pre-tax profit came in at $545 million for a net profit margin of 19%. That’s not bad for a company still building and diversifying, expanding beyond revenue from cards, interchange and FX trading into the core battleground for banks of net interest.
Its pursuit of a UK banking licence shows how important lending will be for Revolut. It understands the lifetime value of customers that move from visiting its app once a quarter to using it once a week, perhaps for trading, and eventually to every day for core banking services.
Customer growth
Insiders suggest customer growth is still exponential in the UK and in many other countries and that only in Ireland, where Revolut already serves a substantial portion of the population, has it passed an inflexion point where it tips over into slow and steady incremental growth.
It is spending a little more these days on marketing, but 70% of new customers last year came organically and through word-of-mouth recommendations. Churn is low. A growing number in the core demographic of 25 to 45-year-olds take out paid subscriptions at different levels. These offer rewards and subsidized access to non-bank services like Deliveroo and Tinder.
Paid subscriptions offset the cost of customer acquisition.
The crunch for incumbents may come when they discover that many they have counted as prime customers, having their salary paid into their main bank and paying out their mortgages, are now doing almost everything else – from savings to investing and trading – with Revolut.
Revolut already offers personal loans in select European markets. It will inevitably trial mortgages in one or two countries before launching them more broadly.
It’s been a tough couple of years for fintechs on a cash-burn drive to achieve growth. But challengers that are producing half-a-billion dollars a year in profit, while being live in only a handful of countries, might yet make quite a dent in the incumbents. Time will tell whether Revolut becomes a European equivalent to Nubank in Brazil.
Rumours suggests that Revolut will soon either raise capital or at least allow long-time employees to sell shares. That will bring a fascinating insight into the present private market valuation.
It might be time to take Revolut seriously now that it has 45 million customers. Have no doubt. It is gunning for 10 times that many.
