British-based Revolut is trying to raise $1.5 billion from investors on its quest to become the one bank for all your money. In the coming months, the startup is planning to raise $500 million in equity and $1 billion as convertible loan. This would bring its valuation anywhere between $5 billion to $10 billion. Since it was founded in 2015, Revolut initially launched a free app-based bank account and prepaid debit card, and has expanded its offerings to include premium accounts, insurance products, cryptocurrencies and stock trading, and business accounts, including loans.
Ilias Louis Hatzis is the Founder at Mercato Blockchain Corporation AG and Weekly Columnist at Daily Fintech.
In April 2018, when Revolut raised $250 million in a Series C round, it made a bold statement. that it would reach 100 million customers by 2023.
At that time the company had a little over 1.5 million. By the end of 2018, eight months later, Revolut’s user base doubled, reaching 3 million. This year, both in August and September 800,000 new users joined Revolut and today the company numbers 8 million strong, across UK and Europe. The company has an average monthly active users are 3.7 million and the total transaction volume, since Revolut’s launch in 2015, is now more than $85 billion.
When you look at the numbers, Revolut has had some impressive growth. Three years ago, customer numbers were at 450,000, with 1,000 new accounts opened every day. Today Revolut has attracted over 8 million users, all in just over 4 years and without any large marketing spend. Whether or not Gandhi ever said, “First they ignore you, then they laugh at you, then they fight you, then you win”. The antibodies of traditional banks are not strong enough any more to fight off the innovation virus that Revolut has unleashed.
Mobile banking has exploded, stirring in the financial services community. Millenniums today prefer digital banking. They don’t believe they benefit going to a branch and they want it done fast. More than 76% of US consumers check their balance or last transaction on a mobile device. In Australia, the same percentage is 68% and the European average for checking bank balances is at 65%, with 32% on desktop and 3% making bank visits.
With its initial focus on the international transactions market, Revolut disrupted the market by removing the hefty hidden fees customers paid. Bank customers still pay their banks 3%-6% in fees. Revolut created a frictionless payment platform that cut hidden fees and offered interbank currency rates in 150 currencies.
But how does a company like Revolut continue its hockey stick growth? Well, you skate to where the puck is going, not where it has been. The smartest companies in the world invest in tomorrow’s technology, today.
Fintech companies that added a cryptocurrency feature (such as enabling investment in Bitcoin), have seen user numbers double or even triple. Their user numbers shoot up in a non-linear fashion, following the launch of a crypto feature.
In December 2017, Revolut rolled out a new feature which allowed users to buy, sell, and hold cryptocurrency from within their mobile app. This represented a fast, simple, and easy way to buy, sell, and hold cryptocurrencies.
For Revolut, cryptocurrencies was the most viral product it has launched to-date. The impact of cryptocurrencies was enormous for Revolut and proved a huge hit with Revolut prospective users, resulting in a huge growth in user acquisition. Revolut’s valuation soared to $1.7 billion, three months after the company launched the crypto trading service and its user base has increased by 70%.
The primary reason for these surges, is the fact that cryptocurrency exchanges are complicated to use. Typical crypto trading platforms have clunky interfaces and inefficient methods for trading cryptocurrencies, they are not very user friendly and do not provide a simple fiat to crypto on/off ramps.
People are looking for an easy and fluid way to invest in cryptocurrencies.
There are pros and cons in the way Revolut implemented it’s crypto feature. On one hand, it is very convenient. Users do not need to signup or do KYC again. It’s very simple. Users can start purchasing cryptocurrencies immediately, using fiat money in the bank account they hold with Revolut. But, there are also some of the major constraints. Users cannot transfer cryptocurrencies, outside of Revolut and they can’t actually use the cryptocurrency, since this feature is purely a speculation vehicle. The fact is that users do not actually own the cryptocurrencies, they merely enjoying exposure to the cryptocurrency market. Overall Revolut solved a very major problem. It let people easily access the cryptocurrency market.
Cryptocurrencies have gained immense traction as a new-age investment. Coinbase has amassed more than 30 million users. You can understand that companies that leverage the viral nature of the digital assets will see huge growth. Crypto can be an important multiplier.
For long-term success, digital banks must have more than their marketplace model and cutting-edge technology. Technology is merely a commodity. The key differentiator that determines success or failure is banks’ strategy for acquiring customers.
Consider Uber’s impact on the taxi industry. Airbnb on the hotel industry. Amazon on brick and mortar retail. All three are reminders that huge industries and players should never presume longevity. They are reminders that disruption happens regardless of turning a profit. To this day, many of these tech giants put their revenue right back into their operations, focusing on acquiring customers, instead of touting fat bottom lines.
The point isn’t whether banks like Revolut are turning a profit. Revolut’s focus has been on growth rather than profitability. The point is that it’s slashing traditional banking profits. Revolut may not make a dent in the high street banks’ market share of current accounts yet, but it is fragmenting the bank-customer relationship irrevocably. Its product diversification strategy is a way to keep customers engaged in its ecosystem, and to generate referrals.
What will it take for Revolut to achieve the goal of 100 million customers?
Heavily monetize the data. As we’ve learnt from Facebook and Cambridge Analytica, if you’re a customer receiving a product for free, then you are the product. Put another way, Revolut’s plan is to aggregate a large group of users, charge fees to a small portion of them and monetize the data on everyone else, who get the services for free.
Leverage OpenBanking. Can Revolut provide a better gateway to a suite of financial products than the banks? If Revolut could pull the funds straight out of a user’s bank account without a user leaving the app, a whole barrier to adoption is knocked down.
Use cryptocurrencies as a customer acquisition strategy. It should be apparent that Bitcoin and cryptocurrencies are not going away. Revolut’s foray into cryptocurrencies was motivated by customer acquisition. Cryptocurrencies are an opportunity to expand customer base and give customers more access to functionality. If cryptocurrencies continue to grow at their current pace, and start replacing parts of the traditional financial system, companies that have not adapted will risk going the way of the dinosaurs.
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