1046. News: Revolut is a bank, Lloyds wants to be a fintech - we're just as confused as you

0:04This is Fintech Insider News. This week, Brex has partnered with ChatGPT, Lloyds wants to become the UK's biggest fintech, and after four years, Revolut has secured its full UK banking license. We'll be tackling all of this and more on today's news show.

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1:21I'm joined by a brilliant panel of guests to help me break down the biggest fintech and financial services stories of the past week. So first up, we have a warm welcome back to the pod for Dave Morris, CEO of FoundryOS. Welcome back to the show, Dave. Can you remind our listeners a little bit about what FoundryOS is, please? Yeah, of course. Great to be back, Antoine. you in. Foundry Us is a fintech platform for building solutions for banks and wealth managers. Exciting times for us. We've just gone live with our first customer two weeks ago and about a month away from going live with our second customer.

2:00So getting out of that sort of early startup stage into actually having revenue, which is good times. Exciting. Congratulations. Yes, revenue is always good. Now, we also have a welcome back to the podcast for Veronica Glab, a strategic partnerships lead at Juice. It's always great to have you on the show, Veronica. Can you tell our listeners a little bit about Juice? Yeah, so Juice is an SME lender providing working capital to UK small businesses. And I've been leading the strategic partnerships with the with the team there. And honestly, Benjamin, it's nice to be back on the show once again, and just looking forward to spring now that it seems like the year of the fire force has finally started.

2:43Amazing. Yes, the weather's gradually getting better. Britain is finally warming up a tiny bit. Mind you, it's pretty windy today. And completing a hat trick of returning guests, we're also delighted to welcome back Art Levy, Chief Business Officer at Brex. Thank you so much for coming on the show. It's obviously been an exciting time for Brex in the past few months, but can you tell listeners who don't know about Brex just a little bit about what Brex is and all the great stuff that you do? Yeah, absolutely. Well, first of all, excited to be back. And yeah, it's amazing that all three of us are regulars on the show.

3:17Brex is the intelligence finance platform for the world's leading companies. We offer a suite of services for the financial back office, including corporate card, spend management software, bank account and bill pay. The business was recently merged with Capital One. And so we're very excited about the scope of resources and scale that the combined business will now have. Indeed, that was an exciting story only a few weeks ago. All right. Well, we've got a panel. So let's get started. Welcome to you all. Our first story this week is a relatively big one, which is that Revolut has secured its full UK banking license.

3:58As anybody who's a Revolut customer in the UK will already know from a notification they probably got in their app as soon as the news broke, after a four-year wait with regulators, Revolut has finally landed its UK banking license. It was granted initial approval last summer, but has since been in what's known as the mobilization phase, where firms build out the infrastructure required to operate as a fully regulated bank. With final sign-off from the Prudential Regulation Authority, Revolut can start lending in the UK, enabling it to operate as a bank in its home market for the first time. The move comes at an interesting time for the company, which was recently valued at around US$75 billion and has just launched a fresh attempt to secure an American banking licence.

4:44Veronica, maybe I'll come to you first. What does this actually unlock for Revolut? I mean, there'll be some people who think, well, wasn't it a bank already? And of course, it was in Lithuania and elsewhere. What will does becoming a bank in the UK mean for a former fintech, now a bank like Revolut? Yeah, I actually think you phrased it really well, former fintech to bank. And it really is a lot to do with the cachet of the UK banking license. So partially the UK banking license will obviously allow Revolut to provide a number of services that that level of regulation will be able to extend them.

5:20And that's both to consumers and to small businesses in the UK. But there is something about the UK banking license because it is such a highly regulated environment, such a mature financial services ecosystem, and it has been for centuries, that this will essentially, in many ways, it will allow Revolut to leapfrog all the way to the final boss, which would probably be Jamie Dimon, right? And go head to head with the US financial system. There is part of the UK banking license that will perhaps enhance Revolut's ability to get a US banking license for sure, potentially leapfrog towards an IPO whenever they are strategically ready to pull that trigger.

6:02But it'll be really interesting to see how the rest of the UK ecosystem reacts as well. Art, do you think the American regulators will give two hoots that Revolut now has a license in the UK? Do you think that would help Revolut in trying to get an American banking license? Or do you think the American regulators really wouldn't take that into account very much? So I think that from a brand credibility point of view, and Veronica kind of nailed it here, this definitely helps. I was reading a report from Brand Finance that Revolut is one of the fastest growing brands in the global 500. And so from brand cachet, it certainly helps and it starts to have Revolut be spoken about in the same breath as the world's largest banks, companies like a JP Morgan or a Citibank.

6:47The regulatories won't care, but I think that as we know, it's been very hard for European or UK fintechs to be successful in the US and vice versa. But we're talking about Revolut now. And so I think that this is more of a brand play as well that establishes more credibility ahead of what I'm sure will be a massive US launch plan. And so that's the way I think I'm thinking about it from the outside looking in rather than it necessarily being easier for them to convince US regulators. Thank you. Dave, four years seems like a bit of an age in fintech. The whole point of fintech is kind of faster as well as cheaper and better.

7:31So let's take four years. Does that reflect badly on the UK's regulators? Does it reflect badly on Revolute? Or is it just this takes time? If you want to be regulated as a bank, if you want to lend money to people, you just need to go through the processes of making sure you've got all your, you know, you know your customer, your anti-money laundering and everything else is all sorted out. Yeah, it does take time. Not four years normally. You know, obviously there was a lot of flags early on about some of the accounting practices and other things that have been flagged by some of the European regulators that I think slowed it down.

8:11but it shouldn't have taken as long as it did. There was all of the pressure and the fight between the Bank of England and the Chancellor about political pressure on this earlier last year and things but the UK banking world, there aren't new banks spinning up all the time. It's a slow process and if you hit that bar then it means a lot. It probably doesn't impact... the US regulators thinking, but there are a lot of other regulators in the Middle East and other things who will take massive credibility on the being a UK banking license to help them accelerate process there. I've worked with other startups who were looking to launch things in parts of the Middle East and their view was to get a UK license and actually it'll accelerate and open the doors to things to us in other regions and things.

9:03So I think it's low, but it's got to where it needs to be at the end of it. And so I don't think they'll care about the length of time it took because to most of their customers, they won't actually make a difference to them previously, but now they can really start that massive upsell exercise they're going to go through of bringing new products to everyone who's on their books. If you put it in context and ignore the four years, 10 years ago they were just that little foreign exchange travel cart that they were, and now they're 13 million customers in the UK. Would I be worried as Barclays, Lloyds, HSBC, etc.?

9:46Yes, they've been coming for their lunch up to now. They're coming for their breakfast and dinner as well. I'd probably be more worried as Starling and Monzo and people like that because they're on the same numbers of customers there and those guys. And Monzo, what, 14 million? Revolut 13? That's where the battleground is going to be more. I don't think it's... They've been chipping away at the big boys for a long time and they'll keep chipping away at them. But the smaller sort of startup challenger banks of Starling and Monzo and that I think I'd be more worried if I was in the C-suite there.

10:24I think that the four years is actually a moat for Revolut in the sense of, you know, Nicholas is building a generational company. It hasn't stopped their growth to not be a UK bank, right? Like the growth has been insane. And so this is him saying, we're doing a bunch of things at once. I'm growing, now I have this license and now I can execute and all of the things that it brings. And by the way, when I didn't have it, I was still growing so quickly. And so I think it's not as though in an age of AI, regulators aren't going to do their work. And so anyone else who wants the UK license will also probably have to wait four years, or I don't know how in process the other neobanks are.

11:06But I imagine that Revolut ran a pretty efficient process to try to get that license. They're very buttoned up as a company. So I actually see it as a bit of a moat, the time that it took. Definitely. me. Veronica, we talked a bit about regulators. We talked a bit about competitors. What about customers? Do you think customers will care? And then do you think they'll start seeing different things from Revolut? Do you think Revolut will start rolling out new products? Yeah, I certainly think it's going to help with customer acquisition. You know, financially savvy and financially literate customers will certainly be paying attention before they park any sort of meaningful assets or savings into a Revolut account, you know, because that backing means that your savings will be protected up to$250K in the UK, right?

11:53But if you're also using some of Revolut's other products, including, you know, basic asset and wealth management, or looking at a mortgage, or getting through that four-click pathway into creating a business account, I do think that will help with user acquisition. What I think is particularly interesting is when you also look at the statistics for the average lifespan of a neobank account versus a brick and mortar bank account. The brick and mortar bank account average lifespan is still around 17 years. So it's not that neobanks like Revolut are necessarily replacing the incumbent banks accounts, but what they are doing is capturing audiences at ever earlier ages.

12:36So you see this with child bank accounts, the under 18 bank accounts. And, you know, especially when a lot of these neobanks, again, Revolut very much included, have been savvy in their branding and their advertising through social media and other platforms that Gen Z and younger are using. They're capturing that audience that will probably be, are getting into the financial system for the first time at age, let's say, 18, possibly even younger, these generations are likely to live until they're in their mid-80s. And in that time, they'll be starting businesses, they'll be opening up different types of accounts and getting into a more and more complex system.

13:16So it's the early audience capture that I think will be really interesting to watch over the period of the next few years. Because that whole generation has grown up with Revolut and Monzo and Starling and others and they'll think of them as much as they think of a Lloyd's or a Barclays or a Sandander. I think it'd be interesting to see as they bring things like lending products in what that will do to the valuation. That brings a lot more value of what's on their book and things like that with longer term products like mortgages and things where you've got much deeper engagement for longer periods of time with your customers and things like that.

13:56And so, you know, the valuation is already crazy. I can see it doing nothing but going up more as they start to be able to do richer banking than just the lower level of spend. Absolutely agree. Even just anecdotally, as soon as Revolut had announced mortgages in France and Spain, you know, I had friends who live in both of those countries who are also of my generation. And they were saying, I can't wait until Revolut launches that because they're actually looking at that mortgage product as something more competitive to what the institutional banks already offer. So anecdotally, I can already testify to that.

14:33And that awareness across users is very much waiting for the next product. We can certainly expect the digital experience to be sort of smoother than many of the sort of traditional banks have managed, can't we? So we can expect better experiences. We will, I think, you're right, see people adopting it. To me, I think it's the diversification it's going to give their business model. I mean, they already have a lot of fee revenue, but this now gives them the opportunity for net interest margin. And so I don't know whether that will drive the valuation up, Dave, or whether it just justifies the valuation that's already there, but that's an investment question.

15:05And this is not a podcast about investment advice. But yeah, super interesting. Okay, let's move on then to our next story. So we've covered a fintech becoming a bank. And now we're going to talk about the opposite, which is that Lloyd's Banking Group is striving to be the UK's biggest fintech by selling more customer data. So according to a report in the Financial Times, Lloyd's Banking Group has unveiled a plan to become what it calls the UK's biggest fintech. According to the report, the bank wants to cut its technology costs by 35 % by 2028 as part of a program called Technology Strategy 3.0.

15:46That includes shutting down 15 data centers, scrapping more than 800 internal applications, moving further into the cloud, and automating governance and compliance checks. The bigger ambition here seems to be repositioning the bank as a data and technology company, with more of its workforce moving into tech and analytics roles. Let's bring you in on this one. Lloyds wants to become the UK's biggest FinTech, hasn't that ship just sailed with Revolut? Yes. You know, you took the words out of my mouth. I think, you know, anytime you have to announce that you're a FinTech, you're obviously not a FinTech.

16:29And I think that the way that they're going about this from, again, the little that is public is about reducing costs and selling data, which I don't necessarily see as like the North Star of FinTech. Now, that being said, I think customer data is a clear moat, and it's very important to building delightful customer experiences. But the entire positioning of this move is quite off, in my view. You know, like scrapping apps and closing data centers, that sounds like a profitability push, sounds like a message to investors. That's not a growth story. That's not a retain talent, attract talent story.

17:12In fact, I was reminded when I read this of kind of some of the other changes large companies are making right now of founders coming back. So you saw at Workday, it's not a fintech, but it's fintech adjacent. You had the founder come back, a kneel, because in these AI times, at least that company felt they might have a train moving, but it's moving a bit in the wrong direction and they want founder energy to, in an AI world, go to blank slate and say, hey, here is what our product roadmap is. that's uh that's the the messaging and positioning that i think lloyd should have gone with something along that versus what they're saying they're doing to to be the the uk fintech so i i read this and kind of just brushed it aside as as they're not going to be successful in that what do you what did you think dave do you think is lloyd's kind of perhaps doing the right things here but just come up with a bit of a daft storyline for it or or do you actually agree with art that actually they're probably going in the wrong direction here by shutting things down.

18:12I think they're totally missing the point. To become a fintech is not where you start with your technology. You actually start with your organizational architecture. The way they're structured is just not going to work as a fintech. They're built around product lines in the vertical way that all traditional banks are built. And that's not how you build a fintech. Like, you know, looking at cutting out technology roles and getting rid of certain apps and things like that isn't about completely restructuring from the ground up the way your organization works. It's what they have to be if they really want to be a fintech.

18:49There's no way they could ever do that. You know, it's too ingrained into the history of how they work as an organization, how they, you know, incentivize their staff, how they operate as an organization. They're doing a great job of sharing customer data, especially today, sharing customer data with each other around their customers that they managed to do this morning. But we won't mention that. That's a different story. You just did.

19:18I don't know. It feels like a marketing exercise and it's not a reality. This is a dress to cost cutting exercise to me. Yeah. Message for shareholders, perhaps. Veronica, what do you think customers will make of Lloyd's talking about sort of selling customer insights to third parties, anonymized or not? Do you think that is a big opportunity? Do you think customers will be pleased to hear that? What do you reckon? I think at this point, customers are generally quite savvy and they're not going to respond particularly well to knowing that their data is being sold, whether anonymous or not. at this point, you know, where we've been in the tech ecosystem for the last 10 years, even just take back the last, let's say, two or three years with major cybersecurity breaches of multinational corporations, with, you know, the conversation happening in AI and, you know, learning from customer behavior and interactions with it.

20:19I think there's generally a level of first savvy, but then also hyper-awareness of what tech companies, financial services companies are doing with customer data. And I think you can go as far as to say there's paranoia, right? Personally, I don't like the idea. You know, as much as you promise as a company that customer data is going to be anonymized, how do you guarantee that? What about when third parties come in? Are there really any guarantees? I don't think there are any guarantees. So it's a bold announcement to say that right out the gate, I'm not sure customers will react very positively, especially the more financially savvy that they are.

20:58What do you think, Art? Is there mileage and value in customer data? I mean, obviously, customer data can be fascinating. There's all sorts of things you can learn and so on. But anonymized data only gets you so far. Is that valuable for training models? I mean, what kinds of firms do you think would be keen to buy anonymized data from Lloyd's? Yeah. So I think the mistake Lloyd's is making here is anonymized data is absolutely helpful for your own customers. And so they should be using that data and looking inwards and saying, you know, 57 % of the customers are using bill pay in this way and had this problem.

21:34So we're going to fix that. You know, 72 % of customers are using cursor. Are you 28 % that doesn't use AI tools? You should do this. Like Brex does this with our anonymized customer data where we put out a Brex benchmark of the tools customers are using. How are some of the things you should be doing to run a better business? That's the positioning here of anonymized customer data. It's not taking that data and going to Citadel and Millennium and saying, hello, like, here's the number of people who ate at, you know, this pizza chain or this Chipotle. And yeah, again, like it goes back to my view here that the entire lens here is not customer first.

22:14That's the thing. To be a fintech, you need to be positioning, I would say, all the changes to be customer first. And we talked about Revolut, like we're all talking about their brand and this and that, like how it's going to help customers that that's because they're good at the way they show up in market. This felt like a, a push to shareholders, shareholders, not customers and investors about cost cutting and no, look, look at us. We're doing a AI as well. And yeah, I, I guess like, yes, there's a good way to use anonymized data, but I agree with Veronica Lloyd's is not going to be doing that.

22:48They're not going to be doing it in the right way. Art, I totally agree with what you say as well. If that data was being used internally, when we talk about legacy banks, and I've said this on other podcasts before, we're looking at Lloyd's, which was founded in the mid-1700s. If you want to go to even some of these older institutions like Coutts, which is many more hundreds of years old, a bank like that leveraging historic data through an LLM intelligently to better inform its own customers and provide smarter financial services. I mean, we're talking about banks that have led their customers through the bubonic plague.

23:23How exciting would that be to say, well, we've got these unique data points that should there be another pandemic, you know, this is how we can provide better financial services or ensure you better, you know, in the case of, you know, whatever apocalyptic event that could happen in the world. That would be clever. And that is the advantage that banks have. You know, the institutions don't have necessarily more customers than the neobanks, but they have hundreds of years of historic data. But that's also not what's happening here with Lloyds. And I think that's a shame, really. So what Lloyds has missed here, really, is that being a fintech is not about what you say, it's about what you do.

24:08It's about the culture, the organization structure, what you focus on, particularly focusing on how do we create value for customers. And it's not about the messaging that you put out in your marketing and out to your shareholders. So I think we're all just enormously skeptical that Lloyd's is going to become the UK's biggest fintech, at least from this starting point. I mean, who knows? Maybe they'll turn it all around in a couple of years. But this starting point is not where it started, is it? Okay. Well, on that note, we will take a quick pause here and we will be back very shortly. Hey folks, if you're anything like us, you're on the road constantly.

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26:14So good, so good, so good. now a quick break from the headlines to tell you about our latest insights show ross gallagher is joined by david breer chief executive of 11fess richard davies chief executive of alica bank and sophie guibble of building alpha for a fascinating discussion on how the competitive landscape in banking is evolving so just head to the podcast below this one in your feed to listen to it. So back to the news. Our next story is that Brex is integrating with ChatGPT for expense data access. Brex has launched a new integration with ChatGPT, enabling its customers to query corporate expense data using natural language directly inside the ChatGPT interface.

27:00The integration is available through the ChatGPT app marketplace for enterprise users and makes Brex one of the first financial applications to appear inside OpenAI's ecosystem. Customers can ask questions such as which expenses are missing receipts, what their card limits are, or search for transactions by merchant amount or date without opening the Brex platform itself. The current version is read-only, meaning customers can retrieve information through ChatGPT but still need to return to Brex to approve expenses or take other actions. So Art, obviously you're the perfect person to ask. And we'd love to start with you.