The secret behind Revolut's product blitz

0:02Hello and welcome to the Sifted podcast, the show where we help you get to know the brightest and boldest people and companies in Europe's startup ecosystem. I'm Amy, Sifted's editor and your host. Today I'm joined by my colleague Tom Matsuda, Sifted's fintech reporter, to talk about Europe's most valuable private company and one that our readers absolutely cannot hear enough about. I am, of course, talking about the digital bank Revolut. This year, Revolut has been on absolute tear, launching new products seemingly every other week. Scrolling through recent Sifted headlines about the company, we've covered its plans to move into mortgages, crypto derivatives, telecoms and private banking.

0:41It's also revealed that it will open a big new office in Paris and laid out plans to acquire an Argentinian lender as part of a push into Latin America. It's also reported to be in talks to raise new funding from investors which would see it valued at a mega 65 billion dollars. Its CEO Nikolai Storonsky also can't stay out of the headlines with the FT reporting in June that he's set for a big old payday if the company's valuation can at some point in the future reach a huge 150 billion dollars and his VC firm Quantum Light also announced the close of a 250 million dollar fund in May. In July last year Revolut was awarded its long-awaited UK banking license which once it's fully mobilized will enable it to offer yet more products and we are expecting it to come out of that mobilisation phase fairly soon.

1:33On the podcast today, Tom and I will talk about how Revolut keeps up such momentum, what, if anything, could trip it up, and what's likely to be making Revolut headlines in the next few months. Tom, thank you for joining me on the pod. Thank you for having me, Amy. So Revolut has just celebrated its 10th birthday, and yet it seems to have as much going on as ever. What is it about this company? Yeah, I mean, Revolut's pace of growth is nothing really short of breakneck, really. I mean, just to kind of pull it into figures back in 2019, pre-pandemic, they had just around 10 million users. Now it's grown to more than 50 million with customer balances over 30.2 billion as well.

2:15Especially when you compare it to some of its other counterparts, other neobanks like Monzo and Starling, who are based in the UK. Those are kind of figures that those companies could only really, really dream of. Monzo has revenue of around$1.2 billion. That's almost half of what Revolut made last year,$3.10 billion. And in terms of kind of customer numbers as well, Monzo has$12 million and Starling has$4.6 million. That's kind of a drop in the pond, really, if you compare it to Revolut, which has over$50 million. And, you know, I think every VC and every founder as well across Europe and further field as well wants to know what that special source is that Revolut has.

2:55And yeah, a big, big factor, at least I understand from speaking with people internally at the company and ex-employees as well, is Revolut's new bet strategy, which is kind of a key part of the way it's able to continually roll out some of these new products that you mentioned. And this really involves kind of building these kind of specialized business units. They almost sort of operate like micro startups within the company and they're tasked with kind of rapidly testing and developing new products in more experimental areas of financial services. You know, some of the products that I understand at least that have kind of gone through this initial testing process are their products in crypto, in stock trading and the kind of private banking products as well that are currently developing as well.

3:41These are really, really small 10-person teams. And they're often led by people with more, I guess, entrepreneurial kind of founder-like backgrounds. And yeah, they're not just responsible for the product development, but it's also the profit and loss as well. So if any of these products don't even gain traction, they can pivot or they can even be shut down immediately. If they work, they're obviously going to be scaled up more quickly. And that's kind of part and parcel of how Revolut has been able to continually roll out all these products you mentioned. telecoms, crypto derivatives, private banking.

4:11That's kind of part of how they're able to move so fast. There's also obviously, as we've kind of reported quite a lot, the culture is known to be quite tough and hardworking. And that obviously really comes from the top, you know, the CEO, Nick Swaronsky. It would be fair to say he's been described as quite relentless, demanding, and kind of focused on execution at all costs. And that really lends itself to a company that is continually able to build out and roll out these new products, financial services, faster and quicker than some of its counterparts. And it is a huge company now, isn't it?

4:45Yes, 10 ,000 people now work there. You definitely couldn't call it a startup. It's a serious business. And as you said, Nick Staronsky is a Russian-born founder and CEO, an ex-Layman Brothers and Credit Suisse trader. He's become almost this mythical figure in startup land, hasn't he? So many people sort of refer to him as the example of a sort of super driven, very good at execution founder. What else do we know about him? Well, at least according to our recent internet searching, he's really into kite surfing. Aside from that, my kind of conversations with ex-employees and investors are really that, yeah, he's so driven and so focused that they don't actually know that much about his personal life.

5:30you know i've asked in the past like what does he do outside work how would you describe him as a person and it's more it's always come back to his his job as a founder and really that focus on execution at all costs that's quite different from his co-founder vlad yetzenko who's the chief technology officer at revolut he's more been described as like the human heart in revolut's leadership team he's more focused on individual career development uh compared to nick who really He just wants to see the results happened and, yeah, the product rolled out. Vlad is more someone who will kind of take time to work with each employee and kind of build them up a bit more.

6:09Yeah, whereas Nick is just focused on getting that product out. And he's really known as like the product guy as well. I've interviewed him in the past. That was really when like our conversation got going was as soon as we started talking about products. So you can really see that that passion is really there. I was having lunch with someone yesterday whose partner used to be very senior at Revolut. and she described Nick as like a helicopter. So he's always circling above everything and then when there's a problem, he will swoop down and land and get involved. And she also said that apparently with his direct reports, he is quite sort of functional one-on-ones where he follows a set pattern every time.

6:50That doesn't surprise me at all. And so one big thing we were all talking about to do with Revolut for a really long time was its UK banking license. So famously, it took over three years for Revolut to be granted this bank license when some of its competitors like Monzo and Starling had achieved banking license status very early on in their startup journey, whereas Revolut applied a little bit later when it was already bigger and had more customers. And it's still in this phase, isn't it, of mobilization. So it's kind of testing out whether it's ready to fully have the bank license but what do we know about why it took so long?

7:29Well as we've kind of spoken about Revolut isn't a typical company over 50 million customers is not a typical kind of I guess neobank to go through and apply for becoming a banking license and it's likely to be I guess the largest ever license applicant by kind of if you're looking at a kind of customer base and yeah the PROA the regulatory authority that's in charge of granting banking licenses in the UK, they obviously need kind of robust evidence, right, that whether it's compliance controls, their governance controls, capital needs as well, and their kind of operational processes are all up to standard.

8:03And that's a much higher bar for a company that has millions of users, right, compared to, you know, when I guess Monza and Starling applied for their banking license. And they, you know, they were a lot smaller fry in terms of the kind of amount of customers that they served at that time. Things that haven't helped as well, though, I think both in the 2020 and 2021 annual results in the past, auditors have criticised certain portions of their revenue profile as being inadequate and they were unable to verify key revenue segments in the past. That obviously delayed any progress with the regulatory process until those accounting standards were improved.

8:41Revolute leadership itself has also publicly criticised the UK financial regulators in the past for how sluggish and slow the process as well, which likely kind of complicated the process. They've also had some turnover in the finance department. So I think during this entire process, their former chief financial officer, Miko Salavara, left and was soon replaced by somebody called Victor Stinger, who is their current CEO. He was initially put in as interim CFO. He's known as being this early employee at Revolut. He joined as the founders associate and sort of worked his way up. Although he is younger and maybe less experienced than a typical CFO, he, at least from conversations I've had, has been credited with kind of rectifying those accounting issues, which likely paved the way for Revolut to be granted a UK banking license.

9:34And what will, once it's out of this mobilisation phase, which we expect to happen quite soon, what will it be able to do when it has the full banking licence? Well, Revolut will be able to roll out more kind of grown-up products than it's been known for. Most people now go to Revolut for, say, things like remittances, stock trading, crypto. Just their bank account. Yeah, exactly. Just holding some deposits and some cash. Getting a banking license in the UK will likely see them more mirror what has happened in Europe, where they've held a banking license through their Lithuania base since 2021.

10:14In Europe, in certain jurisdictions, they've been able to offer things like credit cards and even mortgages in Lithuania, which are currently kind of testing out. getting a banking license in the UK will enable them to roll out these kind of similar lending products which are typically in the past more associated with 100 year old banks like your Barclays, your HSBC, your Santander and not 10 year old banks in the case of Revolut. So I guess all in all it's really going to see their kind of product portfolio grow up essentially and that will be a key test for them. And so once they have the banking license, it's highly probable that they launch mortgages in the UK.

10:56How do you think they'll go about doing that? And do we have any clues from how they've done it in Lithuania? Yes. So as we mentioned, they're currently testing the mortgages product in Lithuania and hoping to roll that out later on to, well, it's currently in-marked for Ireland and France as well. In Lithuania, they're currently in the kind of testing process and people being signed up to the waitlist. So it's still quite early stages. And you know, in terms of whether that coming to the UK will largely depend on how, I guess, these kind of more European test cases go. But in Lithuania, what they're focusing on is refinancing mortgages.

11:32So these are people who already have a history of making repayments on a mortgage. They may own some equity already in their house. And yeah, that means that from a kind of bank perspective right they're less risky because they have this history of repayments i imagine as they kind of roll out initially across these different jurisdictions i'll focus on refinancing because those are the less risky customers compared to first-time buyers who obviously have no history of buying a house it goes without makes a lot of sense because revolute also needs to manage its risk it doesn't want to lend it does millions of pounds all of a sudden and not get it paid back.

12:09As we've reported as well, their remortgaging product is, they're trying to make it as efficient as possible. So I think for a combination of income verification checks, user data and data from credit bureaus as well, they're hoping to kind of give pre-approvals to customers within five minutes. So obviously if you're trying to go for that very quick approach, you need to manage the risk in some ways. But that said, if it comes in, if it knows that, if it undercuts other mortgage interest rates, you can see a lot of people potentially being driven by the price itself. And then Revolut is really going to start making money, isn't it?

12:49Yes, yes. So most big banks these days, if you look at their revenue profiles, they make most of their money from lending. Revolut is quite different in that regard because it makes most of its money from fee income that the services they provide. That could be things like interchange fees when you make card payment, It could be a fee on stock trading. That's been kind of Revolut's bread and butter so far. But if it wants to kind of continue that pace of growth, it's likely going to have to lend and push into these more kind of grown-up products like business lending and mortgages. Makes a lot of sense.

13:23And what is Revolut's big end goal? Is Storonsky on a mission to make this the biggest bank in the world? Is it more, you know, they've moved into telecoms. Is it potentially going to become more of a sort of super app play, go into things outside of finance? What do you think the road ahead looks like? I mean, it can be both, really. I mean, it obviously started with a mission to be this financial super app. But, you know, obviously going into telecoms, it might seem quite a strange move for a neobank to make. But it's, you know, they've done things like this in the past. They've launched eSIM products.

14:01But you can also do things like book your holiday via Revolut. you can get insurance for your pet if you really want to. You know, what it really is, is like this control centre for all your financial day to day. So telecoms might seem quite out there in terms of things, but you know, it's a utility bill at the end of the day, right, which is a financial product. So it makes sense in some ways to pivot into these products that are kind of tangentially linked to financial services. So another question that always gets asked about Revolut is when is it going to IPO? Where might it IPO? Is it going to be London?

14:38I think Nick has been on the record in the past about criticising the London lock exchange as not really the place for them and has publicly in the past said that if Revolut did IPO, it would be in the US. That seems to kind of reflect a wider move among other fintechs. Recently, just to kind of compare, the fellow Neobank Starling, despite having most of its kind of customer base in the UK, has made more indications that it's willing to look in the US, if it were, to IPO. And I found that really interesting because Starling doesn't even have a presence in the US at the moment, does it? And when you speak to people like bankers, for example, that's always a big thing they point out.

15:19You know, they say everyone in the world or every company in the world wants to IPO in the US. There's a huge queue of companies ready to IPO in the US when the markets really open up again. And you need to be a really big business and ideally a business with a big customer base in the US in order to successfully list there. So what's going on? I mean, yeah, it's absolutely true. I mean, Starling doesn't have, you know, a kind of formalized retail banking offering in the US at the moment. But they are making pushes in the region. So Starling, alongside the kind of retail banking arm and their business banking arm as well, they have a software as a service product where they essentially sell the technology behind the bank to fintechs and also mid-tier sized banks as well.

16:06And they're currently kind of making a targeted push to take that to the US as well. And even looking at possibly applying for some sort of US banking license or making an acquisition to obtain a banking license that way. And what about Revolut's track record in the US? So, yes, they've applied previously for a US banking license and sort of put that on the back burner. last i heard back in november i believe at slush uh nick spoke about possibly restarting those plans but if i'm honest it's been very quiet on that front but i guess also the the ipo you know then it's not like they struggle in any way to raise money or make money they don't they can stay private if they really really want to that as shown with the funding that they're currently raising it's huge 1 billion funding round and yeah i mean we've seen big companies in the US stay private.

17:01There isn't really like a pressing need for Revolut, it seems, at this moment to IPO. Which other companies are on your radar, Tom? Yes, I mean, Revolut definitely takes up a lot of my time, for sure. But obviously, Monzo, Starling, N26, and Klarna. And what about, is there a trend? Is there a story? Is there a phenomenon that you're interested in and looking into at the moment? Yes. So I have been looking, I think it was maybe a couple months ago when Klarna announced that they had to reduce reliance on AI and actually had to hire remote teams to handle the customer service division. That was really, really interesting because obviously Klarna has been this huge kind of proponent of AI and them kind of stepping back from that.

17:46I kind of see as a signal that maybe there's a limit or at least a glass ceiling to what AI can do in financial services. and that's the topic I'm exploring at the moment. So any tips listeners, send them Tom's way. He is tommatsuda at sifted.eu and where else can people find you and follow you? You can reach me on LinkedIn. I'm also tommatsuda there. And of course, sign up, subscribe to Tom's fantastic FinTech newsletter, which comes out every week, totally free on a Tuesday. And that is all we have time for now. Now, please let me know what you thought of this episode and if you'd like to hear more from Sifted's journalists.

18:26You can tell me which Sifted journalist you'd like to hear from as well. I am amy at sifted.eu. It's really, really helpful to hear from our listeners, so please do get in touch. And as always, please rate and review the podcast to help us find new listeners and spread the love. This podcast was produced by the wonderful Maya Durampal-Hornby.