Revolut just got the tick from Australia’s banking regulator, and if history is any guide, that’s very bad news for anyone still loyal to the big four.
A revolution in banking is coming driven by the expectations of the very online app-generations, who are intolerant of the past that older Australians have learnt to put up with after years of dismissive mistreatment. And this revolution is being aided and abetted by the likes of a new kid on the banking block, significantly called Revolut Bank Australia.
The AFR tells us that Revolut, which has its HQ in London, has secured an unrestricted licence from the Australian Prudential Regulation Authority (APRA), but it has taken five years to get the tick of approval.
Revolut received the same approval for its UK operation in March this year, but it has been building a business and customers in the preceding years, with the AFR’s James Eyres reporting that this fintech bank “already has one million users in Australia, a number that has doubled for each of the past four years, using a money management app that can make payments, move funds between countries and buy equities.”
While Revolut is not a conventional bank, it does have a number of appealing aspects. Here are a few:
- Digital banking services.
- Bank accounts for transactions.
- Foreign exchange services.
- Trading in stocks.
- Cryptocurrency services.
- Peer-to-peer payments, which are digital payments from say one person’s account to another’s account, as with PayPal.
- Business accounts.
- Insurance services.
- Budgeting tools.
You might have to get a home loan from some other lender, but Revolut is designed to be a one-stop shop for a younger banking customer who wants to invest, start a business or be money savvy.
Revolut is what some call a “neobank”, two of which have failed locally, namely Xinja and Volt, who may have been ahead of their time or simply didn’t have as good a business model as this new player.
And the following shows how well this company has been going: “After a capital raising last year that valued Revolut at $US75 billion ($107 billion), similar to ANZ, the company said it would invest almost $400 million into its Australian growth plans over the next five years,” Eyres reports. “Revolut’s customers will now be protected by the federal government under the Australian Financial Claims Scheme, up to a value of $250,000.
“The banking licence also allows Revolut to pay interest on savings, while the deposits provide a cheaper and more sustainable source of funding for personal lending, including credit cards offering rewards.”
This APRA approval is a big deal for this ultimate threat to a banking sector that has never been well known for valuing customers.
And these guys will force other banks to change their offerings, much the same way the likes of John Symond at Aussie Home Loans and Mark Bouris at Wizard made banks lower interest rates and compete harder for business. Eyres says Revolut will have bank accounts paying up to 5.05% with no minimum deposit hurdles, and a credit card with no fees, which will make even older, less digitally educated potential customers look hard at the bank’s offerings.
Some respected bankers think the big four banks will be tested in responding to Revolut’s threat but if they don’t it won’t be good for their share price growth, and ironically if they do compete they will be less profitable, because of higher costs and lower revenue via lower pricing on products and services for their customers.
This new age bank will force existing banks to look for AI-related technological solutions to compete, which implies this could be a threat to the employees of the big banks. Standby for Revolut’s marketing campaign with Eyres telling us that it currently “sponsors the Hawthorn Football Club in the AFL and has recently plastered its brand across Brisbane and Melbourne airports”.
Other interesting facts are that Revolut globally last year reported record profit of $US2.3 billion, up 57% on the prior year, with revenue surging 46% to $US6 billion.
They are small beer here now with revenue of $71 million, but this was up 74% year-on-year, and they’re backed by hedge funds. Nvidia’s venture capital arm, NVentures, is among the other Revolut shareholders.
Eyres significantly pointed out that Coatue and Tiger Global are hedge funds invested in Revolut, and both of these big global players invested in Australia’s Afterpay, which has been a local and global success story that revolutionised retail transactions. A former student of mine, who I taught at both Sydney Grammar School and later at UNSW, Anthony Eisen, was a co-founder of Afterpay, which was sold to US company Block for $US27.3 billion in 2023.
All up the history and the facts surrounding Revolut suggest a banking revolution is coming and those bank executives who ignore these threatening changes could cop a guillotine-like chop from their jobs if they don’t improve their products, prices and their customer service!
