Revolut reported its first year of profit on Wednesday, in a long-awaited set of 2021 financial results that showed the neobank increased its customer base and revenues across higher margin products.
Revenues at the neobank nearly tripled, from £220m in 2020 to £636m in 2021. That meant the bank swung to a £39m profit before tax — its first results in the black.
“Landmark achievements in profitability, product and expansion in 2021 saw our transition from a high-growth fintech to an established leader in the new era of banking,” said CEO Nik Storonsky about the figures.
Its foreign exchange and wealth division — which includes its crypto trading arm — accounted for over half (55%) of total revenues in 2021, increasing more than eight times to £349m, from £41m in 2020. Gross margins increased to 70% from 33%. CFO Mikko Salovaara tells Sifted that they were "similar, if not better" in the 2022 financial year.
Salovaara says that revenues continued to grow in 2022, rising by more than 30% to £850m, but did not share Revolut's profitability for the last year.
From payments, to crypto, back to payments
Pre-2020, Revolut was primarily a payments business: its biggest revenue stream was its multicurrency account with a debit card attached, which was widely used by consumers travelling abroad. When Covid hit in early 2020, Salovaara says its payments revenue took a hit, but in the second half of the year it began to see an uptick in trading activity on its app.
Revolut benefitted in particular from the pandemic crypto boom: the neobank said it increased the number of crypto tokens on its trading platform from 10 to 60 tokens in 2021 "in response to consumer demand".
Salovaara tells Sifted that crypto made up around 30% of total revenues in 2021 — more than half of the 55% of total revenues that its foreign exchange and wealth division accounted for.
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"But then crypto went through a pretty significant downturn and made up 5-10% of total revenues in 2022," he says.
"Now, crypto is a relatively small portion of our overall revenues today and there's been a big shift back towards payments, with people travelling again and the rise in cross-border transactions."
It's likely that revenues from its crypto trading arm have continued to decrease going into 2023, with retail investors fleeing the asset class following the collapse of crypto exchange FTX and a torrid 2022 for token prices.
Looking ahead to 2023, Salovaara tells Sifted that the neobank has had "a pretty strong tailwind from the interest rate increases" and that it would continue to invest in global expansion.
Revolut will launch in New Zealand in "the next couple of weeks", he says, with expansion into India, Brazil and Mexico coming later in the year. The neobank is currently scoping out other markets across LatAm, Asia and the Middle East to move into in the next few years.
In 2021, Revolut increased investment into its overseas subsidiaries almost threefold to £164m, up from £66.7m in 2020. Salovaara says this increased in 2022 as the bank invested "much more" in its subsidiaries, thanks to a combination of capital requirements and operational expenditure.
So what does geographical expansion mean for profitability in 2023?
"Profitability has been a strategic decision for us, and we're in a wonderful position of being able to decide if we want to be profitable or not," Salovaara tells Sifted.
"I think in the current environment, it's very likely we'll decide to be profitable, but we're not making a commitment one way or the other."
Revolut's total retail customers jumped by almost 50%, to 16.4m in 2021, and the neobank says this figure now stands at 27m to date. The pandemic helped boost its customer numbers and how much they use the app, amid an accelerated shift to digital services and remote working, Revolut said.
Revolut's total pay for directors jumped to £3.7m in 2021, up from £580k in 2020, with share-based payments accounting for the vast majority of this. The neobank's highest-paid director was paid £200k in 2021, up from £65k in 2020. Revolut declined to comment on who this individual is.
A long wait — for the results, and a banking licence
It marks a sharp turnaround for Revolut's performance. When the $33bn fintech last published its accounts, for 2020, its losses had doubled to £207m, which it attributed to investing in new parts of the business.
In Wednesday's results the neobank also adjusted its 2020 figures after it changed its accounting standards, revealing an even bigger loss for the year than previously reported — at £221m before tax.
Storonsky told Sifted in November that the bank had been profitable for two years — though we had to wait quite some time to confirm that, after Revolut missed two deadlines for reporting its 2021 annual accounts. The delay came after the Financial Reporting Council (FRC), which regulates auditors, found BDO's audit of Revolut's 2020 accounts to be "inadequate". Salovaara says he expects Revolut's 2022 accounts to be out "much faster" than the 2021 filing, ahead of its September deadline.
"The accounting systems and software that we had were originally designed for a one-dimensional product offering, and we've grown to be a very complex group operating in multiple markets, so we needed to make changes to meet our pace of growth," Salovaara tells Sifted.
Notably BDO, the auditors, included a warning in the newly released filings that they were "unable to satisfy ourselves concerning the completeness" of the crypto trading portion of 2021 accounts, and that some of those revenues "may be materially misstated" owing to the company's internal IT systems.
Only three of Europe’s most valuable companies have managed to reach profitability. It’s even rarer among the neobanking tribe — so far, only UK rival Starling Bank has posted an annual profit.
But unlike its UK-HQ'd neobank competitors, Revolut is facing one key roadblock standing in the way of growth: it still hasn't obtained a banking licence in its home market, the UK. Although the need to update its internal accounting systems has been touted as a contributing factor towards its delay in obtaining a licence, Salovaara says the FRC requirements for the audit were quite separate from the business as a whole.
Salovaara could not provide an exact timeline for obtaining a banking licence but says he expects it "imminently, shortly, in the very near term".
Amy O’Brien is Sifted’s fintech reporter. She tweets from @Amy_EOBrien and writes our fintech newsletter — you can sign up here.