There’s long been a question as to who would emerge as the winner in the brutal battle between the many neobanks that have popped up over the past decade. Although others have had quite a ride, including Wise with its recent London listing, Revolut is now clearly positioned at the front of the pack after its impressive raise this week. It’s now the UK’s most valuable private company.
In many respects, Revolut’s story is a typical London story. The company, founded by Russia-born Nikolay Storonsky, is a testament to the British capital’s attractiveness to skilled immigrants with strong entrepreneurial ambitions.
In addition, Revolut is part of the financial world, and here again, London has the upper hand. It’s Europe’s main financial hub; it benefits from a supportive regulator, the Financial Conduct Authority, willing to foster innovation; and it harbours deep-pocketed investors willing to make the big bets that it takes to have a chance to succeed in the highly-regulated financial services industry.
Beyond London, Revolut is also a typical European story. Its initial value proposition was a payment card supporting multiple currencies without imposing the usual predatory fees. It solved a real problem in fragmented Europe — and it’s really no surprise that our continent gives birth to startups that focus on facilitating crossing borders for businesses and consumers alike.
Revolut was also lifted up by the European Union — because the European single market is a reality in financial services, Revolut can operate across the entire continent with a single establishment and now a single banking licence (issued in Lithuania) rather than having to obtain a costly licence in each EU member state.
Kings and castles
Finally, beyond the geographical context, Revolut is also a revealing story about how startups can succeed in industries dominated by powerful, entrenched incumbents.
Think of a traditional bank as a feudal lord.
Think of a traditional bank as a feudal lord. For them, the banking licence, balance sheet and privileged relationship with regulators are the equivalent of a fortified castle. It takes a lot of time and money to build and is then easy to defend against assailants. But if the bank wants to maintain its castle and have access to enough food so that everyone inside is satiated, it needs a whole, more exposed realm surrounding the castle — fertile fields, productive factories, vibrant marketplaces and a skilled workforce (that is, in the banking world, wealth management, loan interests, brokerage fees, competent employees and the rest).
All in all, once it’s built, the castle is easy to defend with its high walls and its deep moats. The rest of the realm, on the other hand, is out in the open and can be poached in an instant.
A startup such as Revolut knew that it couldn’t build a castle right away. Instead, its founders decided to focus on a narrower value proposition. Its multi-currency payment card initially didn’t look like much but with the democratisation of travel and the resulting rush of younger, highly cost-conscious customers, Revolut discovered it was lifted up by a long-term trend.
Eventually, it was such a success that the company ended up with enough capital to buy its own castle: a banking licence for continental Europe in Lithuania and two others, just recently applied for, in the UK and the US. Instead of building a castle right away (or trying to seize one from an incumbent), they started by reviving a small, abandoned factory at the margins of the realm and expanded from there.
In other words, Revolut’s go-to-market is a masterful lesson in what the late Clayton Christensen called “disruptive innovation”. When a new player enters the market, it is often by offering a simpler, cheaper product to less demanding consumers and then moving up from there.
Revolut’s go-to-market is a masterful lesson in what the late Clayton Christensen called “disruptive innovation”. When a new player enters the market, it is often by offering a simpler, cheaper product to less demanding consumers and then moving up from there.
Personal computers, for instance, were far from being as powerful as the mainframes or minicomputers of the past. But they were good enough for the vast majority of potential users, who were all too happy to help startups such as Apple and, later, Dell and Compaq, get off the ground and then move up. Closer to us, it’s also what Spotify is up to — it started with streaming music but now it's expanding fast in various directions within the boundless and highly lucrative realm of the audio business.
Likewise for Revolut: focusing on multi-currency payment was much less sophisticated than providing customers with full-service banking. But it was good enough for an underserved segment of the market that wanted a cheaper, more convenient travel experience while not really needing much more from a banking perspective.
In retrospect, serving that segment made it possible for Revolut to get off the ground, have an international footprint from the start and move up at a larger, continental scale when compared to domestically-focused competitors such as Monzo and Starling in the UK or N26 in Germany. Come for the multi-currency card, stay for the full cross-border banking experience.
Come for the multi-currency card, stay for the full cross-border banking experience.
Vibrant London plus the whole of Europe (market and institutions) plus executing the disruption playbook in a perfect manner: this is what it took for Revolut to reach its current €33bn valuation — and likely what convinced SoftBank and Tiger Global to back the fintech juggernaut.
Now, the question is, 'What will they build with all that money?' Reinforce their frail castles and dig deeper moats? Start designing other castles in the Middle East, Asia and Africa? Invest in more fields, factories and marketplaces in Europe to ensure the prosperity of the realm?
Still too early to tell but a fascinating story to be followed.