Fintech/Opinion/

Revolut: required study for any student of disruption

Revolut’s go-to-market strategy is a masterful lesson in what the late Clayton Christensen called 'disruptive innovation'.

Credit: Nikolay Storonsky, Revolut CEO
Nicolas Colin

By Nicolas Colin

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. 

Nicolas Colin is cofounder of VC firm The Family. He writes a regular column for Sifted.

6
Join the conversation

avatar
  Subscribe  
newest oldest
Notify of
Giulio Tartaglia
Giulio Tartaglia

You get SoftBank in fintech and it’s Wirecard all over again! I am actually surprised to read continuous praises for companies with eye-watering valuations but much sadder financial fundamentals!

Ed S
Ed S

“In other words, Revolut’s go-to-market is a masterful lesson in what the late Clayton Christensen called “disruptive innovation”.”

I’d dispute this characterisation. Most Revolut customers haven’t replaced their traditional bank accounts with a Revolut account, they use it as a complement. And when all the revenue generating activity is still happening with the original bank (mortgages, loans), while Revolut is left providing loss leaders (transactionality, free forex), it seems a pretty good deal for the traditional bank.

Revolut needs to replace, not complement, a traditional bank account before we can call it a disruptive innovator.

Claudiu
Claudiu

I would disagree with that. Remember how we paid in different currencies when on holiday before Revolut’s multi-currency card arrived? Driving to the bank a day before going on holiday, or exchanging the money in the airport before departing, queueing, exchanging to much or too little money, paying a fortune on exchange rates, having to provide an id, etc. Now you can do all of this using your phone in a fraction of the time and cost. Not to mention that you can pay people as well in the same way, not just merchants. Has Revolut replaced the traditional bank… Read more »

EMM
EMM

You make a good point Ed – there’s another point to consider in addition – there are quite a few markets in Europe that have been significantly impacted by Revolut. Customers are still holding their incumbent bank credit card, but now make little-to-no transactions with those. Instead all the transaction activity goes through Revolut. It’s made enough of an impact that it’s cause some banks to experience significant, continued falls in revenue in these situations. The visibility of the customer’s economic spend is significantly reduced as a result. All the bank can see is 2000 Euro entering the current account… Read more »

Klemen
Klemen

All this seems just like an advertisement to me and nothing more, I was hoping to read something about why is better than some others like n26 for example but no, just making a novel out of a sentence.

Ivan
Ivan

For many countries it is the only option. Once other competitors join the game where I’m from, unless they offer a much larger array of services, I have no interest in signing up. Revolut was first, they have an outstanding customer experience, at least for me so far (others may disagree), I have a years-long relationship with them and am a loyal customer.