Revolut, the prominent British fintech company, announced on Thursday, July 25 that it has obtained a banking license with restrictions from the U.K.’s Prudential Regulation Authority (PRA). This achievement concludes a protracted three-year wait, marking a significant milestone for the company.
The restricted license allows Revolut to transition from its current status as an e-money firm to a fully licensed bank, capable of holding customer deposits and offering own-branded loans, including mortgages.
Revolut Enters Mobilisation Stage
The PRA’s tentative approval places Revolut in the mobilisation stage, during which the company will focus on building its U.K. banking infrastructure and operations before an official launch.
This stage is crucial for Revolut to prepare its systems and procedures to meet regulatory standards and safeguard customer deposits. However, it may still be some time before the company can begin holding customer deposits, as further steps and compliance measures need to be completed.
Challenges in Obtaining the License
Revolut’s journey to obtain this license began in 2021, but the company faced several challenges along the way. Key issues included addressing regulatory concerns about its accounting practices, resolving EU regulatory breaches, and improving its corporate culture.
The fintech firm had to restructure its share classes, collapsing six classes of shares into ordinary shares, to align with PRA rules. This restructuring was facilitated through a deal with major Japanese tech investor SoftBank, which helped streamline the company’s ownership structure.
What Does the Banking License Enable Revolut to Do?
The new banking license is expected to accelerate Revolut’s growth, enabling the company to diversify its offerings and generate new revenue streams. With the ability to hold customer deposits, Revolut can now fund own-branded loans and mortgages, expanding its product portfolio beyond the intermediary services it currently offers between consumers and licensed banks.
However, the company will also be subject to more stringent regulations, including the requirement to guarantee customer deposits up to £85,000, providing added security for its users.
Revolut’s founder, Nik Storonsky, expressed pride in this accomplishment, stating, “We are incredibly proud to reach this important milestone in the journey of the company, and we will ensure we deliver on making Revolut the bank of choice for UK customers.”
The banking license is also seen as a potential catalyst for Revolut’s international expansion. Approval from UK regulators could positively influence decisions by regulators in other key markets, such as the United States, potentially facilitating further growth.
This development comes on the heels of a strong financial performance by Revolut in 2023. The company reported a pre-tax profit of £438 million ($545 million), a remarkable recovery from a pre-tax loss of £25.4 million in 2022. Group revenues surged by 95%, reaching £1.8 billion, up from £920 million the previous year. This financial turnaround has strengthened Revolut’s position in the fintech sector and underlines its potential for continued growth.
Featured Image courtesy of JUSTIN TALLIS/AFP via Getty Images
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