Revolut, a U.K. challenger bank
On Monday, the company applied for a California banking charter and federal deposit insurance. When those two applications are far enough along, it will apply to the Federal Reserve for permission to form a holding company. Revolut also rolled out an account for business owners Monday.
Revolut joins a parade of fintechs that seek the advantages a bank charter brings in this country: the ability to gather low-cost deposits, the freedom to launch new products without waiting for a partner bank’s approval and support, and the comfort that the word “bank” can bring to consumers who are wary of depositing money in a company they've never heard of. These fintechs typically offer accounts with low or no fees, a mobile app as well as rewards and discounts, making them increasingly formidable competitors to traditional U.S. banks.
Revolut's basic accounts start out free but turn into a subscription model with heavier use. Revolut has 15 million users worldwide. The company won’t share how many U.S. customers it has, but it will say it hopes to have 1 million Americans using it by year-end.
Before the company officially announced its charter move, Ron Oliveira, the U.S. CEO of Revolut, took a few questions about how the company is doing in this country and where he plans to take it next.
Why did you choose to apply for a state charter rather than a national bank charter?
RON OLIVEIRA: We've been in dialogue with regulators in California for the last several years about our plans. Once we obtain the state charter, we would then be able to passport it across different states. It's a privilege and not a right to have a banking license, and over the coming months, we look forward to addressing and meeting the expectations of our regulators.
Have you wanted to apply for a bank charter from day one?
I would say probably yes. This is really driven by how Revolut wants to be a global worldwide app. We've also filed for a bank license in the U.K., where our parent company is. We want to be able to offer all the services that a customer needs. People say, what do you get with a bank license? The first answer is always, you can offer credit, you can collect deposits. That's the easy answer. But for us, it's more that it reduces the friction that we have, so we can offer products quicker. We can offer a wider variety of products. It provides liquidity because you have the deposits that you can lend back out. You also can go to the Federal Reserve and have the ability to borrow.
Once you have a bank license, you can have a diversification of revenue that makes you a stronger company overall. And one of the big issues for fintechs is trust. People don't see a branch; it’s relatively new. When you have regulatory oversight and you're held to the highest standards, it validates who you are and gives customers a higher level of trust.
You sometimes see people ask on forums like Quora: “Is Chime a bank?” “Is Varo a bank?”
Right. This kind of takes that mystery out of it. The minute you say, it’s a fully regulated, chartered bank with [Federal Deposit Insurance Corp.] insurance, they say, I get that and they feel comfortable with that.
In the U.S. there is going to be the greatest transfer of wealth from one generation to the next generation coming, with the baby boomer generation transferring wealth to their kids and grandkids. Those younger people are going to want to know who they're banking with, the strength of that organization. I believe it's going to be important to them.
So have you been thinking about offering investment products and money management tools?
At Revolut, we want to take people through that entire journey, all the way from having that demand deposit account or prepaid DDA account to savings to crypto, if they want to be a little more aggressive in their diversification. We plan on rolling out credit in the fourth quarter. And the business product is an adjunct to that. People reach a point where they want to start their own business or a side hustle. In our app, you can easily just open up your business account.
What is the new business account? Is it a checking account for entrepreneurs?
Yes. At a basic, freelancer level, you can sign up for free. You're going to have your checking account, payments, money transfer, expense management. If you have a couple of employees, you have employee corporate cards, you can do [foreign exchange].
Have you told your current bank partners that you'll be separating from them?
We've been very upfront with our partners. Metropolitan Commercial Bank does our card issuing and is our predominant partner. Sutton Bank handles our high-yield savings account. And we’re working with Cross River Bank on a credit product. We’ve had conversations right up front with them about our long-term approach to be a bank. As everyone knows, that takes some time. So some of those partnerships will continue even after we hopefully get a bank license.
How do you think Revolut will stand apart from other challenger banks?
There is competition, and the U.S. is a huge market. We almost never get customers from fellow fintech organizations. We acquire our customers from legacy or traditional banks.
We're building out a full suite of products: DDA accounts, savings accounts, crypto, commodities [and] soon credit, business accounts. So you don't have to go anywhere else. That's how we differentiate ourselves. And we are truly a global bank. We're the only one that can do cross-border P-to-P really well.
So this is your one-year anniversary in the U.S. What has your growth been like, the size of team and operations?
I'm proud to say I think we did everything we said we were going to do in our first year. We have about 50 people in and around the U.S. today that support the operation. Within the next six months or so we’ll probably have between 80 and 100 people. We’re building out the compliance, risk, legal, [human resouces], front end and infrastructure you have to have, to really support a customer base like that.
We're putting together a big marketing awareness campaign that you're going to see us roll out in Q2 and the rest of the year. It will involve influencers, TV promotions and more. We're looking at making Revolut’s name much more visible in the U.S. market.
We're pretty darned optimistic, now that people are getting vaccines and things are starting to open up a little bit.
What strengths do you bring from your European parent that you’ll be able to import over here?
Almost everything we have now was imported here. Revolut has a parent that has a global reach and strong financial backing. A lot of testing and product rollouts have happened overseas, so we can see how they look before they get to the U.S.
And I suppose you could learn from what didn't work in Europe, although Americans are a little different — we spend more and save less, and we're a little more reckless with our money.
We spend more, save less, we love our points and perks. Credit is a beautiful thing. So it's not necessarily different products in different countries; it's how you build the features around the products. The features have to align with our tastes.
