Why did it take Revolut so long to get a banking licence?

It’s gone from a plucky young startup, to being one of the world’s biggest fintechs. But until this week, the online banking giant Revolut had been unable to operate as a traditional bank.

Now, over three years since the firm submitted its first application with the Bank of England, the UK’s largest fintech unicorn has secured a banking licence.

The new status removes one of the company’s biggest barriers to growth. It will allow Revolut to hold customer deposits and bring new financial products to market.

As a new bank, Revolut has entered the “mobilisation” stage. It will now have one year with deposit restrictions to prove it can be fully operational, before it is eligible for the same permissions enjoyed by traditional lenders, such as Barclays Bank.

Revolut finally secures licence — why the wait?

Revolut’s struggle to secure a banking licence has been well-documented over the years. As recently as April 2023, Revolut received a caution after it appeared to suggest that a banking licence was imminent. It first lodged an application in 2021.

Watchdog concerns stemmed from the company’s delayed 2021 annual report, in which the auditor BDO was unable to verify around a quarter of Revolut’s turnover (£477m).

In an interview with the Financial Times last May, Storonsky maintained that the challenges are bureaucratic. “Ultimately it is not really [Revout], it is generally the banking crisis we see at the moment that makes regulators extra cautious,” he said.

Other factors include reputational damage after various high-profile cyber attacks led to customer losses. As well, regulators were reportedly concerned about Revolut’s aggressive organisational culture.

Job adverts posted on the firm’s website offered insight into what this looked like. Applicants were told they would be assessed “accurately, not kindly”, and “it might hurt”.

In answer, Revolut established a new set of company values and hired a behavioural team designed to improve relationships in the work environment. It also released its first Financial Crime Report earlier this year, to demonstrate its commitment to robust security protocols.

Why did Revolut need a bank licence?

There are various incentives for Revolut to apply for a banking licence. Now that its application has been tentatively granted, the firm will be able to hold customer deposits, and take its own-branded loans to customers, including mortgages, to market.

Likely, gaining the nod of approval from the UK watchdog will also make banking regulators in other countries, including the US, more likely to follow.

Revolut’s frustrated founder, Nik Storonsky, previously warned that the business could abandon the UK in response to the ongoing red tape. The threat prompted the then Business Secretary, Kemi Badenoch, to seek an emergency meeting with Revolut earlier this year.

Monzo, a similar fintech product and Revolut’s closest rival in the UK, received its banking licence in 2017. The company reported its first profit in June.

What’s next for Revolut?

2024 is a year of growth for Revolut. Back in May, the firm announced a $500m sale of its company shares, in an effort to quickly boost Revolut’s value and attract investment. It has also been on a hiring spree, adding 2,000 new staff to its headcount in 2023.

Next March, the company will move into a new multi-million pound office space in Canary Wharf, in a relocation apparently intended to cement its status as a financial powerhouse.

However, these growth ambitions may be curbed by the restrictions of the UK banking licence. As a result of its new bank status, Revolut will face more stringent regulations and have to guarantee customer deposits up to £85,000.

Commenting on the approval, Storonsky said: “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.”