Revolut Faces Roadblocks on Its Journey from Fintech to Bank

The UK’s most valuable fintech was granted a banking license a year ago, yet Revolut still hasn’t been given the green light to operate as a fully fledged financial institution.

Instead, Revolut remains in a holding pattern, limited to holding £50,000 in total customer deposits—billions of pounds lower than leading UK banks like Barclays, HSBC, or Santander.

In this mobilization phase, Revolut operates as an e-money unit rather than a bank. This means the fintech’s UK customers aren’t protected by the government’s Financial Services Compensation Scheme, which insures consumers up to £85,000 if their bank goes under.

One of the main reasons Revolut’s evolution has been delayed is the company’s size. Revolut has over 10 million customers in the UK alone and operates in over 40 countries. In contrast, no other organization has ever pursued the UK’s banking license process with more than 500,000 customers.

Getting the Transition Right

In addition to Revolut’s scope, UK regulators have had compliance concerns regarding the fintech.

Last year, the company was found to have far more fraud complaints than traditional UK lenders like Barclays. The high incidence of fraud—mostly carried out through automated push payment fraud tactics—called Revolut’s fraud defenses into question.

The combined concerns about scale and compliance measures have made the fintech’s transition into a bank a daunting process for regulators, who are focused on getting the transition right. However, according to CNBC, Revolut still believes it is on track to become a fully regulated bank this year.

Buying Into the Market

The issues that have dogged Revolut’s banking transition have caused it to consider a different tack in the U.S. According to the Financial Times, Revolut could bypass the lengthy banking charter application process by buying its way into the U.S. market.

In this scenario, Revolut would target an inexpensive bank that already holds a U.S. banking license, unlocking a substantial new customer base for the fintech.

This is a real possibility for Revolut: the company currently has a $45 billion valuation but is considering a deal that could both substantially increase its valuation and provide the funds needed for global expansion.