FUTURE OF FINANCE FRIDAY

Revolut is riding the record-setting boom in fintech investing

Unicorn herders.
Unicorn herders.
Image: ClauseMatch
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Right now is the best time ever for a fintech company to raise funds: venture capitalists poured a record $40 billion into finance startups around the world last year, as a growing stampede of unicorns look to reinvent the business of money.

Amid the mania, one of the fastest-growing startups is Revolut, a London-based neobank that has raised $344 million and may rake in even more this year. The company, co-founded by CEO Nikolay Storonsky in 2015 and last valued at $1.7 billion, operates in 28 European countries and has reportedly been in talks with SoftBank.

Storonsky declined to comment on whether it’s in discussions with the massive Japanese venture fund, but said in an interview that Revolut may look to raise $500 million or even more this year as its valuation increases. The company says it now handles $4 billion in monthly payment transactions, up 33% from October:

The upstart has a reputation for fast, aggressive growth, but has been dinged (paywall) by media reports insinuating that its anti-money laundering controls have been stretched in the past. (The Financial Times also reported that the firm took liberties with its latest advertising campaign.) These days, Storonsky is keen to stress Revolut’s compliance chops as its readies for overseas expansion. The company recently signed up Clausematch to automate compliance across multiple jurisdictions as it rolls out in North America and Asia.

Similar to Elon Musk (paywall), who once envisioned an “alien dreadnought” factory cranking out electric cars, the Russian-born entrepreneur sees engineers, data scientists, and automation as the key to competing with entrenched competition in the finance world. (Musk, of course, later changed his tune.) Quartz spoke with Storonsky and Clausematch founders Evgeny Likhoded and Andrey Dokuchaev at Revolut’s offices in Canary Wharf, London’s financial district. The conversation has been edited and condensed for clarity.

Quartz: City A.M. reported that Revolut is in talks to raise $500 million early this year. Are those talks on track?

Storonsky: In reality, we didn’t need money at that time and we still don’t need money. So we’re just going to say to investors, let’s wait until it’s Q3 or Q4, and then we’re going to have a look. Because, yes, they’re all pushing us to get more money, but in reality we don’t need it. I’d rather achieve a certain size.

At the moment, for me as a founder it’s sub-optimal to take on $100 million, because I would dilute. But I’d rather have $500 million or even more at a much higher valuation in the future.

How often do you hear from investors?

Storonsky: There’s a lot of demand at the moment for fintech, and because we are one of the leading players, we have a lot eyes of on us. Generally, every week I have at least five, six investors approaching.

Likhoded: We get probably two-to-five inbounds a week. I had to stop speaking with investors because if you’re not raising, then you’re actually just informing them about what they need to know.

Revolut is in 28 markets in Europe, and now you’re planning to launch in the US, Canada, Australia, New Zealand, Singapore, and Japan. Why so many markets so fast?

Storonsky: Because we’re an ambitious company. We know we have the best product, and know we are 10 times better than the most competitive banks, and we want to scale as fast as we can. So we’re already preparing our next wave for new countries to be launched, mainly focusing on Asia, so countries like Indonesia, Malaysia, India. That’s coming in the second wave.

Are you worried about getting bogged down in the US where there are state-by-state approvals?

Storonsky: It depends on the type of business. In the money transfer business, yes, you need to go state by state. But the banking business, it is enough to get licensed in one state. In our case we just partnered with a bank, who has the coverage.

In banking, rules are surprisingly more flexible.

When it comes to growing quickly, people have soured on the Facebook “move fast and break things” approach. What are your red lines? Have you ever grown too quickly, pushed too hard?

Storonsky: Definitely in the past we had some skews. Now we have red lines we just don’t cross. So for example, customer experience for us is No. 1. In the past, we didn’t really pay attention to customer support, kind of an unsexy area. And then we had an exponentially increasing number of customer tickets and backlogs of customer complaints, so now we are very careful to not cross this red line.

We have three separate development teams just purely working for customer support, building tools, building metrics, minimizing the number of tickets we receive every hour, and we continue to invest.

Another topic is compliance. I could probably bet we have the largest technology compliance across all fintech. At the moment we employ probably 50, 60 technologists in compliance. It’s probably more than any—well, proper technologists—more than any kind of mid- to large-bank. Because, yes, Barclays, HSBC, they employ thousands of people in compliance. Out of that, how many are engineers, how many are data scientists who can build models?

So that’s one of our priorities. Continue investing, continue building things, continue automating things so you don’t need thousands and thousands of compliance agents.

But generally, yes, we tend to move fast. I would say, break things up to a red line.

What is your vision for the future of finance? JPMorgan has talked about this idea of self-driving, automated finance, where you get suggestions about lowering your utility bill or refinancing your mortgage.

Likhoded: Definitely fewer people. It’s going to be completely different. For example, rule-based regulation can be—anything that’s written as a rule, rather than as an outcome or a principle—can be automated. Today it’s done manually, like for example fraud detection, customer onboarding, transaction monitoring, all of that used to be manually or with very old tools. Now it’s becoming more and more automated.

There is another part of compliance which is on the conduct side, which is less technical and more soft compliance, which regulators pay a lot of attention to. That will start to become automated as well.

Storonsky: Short answer, it will be very different. Both on the product side, plus compliance side. In compliance, the type of people you hire will completely change. We are one of the earliest to realize that existing compliance professionals aren’t really fit for purpose in fintech. They don’t know data, they don’t know data science, they’re not engineers, they’re not designers.

Compliance needs to be done through models, which do things automatically. So at the moment, a lot of people in banks who do compliance do things manually. It just doesn’t scale with a growth organization. I think in two-to-five years time, banks will realize it and start to invest heavily in technology in compliance. Instead of additional compliance people, they will start hiring data science and engineers in the compliance department.

For [consumer products], surprisingly, I agree with the guys from JPMorgan. I think the same, it will be a very smart interface, because maybe in five years time there won’t be apps, it will be something else. There will be effectively a smart interface allowing you to do whatever you want with your money, and also helping you do whatever you want with your money—that can be borrowing money, lending money, spending money, your pension, mortgages, in just one interface, very simple, and then an advisor on top of it, telling you what is the best thing to do now.

The best user experience, like for myself, is I don’t need to search. I don’t need to do a Google search, see thousands of providers. I just want to see one provider, click a button, buy it, that’s it. That’s the ultimate state of financial services.


The future of finance on Quartz

  • Quartz member exclusive: Competition from crypto startup Ripple brought inter-bank payments into the 21st century. But that doesn’t mean Ripple itself will be a success. Also, an interview with Wharton professor Kevin Werbach, author of The Blockchain and the New Architecture of Trust, who says blockchain is still waiting for its killer app.
  • India’s financial capital is now one of its top-three startup destinations. Mumbai, home to the country’s biggest stock exchanges, was the base for nearly 50,000 startups established by the end of 2018.
  • Trump and the Brexiteers froze the world’s IPO market last month: the US and Europe managed just two public offerings in January.
  •  The British Museum acquired a fake banknote by prankster graffiti artist Banksy. You can still buy one online for £1,000 to £2,500 ($1,309 to $3,272).

Heard on headphones

“This is tobacco in the 80s and 90s, killing people, and growing earnings massively.”—Scott Galloway, discussing Facebook earnings, on Pivot with Kara Swisher.


The future of finance elsewhere

  • Startups announced deals: Sweden’s Tink, an account-aggregation app, raised €56 million ($64 million); Goldman Sachs and HSBC invested in Bud; and Nutmeg, Acorn, and Raisin also locked in cash from investors—a combined total of about $360 million.
  • Mastercard is looking to head off Visa’s bid for Earthport. The struggling payment service’s directors have unanimously recommended Mastercard’s $305 million offer.
  • New Jersey is closer to making it illegal to run a cashless store. Amazon, meanwhile, runs several cashless outposts in the garden state—for now.
  • The US Consumer Financial Protection Bureau is looking to roll back payday lending restrictions that never actually took effect. Among other things, a rule would have required lenders to determine whether clients can afford to pay their debts.
  • The Financial Times published a Big Read (paywall) about an alleged accounting scandal at Wirecard. Shares in the payment fintech have fallen more than 30% from their high in January.
  • Is the post office the bank branch of the future? Monzo, a digital-only bank, is in talks with the with the UK Post Office to allow its customers to withdraw and deposit physical notes and coins.

Previously, in Future of Finance Friday

Feb. 1: Apple should issue a debit card

Jan. 25: JPMorgan pities small banks, but the IMF says it’s the big ones that need to worry

Jan. 11: A cashless society is dangerously disruptive for the poor, elderly, and homeless