Financial technology giant Revolut has finally secured a long-awaited banking license from the Bank of England’s Prudential Regulation Authority (PRA), boosting its ability to compete with traditional big banks and offering better consumer protection to millions of UK customers.
Revolut’s pursuit of this license took three years, significantly longer than normal due to a series of hurdles that arose during the application process. This landmark decision from the regulator will allow the app-based company to start offering loans, overdrafts and other credit products to its nine million UK customers. Additionally, once Revolut launches its banking services, it will be covered by the UK Financial Services Compensation Scheme (FSCS), protecting customer deposits up to £85,000.
Nik Storonsky, co-founder and CEO of the London-based company, celebrated the achievement, calling it a “major milestone.” Revolut was valued at $33 billion in its latest fundraising round in 2021 and is considered one of the crown jewels of the UK fintech sector.
Revolut was founded nine years ago by Storonsky and Vlad Yatsenko as a money transfer and currency exchange service and has quickly expanded to serve more than 45 million retail customers in 38 countries, offering a wide range of services from cryptocurrency trading to insurance. Last year the company reported a turnover of £1.8 billion and a pre-tax profit of £437.8 million.
Despite having a European banking license from the Bank of Lithuania, allowing it to operate within the EU, Revolut’s growth ambitions in its home market and beyond have been hampered by the lack of a UK license. Without this system, Revolut would not have been able to compete directly with UK banks, but operated under an e-money license that required the use of third-party banks to hold customer funds and prevented lending to UK customers. Consequently, Revolut has not been part of the FSCS.
Revolut’s application is being intensively investigated in the city, mainly due to its rapid growth. A key obstacle has been the company’s accounting practices, which attracted attention when the auditor, BDO, raised concerns about almost £477 million of its 2021 turnover, resulting in a qualified opinion on the accounts. These issues were later resolved in the 2022 report.
Complicating matters further was Revolut’s complex ownership structure, which was recently simplified to ease licensing approval. Now, Revolut has been granted “authorization with limitations,” which marks a “mobilization period” to build the necessary systems and processes to fully function as a bank. During this period, which typically lasts around a year, Revolut will only be able to hold a total of £50,000 in customer deposits and will continue to operate in Britain under electronic money regulations.