Revolut Granted Restricted Banking Licence
After fast-growing global fintech Revolut finally received a British banking licence last month (albeit with restrictions), we asked experts for their views on its impact on the British banking sector - and whether the firm, viewed by many as a controversial disruptor, is likely to win a full and unrestricted licence in the UK.
Interview 2
There are significant doubts within the financial industry over Revolut’s ability to achieve a full and unrestricted licence, particularly if the company’s handling of fraud does not improve – according to an expert in the sector.
Although the partial licence marks a milestone for the company, the expert warned the licence could exacerbate – rather than resolve - existing issues at Revolut.
The expert, a finance journalist who has covered the sector for more than a decade, highlighted Revolut’s approach to compensating victims of bank transfer scams. According to the expert, Revolut has gained a reputation for denying compensation to victims of fraud, even when the victims appear to have acted responsibly.
This practice has led to an increasing number of cases being referred to the Financial Ombudsman Service (FOS), which settles complaints between consumers and businesses. The FOS has ruled against Revolut in “many cases” – the expert said.
The scale of Revolut’s challenge is starkly demonstrated by statistics from the Payment Systems Regulator (PSR), the UK’s regulator of payment systems, which show Revolut recorded nearly 3,500 fraud-related complaints in 2023. This was higher than Barclays, a much larger bank, which had just over 3,000 complaints in the same year.
These figures suggest that Revolut’s internal controls to prevent and address fraud are insufficient and raise doubts about its readiness to operate as a full-scale bank, the expert explained.
Additionally, a new set of rules known as “Mandatory Reimbursement” will come into effect this year. Devised by the PSR, the rules will require payment service providers to reimburse victims of authorised push payment scams (a type of fraud where a victim is tricked into sending money to a fraudster). The expert said this could result in Revolut’s current approach to fraud leading to more disputes and – subsequently - higher costs for the company and falling satisfaction from customers.
The expert expressed uncertainty about Revolut’s chances of securing a full UK banking licence after the 12-month mobilisation period, due to the bleak fraud statistics and high volume of FOS complaints which could both jeopardise the firm’s goal.
The Financial Conduct Authority (FCA), the government body that regulates the financial services industry, is particularly focused on customer outcomes, and Revolut’s performance in this area might pose a significant hurdle – the expert said.
Therefore, investors should be aware that the company’s handling of fraud and customer complaints will be under intense scrutiny during the mobilisation period.
Interview 1
Revolut must address regulatory and consumer concerns about fraud and compensation before it is likely to obtain a full banking licence in the UK, a finance expert has told Hartford Advisers.
The company’s breakthrough last month caught the banking sector’s eye, but significant scepticism remains about Revolut’s efforts to fully establish itself as a player in the market – according to the expert.
They highlighted Revolut’s poor reputation for issues around fraud and refunds, which has prompted negative press coverage about the company’s operations.
The expert – a consultant in the personal finance sector - added Revolut has been late in filing its annual accounts on two occasions, which has further contributed to a negative perception of the business.
The expert also said Revolut’s move into cryptocurrency earlier this year was seen as a “potential red flag” by some within the traditional banking industry.
After obtaining its restricted licence, Revolut now faces a 12-month “mobilisation period” during which the company must also meet other regulatory requirements.
These include developing a comprehensive business plan, securing more funding for the business itself, assembling a full management team, and establishing continuity plans – the expert said.
Even if Revolut successfully navigates this mobilisation period and is granted a full licence, industry scepticism about the firm may persist. This is because Revolut is often perceived by customers as a “supplementary service” rather than a primary banking option, the expert said.
In other words, customers may use Revolut for specific functions like cryptocurrency trading or international transfers, rather than relying on the firm as their main bank for savings and loans.
This perception could limit Revolut's ability to disrupt the banking sector, the expert said. Therefore, Revolut would have to launch competitive products such as mortgages or loans to become a significant threat to traditional banks.
Ultimately, it will be critical for Revolut to convince the sector of its long-term viability and solid foundation, the expert said.
Investors should be aware that the road ahead for Revolut will require more than just the rapid growth enjoyed until now. The company needs sustained performance, transparency, and the ability to gain the trust of its customers and regulators.
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