Revolut is in negotiations with Apple to provide Apple Pay. It is banking on winning over Millennial customers through its budgeting and spending analysis features, and by reducing fees on foreign exchange services, where customers will be offered the real exchange rate rather than marked-up spreads offered by banks. Foreign exchange services provided the springboard for Revolut’s rapid growth in Europe.
The major banks are privately dismissive of the competitive threat of neobanks. They reckon they will struggle to raise enough capital and to acquire customers at a low enough cost to make the model economic.
Yet Revolut, founded in 2015, has already attracted 5 million customers across 30 European markets, and has raised $US336 million in equity funding from leading venture capital firms.
While overall neobanking customer numbers are minuscule in Australia, they are gaining traction. For example, digital bank Up, part of Bendigo and Adelaide Bank, said on Wednesday it has more than 100,000 customers just over eight months from its launch.
In Australia, Revolut is using one of the major banks to provide the segregated accounts that will hold customer funds, separating them from the business itself. Revolut does not pay customers any interest.
The arrival of purely digital banks and digital wallet services from large global technology players including Apple, Google and Samsung puts at risk $22 billion of major bank revenue, according to a recent report by investment bank Morgan Stanley.
A source in one of the major banks said the arrival of Revolut would be taken more seriously than local neobanks such as Volt, Xinja and 86400, because it has a track record of quickly acquiring customers.
“This is a different animal, it already has scale in its European markets, this could be a bigger threat than the home players,” the banker said.
Aware of the disruptive threat, the majors are investing more in their own mobile banking applications. Commonwealth Bank announced late last month it would relaunch its mobile app with a range of new features similar to those developed by fintechs, in an attempt to stop customers switching. Revolut will send customers instant spending notifications, analyse spending by category, allow customers to set up budgets and round-up card payments to save spare change.
The timing of the Australian launch comes amid some uncomfortable press stories about Revolut in Europe, with The Telegraph reporting in February it had had issues with sanctions screening. Revolut responded saying at no point does it believe it failed to meet legal or regulatory requirements.
The Financial Times reported last month Revolut had twice as many complaints to the UK financial ombudsman as its rival Monzo. But Revolut says the 171 complaints over four years are small given it provides a wider range of services than Monzo and tiny compared to incumbent banks such as Barclays or Lloyds, which each received more than 100,000 complaints during the same period.
Revolut’s VC investors include Index Ventures, Balderton Capital and DST Global.
Neobanks expect the number of customers willing to switch banks will rise under the federal government’s open banking plans.