Fintech Unicorn Revolut Needs a Plan B

This year was supposed to be one big victory lap for Revolut, the UK’s largest fintech. The firm trumpeted its first ever year of profitability in March, having tripled its earnings year-on-year, and continues to hire at a blistering pace, despite doom and gloom elsewhere in the sector.

This was also the year Revolut hoped to earn its UK banking license. Since it began offering prepaid cards in 2015, the firm has amassed 25 million customers and moved into services from crypto trading to international money transfer. It’s now valued at $33 billion. Getting the license would let it expand further, into insured deposits and lucrative lending products like mortgages and credit cards—in short, to behave like a real bank.

The latest indication, though, is that Revolut will miss out. On May 18, The Telegraph reported that the Bank of England is preparing to reject the company’s license application, bringing to an unhappy end a process that has now dragged on for more than two years.

The Bank of England, which declined to comment, has not issued a formal decision. But a denial, says Stephen Kingsley, a seasoned non-executive director and chair of multiple audit committees at financial institutions, would hitch a “red flag” to Revolut that would damage its growth prospects at home and elsewhere. “It’s quite serious,” he says.

A rejection, should one ultimately arrive, is likely to be the consequence of an unflattering “series of own goals” scored by Revolut, says Kingsley. Against the backdrop of the pandemic and now malaise in the banking sector, the application was bound to face clerical delays and additional scrutiny, but a number of Revolut’s wounds have been self-inflicted, he says.

The firm attracted criticism over its latest financials, assessed by auditor BDO. When the report arrived on March 1, five months late, it described shortcomings in the company’s IT practices that meant three quarters of its revenues—£476.9 million ($591.6 million)—could not be verified with total satisfaction.

Although far from ideal, neither an audit qualification nor a reporting delay is reason in itself to deny a banking license application, says Kingsley. But Revolut’s reaction to the report may have given the regulator pause. The company made a mistake, he claims, in instructing its law firm to explain away the findings in a way that “amounted to a challenge to the auditor’s report”—a move likely to be interpreted by the Bank of England as a lack of respect for oversight. “It’s unheard of,” says Kingsley. “The trouble is that Revolut did not take [the report] seriously. It took umbrage; as if it were an insult rather than a professional observation.”

Likely adding to reservations relating to the audit report, says Devin Kohli, co-head at fintech-focused venture capital firm Outward VC, are concerns about Revolut’s organizational and capital structure.

A string of executive departures since the start of the year—including the company’s CFO, group COO and head of UK banking—won’t have helped matters, he says, and will have left the Bank of England speculating as to the cause of this turnover. “There’s a concern around why people cannot stay in senior positions for an extended period of time,” Kohli says.