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British banking licences do not generally set pulses racing. After all, the Prudential Regulation Authority has issued almost 40 over the past decade to new banks including Starling, Monzo and OakNorth.
But London-based fintech Revolut has been battling to join the list for more than three years. It has finally got its wish. But that achievement on its own won’t be enough to put all doubts behind it.
Revolut’s difficulties securing a UK banking licence, in part, reflect its growth. Revenues have continued to surge and almost doubled to more than $2bn last year. Problems such as delays to its 2021 and 2022 accounts — caused by questions from auditors over revenue verification — justified regulators’ cautious approach. Meanwhile, a cool-down in financial markets prompted Revolut’s private investors to mark down its valuation.
Securing its banking licence clears a significant hurdle nonetheless. An ongoing sale of $500mn worth of employee stock could be a further demonstration that confidence is returning. A reported valuation of more than $40bn would be a significant premium to the $33bn last ascribed to Revolut at a private funding round in 2021.
The company’s internal forecasts are extremely bullish. It reckons it can hit revenues of $9bn by the end of 2026. That would require revenue growth to accelerate from the 55 per cent Revolut expects this year, roughly doubling again over two years.
If it delivers on its lofty promises, then investors in the latest share sale are not getting a bad deal. Assuming half the growth needed to meet its 2026 target comes next year, and profitability remains steady, then a $40bn valuation equates to 25 times 2025 earnings. The UK’s Wise and Brazilian digital bank Nu both trade on 22 times 2025 earnings.
The trouble is that Revolut’s growth ambitions look bold to say the least — even if its banking licence will help. That is doubly the case against a backdrop of falling interest rates: interest income accounted for over a quarter of its revenues last year.
At the very least, Revolut might have to sacrifice profitability to hit promises on the top line. It spent £241mn on advertising and marketing last year, twice what it did in 2022 — or about £20 per new customer. That looks high compared with the estimated £7 per customer that Wise and Nu spent in 2023.
Companies generally struggle to hit extraordinary top line growth targets without hurting profits and annoying investors. Revolut’s big ambitions mean it could easily still fall prey to that trap.
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