In Europe, Revolut now has around 7 million users after just four years of operation, making it one of the world’s most exciting fintech companies. It’s now live in Asia, having just made its debut in Singapore, and with Australia and Japan waiting in the wings.
But Asia has already proved to be a tougher challenge than Europe, as Singapore-based managing director Jakub Zakrzewski acknowledged in his recent sit-down with DigFin.
What is Revolut? It’s a debit account-app aimed at affluent people who travel, with services that undercut banks. For a monthly fee, Singaporean residents can open a debit account via their mobile, receive a Revolut card (plastic or metal), and use it to spend worldwide in Singaporean dollars or 12 other currencies. Revolut offers interbank rates for foreign exchange and free money withdrawals worldwide. In Europe, Revolut also offers free commissions on trading stocks or cryptocurrencies (like RobinHood in the U.S.).
Singapore has plenty of customers that could be Revolut users. But scaling in Asia will be difficult. First of all, the region presents all companies, especially fintechs like Revolut, with the challenge of fragmented markets.
The culture offers a challenge too. Banks in Asia, especially in Singapore, are already at the forefront of digital innovation (at least by bank standards). In 2014, when Revolut was founded, the mood in Britain was in full hate-the-banks swing; but today, Asians still trust their big bank brands.
Finally, the competitive landscape is different to what Revolut grew up with: there’s no Grab or other “superapp” competition in London or Berlin. Singapore, on the other hand, boasts not only Grab but also an endless parade of consumer-facing fintechs.
The MAS is also about to issue virtual bank licenses, and while Revolut debuted in Britain where there was already a healthy environment of challenger banks, none of them (Monzo, Starling, etc) were built on the capital or sophistication of superapps: but in Singapore, the likes of Grab as well as big players like Singtel have indicated they’ll compete to win these licenses.
Zakrzewski says the fragmented nature of the region was a bigger hurdle than the company initially understood. Revolut won a money-operating license from the fintech-friendly British Financial Conduct Authority, which allowed it to market throughout the European Union. Its license in Singapore is just for Singapore, so expanding to new markets means extra layers of cost and complexity.
But this was not the real reason why Revolut’s launch was delayed, after having been announced for the start of this year or even earlier.
There were two factors to the delay. One was regulation. The Monetary Authority of Singapore has recently passed a Payments Services Act that consolidates licenses, but until then, Revolut had to operate one license for storing money and other to remit it.
We’re working to convince people it’s better to be early so you’re not playing catch-up when your experience is no longer relevantJakub Zakrzewski, Revolut
The second hurdle was talent.
“In Europe,” Zakrzewski said, “startups are seen as fun and innovative, and offer higher risk but higher rewards. In Singapore, there is a still the perception that people want to work for big corporate brands. They want the prestige and pay of a top-tier investment bank or consultancy.”
As a result, “We spent a crazy amount of time on recruitment, working to convince people that it’s better to be early [by joining a fintech] so you’re not playing catch-up when your experience is no longer relevant.”
So now that Revolut has launched in Singapore, with about 30,000 users, how does the company maintain that pace?
One boost are global deals cut in London with VISA and Mastercard. The payment companies will support Revolut issuing their credit cards. This kind of brand recognition should support Revolut’s rollout. (Recent news about the company seeking a $20 billion valuation for an IPO is also helpful, Zakrzewski says.) The card companies have seen fintechs like Revolut carve out a slice of the market for forex, and prefer to team up so that money circulates through their payment rails.
But that’s more of a bonus rather than core to Revolut’s Asia prospects. To make an impact, it will have to maintain a furious pace.
The barriers to innovation are coming down every yearJakub Zakrzewski, Revolut
“If we don’t continue to innovate, we’ll be disrupted,” Zakrzewski said. “The barriers to innovation are coming down every year.”
That innovation is primarily about finding ways to improve the customer experience, he says.
Do the economics work?
But is that sustainable? Ride-hailing app companies are losing money, and the torpedoed WeWork IPO in the U.S. shows the limits to customer numbers. In Singapore, most people are spoiled for choice when it comes to credit cards, for example.
“It’s not going to be a bloodbath,” Zakrzewski said. “We’re not going to throw money around like a ride-hailing company. We’re going to focus on the best [finance] product that keeps people using it.”
We will all compete on service, not on priceJakub Zakrzewski, Revolut
Revolut in Europe has succeeded in building user numbers by offering things like free commissions. But commission-free just suggests that a great swathe of financial services is headed towards zero rates. How does anyone, fintech or bank, make money? What’s the premium service that customers will pay for?
Zakrzewski disputes the premise. “Things are not going to end up at zero. They’re going to a level better understood by clients.”
Revolut versus the banks
The difference, he argues, is that traditional banks are hampered by quarter-to-quarter thinking and rely on big marketing budgets to remain relevant. Fintech players like Revolut, as well as e-commerce and other disrupters, will force banks to go through a massive restructuring, as they focus on growing revenue and cut costs.
That doesn’t mean going entirely digital, either. But it does imply that financial institutions still have a formidable transformation ahead.
Despite the presence of Amazon and Shopify, “There are still retail shops, for niche things,” he said. “Brick-and-mortar banks will have a similar role. But every bank should become a technology company.”
Incumbents have been innovative when it comes to hiding feesJakub Zakrzewski, Revolut
Sounds slick – but it doesn’t answer the question of what customers will continue to pay for. Zakrzewski provides an additional answer:
“We will all compete on service, not on price, by relying on an agile tech stack for a leaner cost structure, and on good developers to provide better products.”
Transformation for all
In a twist, he says banks have actually been very innovative. Just at things that aren’t going to be relevant anymore.
“Incumbents have been innovative when it comes to hiding fees, in order to make more money.” The transparency, efficiency and good digital experience that fintechs can bring will render this model increasingly moot.
Banks will instead find themselves on the same hamster wheel as Revolut and other fast-paced companies, fighting for the same talent to build the best product, and constantly innovating. Zakrzewski says the introduction of virtual banks will provide the industry with a necessary jolt to make banks more competitive.
One thing that banks tend to be good at, or at least have resources to manage, is cyber security. As open APIs create new vulnerabilities, fintech companies will find themselves increasingly under attack. How can a firm such as Revolut protect itself and its users, without spending the billions of dollars that global banks dedicate to security?
Revolut this year hired its first chief information security officer. Zakrzewski thinks this could lead to a new wave of services. “This needs to be the new normal for any tech company. I can see ‘Information Security as a Service’ becoming a thing.”
Alongside this is using customer engagement to educate users about data and money storage.
What about the superapps? Revolut has no experience of these behemoths in Europe. How will it compete against them, particularly given their deep, deep pockets?
“We focus on providing the best experience in financial services,” Zakrzewski said. “And you know what? It’s really hard.” He believes digital conglomerates lack the expertise, focus and DNA to do fintech well.
All of this comes down to Revolut, or any company’s, ability to keep pleasing its users. It’s working in Europe. But Asia’s a different environment.
Zakrzewski says the only way to survive is to rely on local talent to make decisions and reward innovation. “Great companies fail in Asia if they can’t localize and iterate,” he said.