Digital disruptor Revolut takes a swipe at high profits of 'legacy' banks

Monday, 3 July 2023

Digital account and payment “disruptor” Revolut has launched in New Zealand hoping to take business off the banks.

It is not a bank, but Revolut offers bank-like services, accounts, and the ability for users to make digital payments on the Visa and Mastercard networks.

It calls itself a “global financial superapp” with users doing all their banking through its app.

Users can hold money with it in five currencies, and pay in more than 200 currencies, without commissions on currency conversion.

Revolut, which has already launched in 40 countries overseas, earns its money from fees on international transfers, interchange fees paid by merchants on transactions, and also by not paying people who store money with it interest on their balances.

Money held with Revolut is deposited in a “trust account” at a New Zealand bank, because while Revolut has applied for a banking licence in Australia, it has not in New Zealand, and is not a registered deposit-taker.

Despite that, Revolut took a swipe at big banks, with its Australia and New Zealand chief executive Matt Baxby saying continually high bank profits “were demonstrative of the lack of competition available to consumers in New Zealand”.

Baxby expected people to use Revolut, while maintaining a relationship with their existing bank from which they would transfer funds to top up their Revolut “vaults”.

Revolut has no plans yet to offer loans.

Public interest appeared to be high. The company said 26,000 New Zealanders had signed up to its pre-launch waiting list.

The launch comes at a time when the Government is attempting to bring competition to retail banking.

It has tasked the Commerce Commission with conducting a “market study” into competition in banking, but it has also made moves to speed up the development of “open banking”.

Open banking is the term for the tech-driven revolution in financial services overseas involving non-bank tech companies building money management and payment app services for consumers, touted as a way of bringing more competition to banking.

Revolut said its app made it easier, and cheaper, for people to manage their money, and make payments, than at what it calls legacy banks.

But people need to read the small-print before signing up, both to understand Revolut’s fees, and the differences between it and the legacy banks it derides.

Revolut is listed on the Financial Service Providers Register, but has chosen not to be a member of the Banking Ombudsman scheme.

Instead, customers must take their complaints to the Financial Services Complaints Limited ombudsman scheme.

The company said it offered “no less protection or support to customers who have been a victim of fraud”, and said it responds to fraud inquiries faster than legacy banks.

It said its fraud protections, including two-factor authentication and biometric authentication, were state-of-the-art, and detect 99% of fraud attempts.

But it is not a member of the Banking Association Te Rangapū Pekē, whose member banks promise to reimburse fraud losses for customers who were not dishonest or negligent, complied with their banks’ terms and conditions for electronic banking or card use, and took reasonable steps to protect their banking.

The Government has also been moving to bring in a deposit guarantee scheme.

Though it is not expected to be launched until late next year, Revolut, as it is currently set up, will sit outside of that scheme, but it would adapt its offer when the deposit guarantee scheme comes in, the company said.

Revolut was founded in London in 2015 by Ukrainian Vlad Yatsenko, and former Lehman Brothers derivatives trader Nik Storonsky.

It is incorporated and licenced in the Republic of Lithuania, headquartered in London and is now the UK’s most valuable financial technology company.

Its growth has not been without its problems, including coverage in the United Kingdom of rising fraud losses, and in 2022, it suffered a major data breach in 2022, exposing 50,000 customers to attempted scams.

Revolut said a “small number of Australian accounts” were affected.

“Since then, Revolut has implemented enhanced security measures, conducted thorough investigations, and fortified our infrastructure to prevent similar breaches, ensuring the utmost security for our customers' data.”