Last week, fintech major Revolut secured a UK banking license from the Prudential Regulation Authority in what is likely to be one of the biggest industry news stories this summer. The license sees Revolut initially begin with an Authorisation with Restrictions, a common step during which the company will build out its banking operations before their UK market launch.
While the acquisition of banking licenses is a critical part of a payments player’s growth, for Revolut the approval has become something of a saga that has dogged the company for the past three years. The application has been referenced in almost every piece of news coverage about the company – from updated valuations to new product launches and beyond – since it first applied in 2021, with some having begun to question whether Revolut would ever receive the vital approval in its country of origin.
The process has been far slower for Revolut than many of its contemporaries – the process usually takes less than a year – and has been delayed for a number of reasons. Firstly, there were concerns over Revolut’s 2021 accounts, which saw a significant delay in publication after auditors warned that they could not fully verify the revenue numbers. This raised questions over the company’s ability to fully and effectively monitor its finances and Revolut took significant steps to clean up its image in this area in the following years, including with the early publication of its 2023 accounts.
Other headwinds included issues around Revolut’s share structure, which originally included shares with preferential rights that put it at odds with Bank of England requirements. Here, the company opted to collapse multiple classes of shares to come into compliance.
As long as the process has been, it has been essential to the company’s future. Revolut has held a full EU banking license since 2021 and was granted one in Mexico earlier this year. However, securing a license in the UK, which is not only its founding country but also its biggest single-country market, has long been seen as critical to its future growth.
Without the license, Revolut was restricted from offering some of its products in the UK, and was also likely to have been regarded less favorably by regulators in other markets where it is also trying to secure a license – most importantly, the US.
Now that it has secured the license, however, Revolut faces a choice: build on its UK roots with a London-based IPO or look to the US as a jumping off point for stronger future growth.
The case for a London-based Revolut IPO
As it approached the final hurdles of securing the license, Revolut has also been on something of a PR offensive to demonstrate both its commitment to and benefit for the UK.
As well as reporting a 95% YoY increase in revenue in 2023 earlier this month, to £1.8bn ($2.2bn), and a 36% increase to its headcount in the same year, Revolut last week announced it was targeting a valuation of $45bn in a deal that will see it sell off around $500m of employee-owned shares – a dramatic improvement on its $33bn valuation in 2021.
This comes not long after the company announced that it was establishing a new global headquarters in London’s Canary Wharf. This will see its branding visible atop the area’s YY Building, placing its logo alongside the likes of Citi, Barclays and KPMG, as well as expanding its office footprint in London overall by 40%.
This is a firm statement characterizing it as a key banking player in the UK capital, but it also paints Revolut as something of a savior to the financial hub. In the wake of the pandemic, remote working has drastically reduced the office space needed by many of the city’s financial giants, and has hit the financial-focused Canary Wharf hard. Last year the district’s property developer said that it was looking to diversify after HSBC announced it would be moving out, and the area’s office vacancy rates are now expected to pass 16% by the end of the year – levels it has not seen in more than two decades.
This detail and the associated issues if the neobank remained without a UK banking license were clearly at the forefront of Revolut’s mind when it unveiled glossy renderings of the new headquarters in June, suggesting a desirable commitment to the city for the long term.
However, whether this extends to a London-based IPO remains in question, with Revolut likely to look seriously at a public listing in 2025 or 2026.
UK regulators have been looking to reform rules around listing on the London Stock Exchange (LSE) following an exodus abroad, mostly to the US. This includes the use of dual-class share structures, which are typically used by founders to retain control following an IPO.
Such moves are squarely targeted at high-growth, high-value former startups such as Revolut, but the company has remained positive but noncommittal about an LSE-based IPO. At the start of this month, Revolut Chair Martin Gilbert told the Financial Times that the company would “keep an open mind” on where it would list, although did acknowledge that improvements were attractive.
“All the moves [regulators] are making are good, they’re allowing founder-led companies like Revolut to list here rather than just have no choice,” he said. “But again let’s see how it all pans out, the proof will definitely be what happens in the future.”
While Revolut would represent a major win for the LSE, it is not the only payments major to consider a London listing. Santander’s SMB-focused cross-border payments brand Ebury appointed Goldman Sachs last week to begin work on a potential £2bn IPO for 2025, and while Group GFO José García Cantera said on the company’s latest earnings call that the bank was only “contemplating” the IPO, the choice of London is a sign of confidence.
It also follows Revolut rival Wise, which made its public market debut on the LSE in an unusual $11bn direct listing in 2021. However, more recent players have faced some challenges, including emerging markets-focused CAB Payments, which has seen its market cap slump by more than 70% since its June 2023 IPO.
Could Revolut target an IPO in the US?
If Revolut does not opt to IPO in London, the US is the most likely alternative, where it would join vast numbers of other fintechs in being lured away from their home countries for a listing on the NASDAQ or NYSE.
The much larger pool of investors and resulting increased liquidity continues to make the US the popular place to list a company. While at the end of last year the London Stock Exchange was seeing average daily trading volumes of around £32.6bn ($40.6bn), US equity trading volumes saw daily averages of $515bn in Q4 2023.
Meanwhile, although IPOs of Revolut’s size are unusual in the UK, they are more common in the US. In the payments space, recent companies to cross borders for a US IPO include Nubank, which despite being headquartered in Brazil opted to list on the NYSE in 2021.
In most cases, the US offers fairly similar prospects: favorable regulatory conditions for founders; a capable and skilled workforce; and a well-trodden path to public listing that puts companies in easy parallel with their competitors and peers.
The same would be likely true for Revolut, but there are also a number of other factors that increase the appeal for the company.
First is the push factor. While Revolut has now secured its UK banking license, the pain and expense it has endured to do so has been significant. CEO Nik Storonsky has generally avoided commenting on the length of the approval process directly, but has previously raised concerns over the UK’s shortcomings in fostering innovation and investment, as well as highlighting the business harms of prolonged uncertainty.
The UK is now under a new government with a fresh strategy for growth and Revolut is in a very different position to build, but trust in the country as a long-term home may have been severely undermined by the length of the approval process.
Secondly, the US could represent a bigger future opportunity for Revolut than the UK does. While in the UK Revolut saw revenue climb 48% YoY in 2023, and will unlock strong new revenue potential with the banking license, this was its slowest-growing market. Europe excluding the UK grew by 54% YoY, but the biggest growth came from the rest of the world – which covers the US alongside others including Australia, New Zealand, Singapore and Brazil – where the company saw a 69% YoY revenue increase.
In the company’s 2023 report it highlighted that these markets, which are newer for Revolut than the UK and Europe, represent stronger long-term potential. This is likely to be particularly true of the US where the company still has significant product and regulatory development ahead and its local subsidiary, Revolut Holdings US, remains relatively small, carrying a value of £83m ($107m) as of 31 December 2023.
Having first launched in the US in 2020, five years after the company was founded in the UK, Revolut has since launched personal loans for its US customers in 2022 and robo-advisor services for automated investing in 2023. It also added accounts for US businesses in 2021.
However, it is still reliant on the provision of services from sponsor banks and is currently in the process of switching to a new sponsor bank in the US, which will need to be completed before it can refocus on growth in the country. In the longer term, it will also need to secure a US banking license, something that US CEO Sid Jajodia at the start of this year said was not on the company’s “immediate roadmap” but was “absolutely” a long-term goal.
With a need to secure licenses on a state-by-state basis, this will be a long and expensive process, however doing so will unlock significant growth potential in the US, which offers an ultimate addressable market well beyond that of the UK. To win that market, though, it would have to take on many of the largest US financial institutions, as well as upstarts such as Chime and the large regional and community banking network.
Much as a strong focus on the UK is likely to have helped Revolut in getting its approval over the line, there may come a time when a stronger US presence will make the most sense for Revolut – and that may well include a presence on a US stock market.
Ultimately, while its UK foundations have been secured, Revolut is going to need to look well beyond the UK to sustain its growth in the long-term – and whether it can do so while being a UK-based public company remains to be seen. What Revolut decides to do may prove to be a powerful test for whether the UK can compete with the US when it comes to providing a home for global publicly traded fintechs.
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