Fintechs clash as Softbank and Revolut fail to reach agreement
Former Director of the Bank of England, Dr Colin Lawrence spoke with AIBC News on the status of Revolut’s application for a UK banking licence.
LH: What is the current status of Revolut’s application for a UK banking licence?
Dr Lawrence: As the Bank of England’s decision is expected on Revolut’s application for a banking licence after a two-year campaign. Revolut is locked in a fight with top shareholder SoftBank. Revolut was advised to simplify its ownership before it can be awarded a UK licence. The Japanese investor is asking for compensation to give up its priority class of shares. It seems to be one of the conditions for the Bank of England to grant Revolut a licence.
LH: Why is a UK licence so important to Revolut?
Dr Lawrence: Revolut needs a licence to expand its services in the UK, the US, Australia and Asia. The UK licence will allow Revolut to benefit from the UK’s deposit insurance scheme.
LH: The UK government is fearing that London will lose its “status as Europe’s main financial services hub” following Brexit. On the other hand Revolut CEO Storonsky criticised he UK’s “extremely bureaucratic regulator” and said that the London Stock Exchange “is much less liquid so I just don’t see the point”. What are your comments?
Dr Lawrence: This case should be a lesson for all fintechs to ensure their risk management structure is resilient. Showing that it is determined to effectively regulate fintech forms, it looks like the PRA which is the regulatory arm of the Bank of England, will not grant a banking licence to Revolut. This will restrict it to being an e-money firm without scope to move deposits and mortgages. Thoroughly reviewing the audit report, BDO could not verify all the revenue of Revolut. This could reflect the smokes and mirrors that some fintech firms deploy to impact their capital holdings. More broadly this looks like weak governance.
Revolut’s share structure explained:
In July 2021, SoftBank’s Vision Fund 2 led an US $800 million series E fundraising that valued Revolut at US $33 billion.
The PRA advised Revolut it needed to collapse its six classes of shares into one. The start-up had multiple funding rounds since it was founded in 2015.
While most investors have agreed to swap their shares into common stock, SoftBank is demanding twice the amount of common stock Revolut is offering in exchange for giving up some of the preferential rights linked to its current share class.
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