Tag: digital bank

  • Revolut has big plans for the U.S. market

    Revolut has big plans for the U.S. market

    Revolut applied for a U.S. banking charter on March 5, signifying its determination to become a licensed bank in the world’s largest economy.

    “The United States is a key pillar of our global growth strategy. Filing for a national bank charter is a major milestone toward our vision of building the world’s first truly global banking platform,” Revolut CEO Nik Storonsky said in a news release.

    Applying for the banking charter marks a significant change in strategy for Revolut in the U.S. Previously, the UK fintech unicorn planned to acquire a local American lender, betting that such an acquisition would be the quickest pathway to a banking charter that could finally unlock the U.S. market. An M&A deal would have provided the company with an existing charter and instant passporting across all 50 states, avoiding the long and uncertain process of applying on its own.

    Revolut has been operating in the U.S. since March 2020 as a fintech company in partnership with American banks. While the company boasts about its 1 million U.S. users and the US$500 million it has invested in the country, the reality is that its current American business is small potatoes. One way or another, it needs to become a full-fledged bank to make that investment pay off.

    The UK firm jettisoned its plan to acquire a local U.S. bank because it concluded that acquiring an existing institution was too complex. On the one hand, Revolut realized that an M&A deal wouldn’t necessarily be speedier than applying independently for a banking charter. One reason for that is a change of control in an acquisition still requires a complex, rigorous, and lengthy regulatory approval process in the United States. While this kind of deal might be fast-tracked in certain emerging markets where oligopolies are common across financial services and technology—Indonesia comes to mind—the U.S. is different.

    Additionally, acquiring a U.S. lender would have potentially required that Revolut maintain undesired physical branches.

    It seems Revolut is betting on the U.S. regulatory environment being favorable to its application for a standalone charter. This seems risky to us in some respects, given that the UK firm has a checkered compliance history and still does not have a full banking license back home. And unlike Mexico—where Revolut did recently acquire a full banking license—the U.S. market doesn’t really need an upstart digital bank.

    However, The Wall Street Journal notes the second Trump administration has moved to ease barriers for fintechs, cryptocurrency firms, and foreign banks that want to tap the U.S. market. The Office of the Comptroller of the Currency received 14 new applications in 2025, almost as many as the total for the four previous years combined. The agency has approved several charters since the start of January.

    With its own license to operate in the United States, Revolut would be able to start taking insured customer deposits. That would make it easier for the company to offer lending products like its own credit cards, which it sees as crucial for gaining American customers. To offer those right now, it would have to borrow from the capital markets. With a banking charter, Revolut would also gain access to payment systems such as Fedwire and A.C.H.

     “For our long-term ambitions, the best thing for us is to be directly regulated,” Sid Jajodia, the company’s chief banking officer, told The New York Times.

    If Revolut succeeds in its banking charter application, we expect that it will pave the way for a U.S. IPO—something it has been mulling (if not explicitly planning) for a while now. If not, we expect that the company will keep trying to crack the U.S. market, since it never gives up easily.

  • Why most Australian neobanks have failed or been bought

    Why most Australian neobanks have failed or been bought

    In many countries, neobanks are thriving. Australia is not one of them. In fact, we would say Oz is where neobanks go to die.

    If you think that’s an exaggeration, consider this: Just one major native digital Australian lender has survived for a decade. That would be Judo Bank. More on Judo in a moment.

    Most other Australian neobanks are gone, while international online lenders have usually avoided the market – though Revolut is a notable exception.

    The more successful Australia-founded digital banks, however, have teamed up with large incumbent lenders. 86 400 was acquired by the National Australia Bank in 2021. Up Bank was fully acquired by Bendigo Bank the same year.

    Xinja wasn’t so lucky, collapsing abruptly in December 2020—though then banking regulation chief Wayne Byres said that the demise of Xinja was a “successful failure” because the neobank returned all customer deposits. Guess he is a glass-half-full kind of guy.

    The latest Australian neobank to call it quits is in1bank, founded by Shanghai-born investment banker James Tong. Pitched as a “bilingual” (English and Chinese) digital bank for consumers and SMEs, in1bank announced it would end its banking business in late January and return all customer deposits, without providing an explanation.

    Most Australian neobanks have failed or been acquired due to an inability to scale, high customer acquisition costs (especially in the retail segment), and a failure to convert deposits into profitable lending. Without a sizeable loan book to generate net interest income, their models have been unprofitable.

    Part of the problem is that Australian neobanks have tended to directly take on entrenched incumbents, rather than trying to cultivate a niche with underserved market segments. The “Big Four” Australian banks (NAB, Westpac, Australia and New Zealand Banking Group, and Commonwealth Bank of Australia) hold massive market share, have improved their own digital offerings rapidly, including by acquiring digital banking startups, and have lower funding costs.

    Judo Bank is an exception. It is the only Australian neobank to focus on a niche market with high demand and high margins: small and medium-sized enterprise (SME) lending. By eschewing the retail market (with the exception of term deposits), Judo has avoided the punishing customer acquisition costs that undermined other Aussie digital banking startups.

    In the first half of the 2026 financial year, Judo posted an A$59.9 million profit, with deposits up one-fifth to $10.9 billion and its lending book up 15% to $13.4 billion over the period.

    Although Judo’s market share is small—1% of business lending and 2% of small-to-medium enterprise lending—UBS analyst John Storey said Judo was “the fastest-growing business lender in the Australian market” and could double its loan book to A$20 billion over the next three years. While household borrowing in Australia is constrained by high interest rates and tighter serviceability rules, businesses are actively borrowing to fund growth, with lenders, including non-banks, providing more flexible, specialized, and accessible credit.

     During Judo’s recent earnings call, CEO Chris Bayliss said, “I’m often asked, ‘What was the most significant challenge of the last 10 years?’ Without doubt, it was finding the intersection between a clear vision, converting that into an investment thesis, and operating as a regulated ADI. Initially, we traded off a lot of the investments in technology and process design to control our cost base and to get to profitability quickly.”

     Bayliss added that Judo is confident that it can deliver a return on equity in the low to mid-teens, which he said will be the strongest of all listed banks in Australia.

    While Judo has shown strong profit growth, investors remain cautious about the online lender, as reflected in a low share price of less than A$2. Investors remain concerned about SME credit risk in a high-interest-rate environment and intense funding competition with major banks.

    Judo will have to continue its strong performance and prove it has staying power to assuage their concerns.

  • Is Revolut’s rise unstoppable?

    Is Revolut’s rise unstoppable?

    Since its inception, Revolut has had a sweeping global vision. Not always a realistic one—as seen by its negligible presence in China and regulatory struggles in India—but almost always more ambitious than its competitors.

    After all, what other fintech startup is valued at US$75 billion, has 70 million users, and purports to be building the world’s first truly global financial “super app”? There are more valuable fintechs, like Stripe, but the latter company focuses on the more niche area of B2B payments and building digital payments infrastructure.

    In contrast, Revolut focuses on the ultra-competitive retail banking market, which is probably the toughest segment for digital upstarts to break into. While rooted in the UK, it has strong retail footprints in the Central and Eastern European (CEE) region (10+ million users) and is rapidly growing in Spain. While the UK company is investing heavily in business accounts, its overarching growth goal is to achieve 100 million retail customers globally by mid-2027.

    Scaling up its banking operations beyond Europe will be integral to achieving that 100 million user milestone. To that end, Revolut launched full banking operations in Mexico on January 27, marking its first, and major, expansion into Latin America and its first banking presence outside of Europe. The company operates as a fully licensed local bank—Revolut Bank S.A., Institución de Banca Múltiple—following authorization from Mexico’s National Banking and Securities Commission (CNBV).

    The UK fintech unicorn says that it is the first independent digital bank to obtain a banking license in Mexico through a direct application and has capitalized its operations with over US$100 million—more than double the regulatory minimum. The company estimates that this provides a Capital Adequacy Ratio (CAR) of 447.2% at launch.

    Targeting Mexico’s underbanked, Revolut aims to disrupt a market dominated by a few heavyweight incumbents. Its offerings include 15% interest on deposits, instant cross-border transfers (targeting the $60 billion+ US-Mexico corridor), and a suite of over 30 currencies.

    There are several reasons to be sanguine about Revolut’s Mexico foray. First, the company is right to see significant revenue potential in the world’s largest remittance corridor (U.S.-Mexico). Second, Revolut has a first-mover advantage as the first independent foreign digital bank in the country to secure a direct banking license. Third, Mexico can serve as a springboard for Revolut’s regional expansion—which includes Brazil, Colombia, and Peru.

    Of course, offering a 15% deposit interest rate is not sustainable, but neither is it intended to be. Revolut aims to have 2 million Mexican clients by year-end: It needs a way to attract a lot of customers in a short period of time.

    While Revolut is charging full-speed ahead into Latin America, it has no choice but to move more slowly in the United States. The U.S. banking market is not an easy nut to crack for disruptors, and Revolut is gradually adjusting itself to this reality.

    As of January, Revolut had jettisoned plans to acquire an existing American bank and is instead pursuing an independent U.S. banking license from the OCC. The UK firm decided that acquiring a traditional bank was too complex and slower than expected, opting for a digital-first approach under a new, standalone charter.

    This change represents a significant change in Revolut’s U.S. market strategy. An M&A deal would have provided the company with an existing charter and instant passporting across all 50 states, avoiding the long and uncertain process of applying on its own.

    It seems Revolut is betting on the U.S. regulatory environment being favorable to its application for a standalone charter. This seems risky to us, given that the UK firm has a checkered compliance history and still does not have a full banking license back home.

    If Revolut succeeds, we expect that it will pave the way for a U.S. IPO. If not, we expect that the company will keep trying to crack the U.S. market, since it does not give up easily.