Last July, British multinational neobank Revolut received its UK banking license, affording customers the same protections and transactional security as those applied to traditional financial institutions. It also announced its plans to relocate its global headquarters to Canary Wharf, London’s global financial center. The license was granted after a lengthy three-year application process.
The development marked a huge milestone for the popular neobank, which with renewed confidence and growth, recently applied for a banking license in New Zealand, which is currently in the assessment phase. As the company aims to become a truly global player in digital banking, it is also considering eventual initial public offering (IPO) plans.
Revolut is also available in the US. However, it is not yet a registered bank in the US, instead working with partner banks like Lead Bank and Cross River Bank to provide secure and transparent services. It has, however, expressed an interest in obtaining the status of a fully licensed bank in the country, but it has not yet secured one.
Enhanced credibility leads to market expansion
Over the last decade, neobanks have emerged as increasingly popular alternatives to traditional banks thanks in part to their lower transaction fees, especially for cross-border payments. However, they’ve had – and many still have – some hurdles to overcome. Chief among these is credibility. In the earlier days of neobanks, these companies didn’t have the same degree of regulatory oversight as that of traditional banks, so potential customers were wary.
While trust in neobanks has risen dramatically in recent years, securing banking licenses remains as important as ever, not just for enhancing credibility, but also for long-term business growth. That’s especially the case for neobanks and other fintechs seeking to expand into countries with particularly stringent banking regulations. It’s not just about trust, but also about being able to deliver the services and compelling financial incentives that today’s customers expect.
As Revolut’s example has shown, regulatory engagement – though an undeniably time-consuming and costly endeavor itself – can unlock new market opportunities. After all, the ability to meet customers’ demands for lower transaction fees and convenient app-based banking has proven vital for retaining and expanding customer bases in an often ruthlessly competitive environment. Smaller fintechs would be wise to start developing a regulatory engagement strategy sooner rather than later, if they haven’t done so already.