The banking sector has experienced so much disruption in recent years, hasn’t it?
My background is in banking and insurance for many years. One of my observations ever since has been the emergence of internet banking where the operating models of banks are very much outdated and customer experience is lagging behind what customers expect and experience in other industries. One of the opportunities that Revolut brings to the table or has built, in fact, is that we continue to expand on a new perspective on customer experience and a new perspective on the underlying operating model of banks. We’ve built, and continue to expand on, a global operating model. It’s a contemporary approach with a single underlying infrastructure; one that makes the business highly scalable. And I think in order of magnitude, less costly and more efficient than your run-of-the-mill bank.
Why is this so important?
This is important because when you take a zero off the cost of pretty much anything, you can change the world. And we’ve seen that in many industries in the past and as we move down that path with Revolut, we can see that as we bring ourselves into more and more markets. The difference that makes to our customers and the difference that makes to our ability to scale the business very rapidly is immense. The fundamental business model of banking is the balance sheet, leveraging the balance sheet, taking in deposits, lending those deposits out, and essentially, making a margin on that business. That business is not being disintermediated. The balance sheet business of a bank is intact and sound and will continue on for hundreds of years into the future, is my expectation. However, the surrounding systems, the surrounding protective systems, whether they’re credit systems, whether they’re profit and loss generating platforms or new product platforms, you will want to cut the G and L platform: the credit scoring, the risk engines, all of these are designed to protect those balance sheets. And then, of course, we get to the distribution where the high cost of branches, the high cost of ATM networks, are the millstone around the neck of banks that no longer performs the way it has done in the past. I mean, with the advent of technology, we can disintermediate at that level.
How does a restructuring of a platform help?
Looking at it from a more holistic perspective, the business model of a bank is intact, but the way it is carried out is dramatically or vastly inefficient to what’s possible using the kind of technology we have available today. And so, when you reimagine that from the perspective of an organisation like Revolut, you can conceive of a global bank that operates on a single common platform. You can conceive of a global bank that shares the same operating model universally. And when you start to do that, you are able to scale the business far more rapidly than any bank. Most banks, if you look in their scaled markets, are going to be individual stacks. The stack we have in one country is different from the stack that we have in another country. And that leads, obviously, to very high cost and the inability to move rapidly and to act in a very agile manner. So, by re-conceiving the infrastructure of a bank, if you like, the way that a bank delivers its services, you can take an order of magnitude off the cost, number one, and you can bring a level of experience to the customer that’s not hamstrung by old tech, by old thinking, by siloed approaches, and even a silo at a country level. Because frankly, that school of thinking, that style of thinking is really what’s held banks back and continues to do so, today.
I guess changing is coming to many banking enterprises?
There are some banks starting to move out of that mindset, but it’s like turning the ocean liner. And we’re coming along in perhaps not a speed boat anymore, but in a fast-moving, rapidly expanding boat that can move quickly, can turn quickly and can speed past, some of the incumbents in the market. In any market, we always overestimate what can be achieved in one year, but we dramatically underestimate what can be achieved in 10 years. So, Revolut is five years into its existence. I mean, ask me that question in five years or 15 years, and I hope to show you that Revolut is a global bank with tens, if not hundreds, of millions of customers on board able to operate at margins which put banks in their current form to shame.
Security issues obviously increase with these transformations…
Well, look, security is a war, and a war that will continuously wage. I think there’ll be no end to that. The good guys versus the bad guys will go on forever. What I see is this is increasingly… What we all see is a tech battle as we move to technology as a way to distribute financial services. I think a company that has a stronger tech underpinning and is digitally native, if you like, in its understanding of that technology, will always fight a better battle than those who have to learn the tools of war and have to bring their approaches to a new battlefield, if you like. I think there’s a second part of it as well. So, not only the ability to leverage technology more completely and with more modern and up-to-date tools, if you like, but also the usability factor here. So, a lot of security issues are not driven by weaknesses in the underlying security, but rather weaknesses in customers’ behaviour or lack of understanding on the part of protagonist in the transaction as to what might represent a less secure way of doing things. By having a lot of agility and flexibility on the front end with this customer experience, we can make it easier for customers to stay secure. We can educate them through the way that the application is laid out, through the way the customer journey moves. And we can avoid situations by running, if you like, a rule set or machine learning, or some artificial intelligence tools around the transactions, in addition to the usual transaction monitoring tools and protection tools to guide customers and to help them in a way that many, I think, less contemporary organisations don’t have the flexibility to do. That allows us to do, build in a level of customer awareness of security right from the beginning, and to adjust that on the fly. We can adjust our front ends very, very quickly and lead customers to a better position.
Does this inevitably lead to lower fraud rates?
We find our fraud rates, for example, to be significantly lower than industry standards right across the board. And I think this does reflect the fact that we have a more agile and more technologically-sound understanding of what’s going on, and we can apply it more completely. There’s also something to be said for the ability to manage customers’ expectations in this regard. So, it’s quite clear coming onto a digital-only platform from a financial services perspective, that customers need to be educated, need to be made secure, need to be reminded, if you like, or nudged in the right directions. And that’s easy to achieve with a digital front end much more so than, in a branch or an ATM machine or other offline kinds of environments. So, I think the opportunity to be vastly more secure is built into the operating nature of what we’re doing here with Revolut and other technology platforms.
I guess Covid has driven some of these changes…
You could argue that, absolutely. I think a lot of our customers are driven by convenience, less so than an age demographic. And I think convenience also raises a question in people’s mind, “Whilst this is easier to achieve, am I being safe? Is my bank, A, being responsible, and B, do I inherently understand the change in risk profile that I’m taking on with moving to this platform?” I think in the end… I don’t know. Maybe let’s leave it at that now. Obviously, there’s been some changes in customer behaviours. I mean, despite all the best intentions, travel has evaporated around the world, as we’ve come to see. So, spending has been affected, but I would say that it’s more muted than we expected. We saw a change in our customers’ behaviour and a dip in spending, but we’ve also seen a rapid recovery from that, in particular as people moved online. So, an acceleration in the tendency of people to move online occurred. Perhaps we saw three to five years’ worth of growth in several months in some markets. And then, secondly, I think it creates almost like a pendulum effect. When people are unable to spend, particularly in their disposable income, a demand builds up. And as we saw in various markets now, as lockdowns were eased or removed, we’ve seen spending bounce back, and again, with the pendulum effect, in some cases higher than it was before we went into the COVID period.