London-based Fintech firm, Revolut, is facing significant challenges on its path to securing a U.K. banking license, leading to a devaluation of the company’s shares by investors. Venture capital firm Molten Ventures, a significant investor in Revolut, has notably marked down the value of its stake by 40%.
Details of the Devaluation
Molten Ventures discounted the value of its stake in Revolut from $116 million in March 2022 to around $70 million, according to its annual report released Thursday (June 15). Earlier in the year, asset manager Schroders had also reduced the value of its investment in Revolut by around 46%. Molten CEO Martin Davis made clear in the report that this challenging market backdrop led to a reduction in the value of their portfolio. He further noted that the key focus for the firm was the active management of their investments while adapting their business to respond positively in the face of market pressures.
Issues with Revolut’s Banking License
Revolut has been campaigning for a UK banking license for over two years. The fintech firm’s struggle to secure a banking license is reportedly due to issues with its balance sheet that have caused concern among regulators. The recent upheavals in the banking sector are contributing to delays in obtaining the license. Revolut’s CEO, Nik Storonsky, attributed these issues to a banking crisis that has made regulators “extra cautious.” These delays have had a significant impact on Revolut’s valuation. However, despite these challenges, Molten Ventures remains confident in Revolut’s potential. Davis insisted that there are certain proof points that the market wants to see, such as:
- Increased revenues for 2022,
- A clean set of accounts for 2022
- Visibility around profitability
- Visibility around the banking license in the U.K.
Revolut’s Position Amid Challenges
Despite the ongoing hurdles, Revolut continues to thrive with a significant number of users. The fintech firm reported over 30 million retail customers, adding more than 5 million users worldwide since November, with the U.K. accounting for the largest portion of its user growth. However, this positive development has not shielded the company from concerns raised by auditors. For example, auditor BDO flagged concerns that it could not verify £477m of revenue due to the configuration of Revolut’s internal IT systems. Revolut was last valued by investors at $33bn in July 2021, making it the U.K.’s most valuable private tech group before Checkout.com’s $40bn valuation in January 2022.
Future Prospects Amid The Struggle
Despite the markdown in valuation, Molten Ventures remains positive about the long-term potential of Revolut. There is a widespread belief that once Revolut secures a U.K. banking license and demonstrates profitability, its valuation will see an upswing. Revolut has been under constant scrutiny, not only concerning its banking license but also regarding its corporate culture, which led to a Financial Conduct Authority probe in 2021. Additionally, its risk management and compliance systems were reviewed in 2020. However, Davis asserts that the devaluation of Molten Ventures’ stake is not linked to these concerns but is largely due to the industry’s valuation guidelines, which consider factors such as revenue multiples. Moreover, it is important to note that Revolut already holds a European banking license granted in Lithuania in December 2021. This development highlights the potential the fintech firm has to expand its footprint in the financial sector further.
To sum up, Revolut is in the midst of a challenging phase as it struggles to secure a U.K. banking license. This struggle has led to investors like Molten Ventures and Schroders marking down their investments in the fintech firm. While the firm faces these significant hurdles, it continues to show promise with consistent user growth and a strong presence in the market. With continued efforts to navigate through the current market conditions, the company hopes to win its banking license and resume its upward trajectory in valuation. Regardless of these challenges, Revolut’s story underscores the complexities and potential of the fintech industry. While the sector is impacted by the wider economic conditions, companies like Revolut continue to push the boundaries of technology and finance, aiming to shape the future of digital banking.