FinanceFWD #136 mit Revolut-Gründer Nik Storonsky

Hallo und herzlich willkommen zu einer neuen Folge von Finance Forward. Im heutigen Podcast sprechen wir mit einem der schillerndsten Fintech-Gründer, nämlich dem Revolut-CEO Nik Storonsky. Nik hat in den vergangenen Jahren aus London heraus mit Revolut eine der größten Smartphone-Banken der Welt aufgebaut. Geldgeber bewerten die Firma aktuell mit 33 Milliarden Dollar. Auch nach Deutschland expandiert das Unternehmen zurzeit massiv und ist gerade dabei, eine super App zu entwickeln. Über Seine Pläne und das aktuell schwierige Fundingklima hat mein Kollege John Stanley Hunter mit Nick gesprochen. Das Interview fand auf der Bühne unserer Finance Forward Konferenz statt. Und jetzt viel Spaß mit dem Gespräch.

So you spent eight years for working for big traditional banks like Lehman Brothers and Credit Suisse?

Yeah, I wouldn't call them traditional. They were trading houses, investment banks.

Trading houses, okay. But you know the traditional world of finance a bit before you start?

No, I knew zero, to be honest with you. I struggled a lot when I started to learn everything.

Okay, but let's talk about what you didn't— what you've done since 2015. So you founded Revolut, and originally the idea was to lower international exchange fees, right?

Yes, I was living in London, so I moved to London when I was 20, and obviously traveled a lot. I sent money abroad and Yeah, always wanted to not to pay fees to the banks and find a way to avoid foreign exchange fees. So in 2015, I started Revolut as a simple card which allowed you to reduce FX costs. And then obviously since 2015, we've grown into full-fledged bank and call it financial super app offering crypto insurance, credit, bank business accounts, and so on.

Yeah, I mean, that's what we're here to talk about today, how the plan has changed since then and you're now building a super app. Before we get into that, how do you define super app? I mean, what does that really mean? We've had that as a buzzword and I'm sure we're going to hear that every now and then throughout the day, super app. But what is that?

Well, I wouldn't be so fixed on super app. It's more like an app which allows you to do whatever you need. With your own money. So we allow you to invest, we allow you to spend, we allow you to borrow, and so on and so forth. So what we've done, we've merged all the financial services that you need for your daily life into one app. And there are clear advantages of doing it. For example, you only done once onboarding, plus you have access to all the financial services that you need at a fraction of cost compared to banks or any other financial services provider.

The question I have there, I mean, that sounds like all the offerings that people or Revolut maybe aims for introducing into the super app. I'm sure you have a lot of hidden projects that you're working on that you're testing whether you want to introduce them into that. Is that really different than a digital version of what we know as traditional banks? I mean, an offering for trading, for example, for savings, a bank account, access to insurances, for example. Example. Is that more or is that the digital version of what used to be traditional banks?

Well, it's obviously digital version, plus on top of it we offer much more products compared to banks. So yes, as you correctly mentioned, banks also offer insurance, credit payments, sometimes trading, but we offer more. We offer, for example, crypto. We offer lifestyle products as well. For example, Revolut stays We allow you to book every room out there, same price as Booking.com or Expedia, plus on top of it you receive 10% cashback. So we actually offer much more compared to banks.

Okay. And when you've got— when you're talking about these hidden projects that you're working on, maybe, I mean, it would be very surprising if you weren't working on buy now, pay later to add it into the app, for example. Any comment on that?

We're working on all the financial services, including Vanuatu later.

But how do you decide what features to add into the app? By— did you do like— how do you do your customer research without letting people know what you're working on? How does that work?

Well, it's both top-down and bottom-up, right? Top-down is we have a product strategy team which scans across the globe for all the breakouts. In terms of startups, in terms of features, in terms of product-market fit. Then on almost a biweekly basis, they feed breakouts into different product teams. And then product teams, they also have their own ideas what to build. So that's how we operate. And then based on the combination of them 2, we do some kind of P&L analysis on effort. And based on the analysis, we decide what to prioritize.

So what we're talking about is one app in which you offer all the different solutions. And there are many ways of doing that. You can build everything yourself in the backend of the app as well, or you could use partners. Do you go one way or another with all of them, or do you handle that differently for the individual products like trading, for example, crypto? How do you handle that?

Well, the general philosophy, we prefer to build everything in-house end to end. But sometimes in order to launch faster, we partner with different providers. So it's more again cost-benefit analysis of launching the product faster compared to building the full stack in-house and then obviously having it cheaper and having more flexibility in terms of building new products. But the ultimate goal is always to build in-house.

Do you think your customers notice or care whether you build it yourself or whether you use partners?

I don't think customers notice, but I think the best products are always built end to end. Because if you're using vendors, there are always certain limits, certain constraints on their side. And as a result, the product that you can provide to customers might be a limited version of what you want to do yourself.

So that's the first layer of what Revolut is doing differently is putting products that we have to use, that we want to use, all in one app. So you can access everything you have that touches on finance in your life in one app. And then there's a second layer, I think, that Revolut and other fintechs are doing differently now, is going internationally. I mean, from the very start, your company was— and the product was internationally. It started with the exchange fees. And I don't know many traditional retail banks that have expanded into all the different international markets or continents even. But for you, that's deeply within the DNA of the company. And I'm wondering, how important is it that you're a— that you often talk about becoming a global super app or global offering? How important is it that you really reach all the markets around the world for that? And Which of the markets are the most important ones?

Ultimately, it's super important for us because our mission is actually to unlock borderless economy. So what it means, we want to be in every single country and then allow people to trade, invest, do business in any single country. And then there is a huge advantage of being global and providing global accounts. For example, right now we're in Japan, we're in, in the US, we're in Australia, we're in the UK, in Europe, in New Zealand. And what it means in practice is that people or businesses can send and receive money between these countries instantly and for free. So no one in the world is able to achieve the same experience as we give to our customers by being global. Secondly, by being global, we give you local account details in every single country where you either do business or you live. Especially now with remote working, it's very important. Plus, on top of it, as we expand more into wealth and trading products, we allow you to buy or sell different assets in different countries. So as the world becomes more global, we offer more global products which local banks just, you know, not able to compete with.

What about Revolut is so different that this is something that you can do to internationalize this kind of retail banking? To internationalize that in a way that traditional banks have never done before. I mean, what's— what is it about the product that makes it possible for you?

Well, I think the key difference between banks and us, we started software first, technology first, and we almost never tried to hire bankers. So I think that's our advantage compared to traditional banks because our headcount is mostly engineers, data scientists, products and business people rather than bankers. That's number one difference. And number two difference, I think we have much larger ambitions compared to local banks and we methodically build roadmaps how to achieve these ambitions.

Yeah, let's stay on that because that's something that's not really been done before, is to really be successful with having one app or one brand work around the world. So you're really going into something there where you don't know whether it's going to work, do you? I mean, how confident are you about that?

Well, ultimately, we're doing international expansion already the last 5 years and we expanded in many countries and we made, I think, almost all mistakes that are possible and we learned from them. In the end, what we're trying to achieve, we have a global banking product which we also heavily localize by having local teams on the ground, obviously language. And having, well, quite often local features as well and connecting to local payments infrastructure that allows us actually to compete with local banks by providing exactly the same service as local banks. Plus on top of it, a lot of international services. But I wouldn't say it's very easy. It's super difficult. One of the largest challenges that we ever faced as a company to, to go global than to, to internationalize product and also simultaneously to localize for every single country.

Yeah. And then one aspect of it is, do the people in, for example, the USA have the same needs for the app as the people in Europe or possibly in Africa or in Asia? How do you determine what's good, what works here, what works there? And if you have different offerings, is it really one super app? Is it really one global offering?

Well, ultimately, obviously there will be different demands for different products in different markets. So for example, Latin America is— or generally emerging markets, they are much heavier credit-driven. So there is a lot of demand for credit products and less demand for, say, wealth and trading products and savings accounts. So in developed markets such as Europe, there is a much higher demand for well, trading products plus on top of it money markets. I guess it really depends which stage of the growth each country is. And we, well, we also heavily personalize based on the country needs as well.

But building the different products for different markets is very, very expensive. And that's all money that you put into it. And then going into the different markets, you have marketing costs as well. That's a lot of money that you have to spend. How do you see making that money back? I mean, you really have to make a lot of money with this product to be profitable at some point, right?

Ultimately, we're building building blocks, so we're not building anything from scratch. We have a very modularized soft, and for every new country which we go in, we either switch on or off different modules on on the configuration. Plus on top of it, because in banking and payments you always need to have access to local payment system, we integrate different modules into local payment systems. So ultimately the way it works is never building from scratch. It's the same product, but we are switching off or switching on different parts of it.

Let's talk about Germany a little bit because you launched here in Germany or for German customers, the product was available since 2017, I think, right?

It probably is.

But then for the first 2 years, I looked at the downloads of the app in Germany, and for the first 2, 3 years, it looked like there wasn't really a lot of traction. And then in the last 2 years, it really spiraled up. It seems that you're taking the market much more seriously at the moment. We've just heard Valentin from N26 speak. What makes you feel now that you can take it up with him at this point?

So that's exactly the result of our strategy that I mentioned, the localization of every single country. We made a product very local in every single country, and we also started investing in marketing as well in every single market. And the result of it, I mean, as you mentioned, in Germany, uh, we are probably ahead compared to every single financial services player here. And then if you look at every single market in Europe, we top 1, top 2, top 3 fintech services provider in the App Store and Google Play. So strategy really works.

So we've got a couple of hundred people sitting here and some of them might be deciding, I'm going to open an account with N26. Some of them might be deciding to do it with Revolut. I mean, I've got both, but what is your pitch to say use Revolut rather than N26?

It's very simple. So we are like a local bank, but we also give you global services, global accounts. Plus we give you much more compared to a bank. We give you stock trading, crypto trading, insurance. So everything what you need in one app, global and local simultaneously.

Talking about those global services, how's the license in the US going at the moment?

Is that something that Well, I think at a certain point of time, I think 1.5 years ago, we had 44 or 48 licenses in pipeline and we received 44 now. So we are 95% completed in all the countries where we're in. But again, because we're expanding, so we are setting up now India, Brazil, Mexico, Philippines, looking into Indonesia and UAE. So pipeline of less application always grows.

With the US, you're going then into a market that N26 just pulled out from. So they spent 2 years in the market in the US and they tried really to make it big. And then they decided, well, at least not at the moment. Never say never. Maybe they'll go back in it again. But what makes you think that you can make it when N26 couldn't?

Well, we should at least try, right?

Well, it could be fairly expensive, right?

Well, it depends how much money you make.

How much money do you make?

Enough to expand in the US.

You once gave an interview and you said you're not going to IPO until you make at least billions in revenue. So in 2020, you made about $360 million. How much closer were you in 2021 to your IPO plan?

Much closer to IPO goal.

Okay, let's talk about you and the company. You've got a bit of a reputation. I mean, your catchphrase, if people are talking about you, is a bit—

Very, very nice.

You've got a very good reputation, but your reputation is get shit done. And you love hard work. And the question is, is that the necessary mindset that you need to disrupt an industry like you're trying?

Well, I guess it depends on the industry. As a rule of thumb, on average, I think it's very difficult to build anything new because the world is very competitive. There are 7 billion people. Millions of companies, a lot of smart people. So, as a rule of thumb, on average, yes, to compete, you really need to have an edge. An edge is usually your smartness or idea or hard work, ecosystem. But on average, it's all together, right? Because again, 7 billion people.

You just said it depends on the industry, which is very interesting because You're in one industry that is much, much more based on trust in the finance space and also regulation. Do you sometimes feel like your mindset within the company of how you build the company and what you expect from your employees at times, does that clash a lot with the industry standards?

Well, I think banking industry is very old and they have certain ways. Some of them are good generally for society, and some, some of them are kind of, you know, legacy, right? So obviously, as you build a fintech company, you're trying to do new things, you're trying to disrupt industries, and you find some kind of inconsistencies. For example, it can be in regulation between countries or just, you know, some, some odd rules which were there for already 50 years and they didn't really expect the fintech industry to rise. So I'll give you an example. For example, in certain countries, regulators are very— or laws are very deterministic in how you need to onboard customers. So they're not looking really at outcomes, but at how you do things, independently whether step 1, step 2, step 3 achieves the outcome or not. So I think regulation should be much more outcome-driven rather than step-driven.

I've got one last quick question. You raised last summer at a valuation of $33 billion. And now we feel like we've— we're all speaking about it here. The times are changing a little bit. I mean, tech stocks are going down a little bit and the crypto market is doing what we've discussed extensively now. Do you find it difficult to raise at the moment? How do you avoid a down round like Monzo had to do throughout the Pandemic.

Ultimately, we don't need to raise, right? Because I mean, you probably know we were profitable since 2020. So me personally, I don't really feel any pain of you know market going down. But I could imagine for a lot of startups with a large cash burn, it's much more difficult to to raise.

Thank you very much.

Das war's jetzt noch nicht ganz mit dem Gespräch. Zum Schluss hatte nämlich unsere Expertenrunde auf der Finance Forward Bühne noch die Chance. Selber Fragen zu stellen. Darunter war etwa die Influencerin Diana Zolöwen, der Fintech-Experte André Bayorat und der Podcaster Philipp Glöckner. Das wollten wir euch natürlich nicht vorenthalten.

Nick, in Germany, I think there are a lot of people who are using Revolut, but most of the people are not using that as a main account. Is it typically or is it a typical German situation?

So in general, the way it works, again, if I look at all the countries where we're in, like early stage or early growth companies, yes, countries, you're right. You know, a lot of people using us as a secondary account. But then generally what happens in 2, 3 years' time, a lot of people switch to us as a primary account. And I'll give you an example. For example, our home country, UK, or border Ireland. In Ireland, we are 60% of the market. So 2 out of 3 Irish people, they use Revolut as their primary account. And then UK, similar story. We have probably now 10-15% penetration. Germany is a bit earlier, so we are probably 1-2% penetration. But generally, as a rule of thumb, on average, people start using us as a secondary account, then they like using us, and then they spend more and more from, from our account and then they use this primary account.

I have a question regarding gender equality. Obviously, we've seen a lot of men on the stage already. Do you know if, for example, men and women use your app differently or use different features more frequently? And is it important to you when you build the product that you have a really diverse team? And do you feel your product is suitable for every gender, or are they still lacking some needs, for example, to address women's needs when it comes to banking?

Yeah, definitely. There are differences. Actually, when we were doing analysis of our users of Metal account, we found that our Metal account is used by majority of male. And then when we dive deep, the reasons for it It was very simple. Women didn't like the colors of our metal card. And then we responded by releasing different colors for metal card, hoping that, well, our metal card will be used by more women as well. So that's number one. Number 2, we also found that women tend to kind of invest less compared to men. And that's another primary reason why certain products are being used more by mail.

Any more questions?

Yeah, yeah. If you look at what digitalization has done to other sectors like retail, travel, I would argue like the markets become more efficient, low switching costs, high competition, and ultimately margins are compressed. You just mentioned international transfer have been a huge business. You just made it no business at all. So if 100% of the financial sector is digitized, Wouldn't the financial sector be smaller than today, actually?

Uh, logically, yes. Uh, overall, uh, I think pool or pie would decrease in terms of fees. That's what we see, a fees compression in the bank. But if you look at the innovators or companies like us, our gross margin every year just increases, right? We started with 20% gross margin, then 30%, 40%. Now we're at 70%, 80% gross margin. And then the reason for it is we add more products, we optimize more. And even if we reduce price for consumers because we are so efficient, our cost of sales are very low. As a result, we serve our customers at better pricing and we actually keep a better share of our revenues to ourselves compared to banks.

So you would agree that for every million in gross margin you make, probably $3 million in gross margins in traditional banks are lost. Would that be correct?

Well, under assumptions that the bank's pricing is probably 5 to 10x compared to our pricing, they keep like 60% gross margin. So that means they lose, yeah, probably like out of $10 million gross margin, they lose $6 million, right? And, uh, yeah, we, we keep it all, well, a majority of it.

Over the last years, you were one of the innovators in the industry. So you did a lot of things in the app from crypto to brokerage and all the other stuff. What is the next thing you will see over the next years? What is the next, yeah, maybe hype after crypto?

We're actually trying quite, uh, quite a few products. Obviously, you know, so far they're very early stage. And so I'll give you an example. One of them is salary advance. So the way it works, we allow people to withdraw their salary proportionally. So for example, if you are paid on the 25th of every month and now it's 15th, so you can proportionally take your salary up to 15th. So effectively you are paid like every day. So that's one of the products that we built and we released in the UK. We are heavily invested in insurance as well. So one of our new products is pet insurance, which we also released in the UK. Acquiring as well is another big bet, especially on-ramp and off-ramp acquiring for crypto companies. So offering crypto company services to turn fiat money from fiat to crypto is another big bet that we're making. What will work? We'll see. I mean, ultimately reality is any best that we do, we see results in three to five years' time.

Das war's jetzt mit dem Gespräch mit Nick. Ich hoffe sehr, dass es euch gefallen hat. Auf unserem YouTube-Channel findet ihr noch weitere Videos von der Konferenz und ansonsten würde ich sagen, hören wir uns nächste Woche. Also bis zum nächsten Mal bei Finance for All.

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