Valuation is a curious business. A company goes and raises capital — to grow, to invest, to put in the till for the proverbial rainy day — and with that capital comes an implied “worth” of the company in question. The higher the worth, rendered through market cap, the thinking goes, the more sanguine investors are about a company’s prospects.
So it would seem that investors are rather excited by the prospects of digital banking, and more specifically, open banking, in the U.K.
As reported last week, Revolut, the FinTech focused on banking services, raised $800 million in a funding round that was led by investors that included SoftBank and Tiger Global.
With that capital raise, the company is valued at $33 billion. The latest figure is a marked increase from the $5.5 billion at which the company had been valued only a year ago.
Now, $33 billion is nothing to sneeze at. And though that $33 billion market cap trails HSBC Holdings (about $118 billion market cap at this writing) it’s not all that much lower than Lloyds Banking Group at $41 billion, and it’s right around NatWest Group at about $33 billion. The funding round, then, vaults Revolut into the top echelons of banking players, and some of them, like HSBC have been around for more than 150 years. Putting Revolut in those ranks may hint at the disruption that is part and parcel, according to proponents, of open banking.
Profitable — And Eyeing The Superapp
To be sure, part of the excitement may be tied to the fact that that company has said it has been profitable as of the first quarter of this year, the company shared recently and revenue has been growing by triple-digit percentage rates.
Revolut will use the investment to continue to build the first global financial superapp, the company said when it announced the most recent fundraising. The superapp is one where a continuum of financial services and products are available through a single access point (call it a digital front door). The consumer need never leave the app to conduct daily life — she can make deposits, pay bills, ostensibly buy and sell cryptos and ruminate about refinancing her mortgage (with a relevant offer presented through the app) in a seamless fashion.
It is the application programming interface (API) that connects all of these interactions, and of course, it also takes data to make all of this run smoothly.
And thus, it’s not a stretch to say the excitement over Revolut, as reflected in the valuation, is a proxy for excitement over open banking. No accident here: Revolut is a U.K. company, and the U.K. has been ground zero for the birth and progression of, open banking.
To recap: Initiatives like open banking and the Revised Payments Services Directive (PSD2) bring the same data that banks have to the embrace of smaller tech nimble upstarts. If banks have to share their data with third parties, they don’t get to keep that data so close to the vest, so to speak — and the smaller firms, without the encumbrance of, say huge staffing levels or legacy tech systems, can innovate more quickly than their incumbent competitors.
The consumers? Well, they win out with the idea of sharing their data to serve the use cases they want to see offered, and that they want to consume. Data sharing leads to tailored services, tailored services lead to sticky relationships.
It’s no accident that the Biden administration has said — as part of an executive order aimed at boosting competition in the U.S. economy — that the Consumer Financial Protection Bureau (CFPB) should issue rules “allowing customers to download their banking data and take it with them” as it remains hard for individuals to switch providers.
Consumers, we note, will take their data to the providers that will best serve them. At the moment, consumers have many banking options to chose from and can and do switch banks to get the services they need. Consumers also have a myriad of banking relationships today, checking and savings accounts, investment accounts and others. Moving consumer banking data is less about whether a consumer can, but whether they want to — and whether the alternatives meet their needs.
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