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European fintech giant Revolut will soon be operational in California once it gets the license to carry out its activities throughout the United States.
According to a CNBC report, Revolut — the continent’s largest fintech entailing 13 million users — will, within the next few weeks, apply for a bank charter with the Division of Financial Institutions of California and Federal Reserve Bank of San Francisco, U.S.
An unidentified person has revealed that the London-based fintech firm will use interstate agreements to operate widely throughout the U.S. even though its bank charter is from California. However, some industry observers have raised questions about why it chose not to apply via the Office of the Comptroller of the Currency (a national regulator) but went for a state banking charter.
Fintechs Diversifying to Banking
To break into the market, fintech startups are taking several diverse approaches due to the large and fragmented nature of U.S. financial regulatory regime. Chime and Current are some of the most successful firms so far, having partnered with existing banks to push forward their operations. Revolut’s move demonstrates how the new breed of digital firms is currently on the track to be a regulated bank.
A fintech pioneer Lending Club gained a national bank charter after purchasing Radius Bank for $185 million earlier this year. Square, a payments giant, also won approval in March to start operations as an industrial-loan company under the supervision of the Federal Deposit Insurance Corp’s and the Utah Department of Financial Institutions. Last month, Kraken Financial, a cryptocurrency exchange, likewise got a bank license in Wyoming. Kraken had applied for an SPDI charter under Wyoming’s special-purpose depository institution law.
Attracting Thousands via App Services
While U.S. applicants were held on a waiting list, Revolut services were available in Europe and the UK even before March 2020. The fintech unicorn — which launched in 2015 and was valued at $5.5 billion as per last February’s funding round — partnered with Metropolitan Commercial to launch its app and service in the U.S. market. It claims to have attracted tens of thousands of local customers.
Revolut has been offering crypto brokerage, stock and F.X. besides peer-to-peer payments, but the bank charter will allow it to function as an independent bank that provides fiduciary, deposit-taking, and custody services, thereby reducing reliance on third-party financial institutions. As it explores into the banking arena, the app-only fintech company will not only provide new services to their existing customers but also diversify their revenue stream.
Revolut Venturing into New Fintech Markets, Including U.S.
The move comes at the time when the five-year-old startup has just put its first foot into a non-English speaking market, having launched its app and service in Japan even after getting regulatory approvals back in 2018. Over 10,000 Japanese users tested the European-based fintech’s service in its successful beta launch.
Last year, the $80 million new funding, as well as the company’s tripling revenues were a significant boost. However, recent expansions into new markets and new product debuts made it lose a whopping $139.6 million as of August — a move that has caused the company not to see any profit.