What Happened to Revolut Canada & Why Is the Neobank Leaving?

What Happened to Revolut in Canada & What Does It Mean for Other Canadian Neobanks? 

If you look around online this week, you might still see it: Revolut Is Coming to Canada! Unfortunately, like an empty storefront whose owners left town seemingly overnight without removing the signs from the windows, those words are just the abandoned remnants of the incredibly popular United Kingdom-based neobank’s plans for expansion into Canada. Despite what you might see, Revolut is not coming to Canada—Revolut is leaving Canada. 

That should come as a surprise. That’s because the sudden disappearance of a fintech like Revolut underscores the challenges associated with launching an innovative financial institution here in Canada, and it sends an important message about the viability of neobanks in Canada. If any neobank had the technology, influence, and capital to succeed as a neobank in Canada, isn’t that neobank Revolut? 

Originally launched in 2015, Revolut is a financial technology company headquartered in London, England, focused on disrupting the traditional banking industry with its app-based banking services that include prepaid debit cards, trading, commodities, peer-to-peer payments, and cryptocurrency. It’s no small startup, either! Considered one of the UK’s fastest-growing neobanks, Revolut became a unicorn just three years after launch, exceeding a USD 1 billion valuation in 2018. By 2020, Revolut became profitable and subsequently increased its valuation to £4.2 billion, making it the United Kingdom’s most valuable fintech. 

Since 2015, Revolut has penetrated numerous markets around the world, and it currently lists operations in 36 other countries. Revolut initially rolled out its Canadian beta back in November 2019, and it was actively building its Canadian waitlist until just last month. 

That was until it announced it was packing up and leaving the country altogether. 

According to Revolut, the Neobank May Not Be Leaving Canada for Good

First reported by Betakit, who obtained an email shared with Revolut Canada beta users, the company stated, “This has been a difficult decision (…), and we hope to be able to return to Canada in the future.” 

In another response, this time to a Twitter post on March 15 asking the company if it was leaving Canada, Revolut replied, “We very much appreciate the loyalty of our customers but with great regret, we are closing our Canadian operations for the time being. We hope in the future we’ll be able to return to Canada—offering the full suite of Revolut services.” Commenting on its Twitter account, Revolut later elaborated on its reason for leaving the market at this time, stating, “We are not able to offer the range of services we had hoped at this stage.” 

In its response to media and customers, Revolut’s wording is both careful and intentional. It says we’re leaving for now, but we’re not leaving for good. It’s possible the neobank is pulling out and waiting to see what steps Canadian regulators and policymakers will make toward open banking over the next few years, as the federal government continues its phase two review of open banking in consideration of developing a consumer-directed finance framework here in Canada. That shift toward consumer-directed finance would change the way consumers experience banking in Canada, but it would also open the market to new entrants, making it easier for financial players and neobanks like Revolut to enter and operate in Canada. 

On the flip side, Revolut’s sudden exit from the Canadian market might seem expected. It’s infamously challenging to open a new bank in Canada—from the lengthy three-phase application process designed to provide potential financial institutions with regulatory guidance and feedback while analyzing management structures, risk-based financial projections, and technological infrastructure. With such a rigorous application and review process, it might just be easier for a new bank to pack up and try somewhere else. 

In fact, that’s just what Revolut did. 

While Revolut Canada Closes, the Neobank Opens in 10 Other Countries

In the same month it announced that it was leaving Canada, Revolut launched as a bank in 10 other central European countries using its Lithuanian banking license. Those countries include Bulgaria, Cyprus, Croatia, Estonia, Greece, Latvia, Malta, Romania, Slovakia, and Slovenia. 

So, why did Revolut fail to break through in Canada? Its failure here is not only important to acknowledge—it’s important to address. This isn’t the failure of another startup; this is the withdrawal of a rapidly growing global financial technology company that tried to enter the Canadian market and was met with enough challenges and resistance that it packed up and walked away. Does Revolut’s withdrawal make this a failure for the Canadian banking system as a whole? 

With its success and expansion into numerous markets around the world, Revolut appears to be an ideal candidate for increasing competition in the Canadian banking landscape and providing consumers with more choice when it comes to financial service providers and personal financial solutions. So, what prevented the UK’s most valuable fintech from moving forward and rolling out its suite of products and services in Canada? Will those same obstacles prevent more neobanks and challenger banks like Revolut from emerging in the future? 

Why Is Revolut Canada Leaving while Fintechs like Koho & Wealthsimple Continue to Grow? 

Perhaps more unusual is the fact that in the same month Revolut announced its departure from Canada, another Canadian neobank announced its latest funding round, along with its plans to expand its digital banking operations. Canadian fintech company Koho announced that it had secured an additional $70 million in series-C funding, an investment round that’s intended to help the growing neobank and alternative financial services company expand operations and scale its alternative digital financial services in Canada. According to Betakit, the latest $70 million round puts the Toronto-based fintech at a post-money valuation of $300 million. With 350,000 customers and $2 billion per year in transactions, Koho feels like it has found “product-market fit,” and the company’s CEO, Dan Eberhard, plans to use the $70 million round to scale as the company looks to drive consumer adoption. 

Koho is not alone, either. 

One of Canada’s most prominent fintechs expanded its financial services offering in Canada last month, too. In March, Wealthsimple launched Wealthsimple Cash, a peer-to-peer payment cash app that lets users send, request, and receive cash instantly. The fintech’s expanding services—which includes a suite of apps and solutions for investing, cash, tax filing, stock trading, and cryptocurrency exchange for Bitcoin and Ethereum—is proof that there is a consumer need for innovative new financial services here in Canada. 

Without a Canadian banking license, though, neobanks are limited in what services they can offer. In order to expand their offering—as Revolut was clearly hoping to do—there is one other option. Neobanks have the ability to partner with a pre-existing financial institution that already holds a banking license in order to offer more services. This is an approach that we see in many Banking as a Service (BaaS) stack solutions—the issue is that those are often the very institutions neobanks are trying to disrupt in the first place. Partners and competitors are two very different things, and they create very different dynamics in the market. 

Both Koho and Wealthsimple have taken that route, partnering with Canadian bank license holders in order to offer their services. That approach proves to be working—in a way— allowing them to at least expand their digital financial services and scale within the rules of our current financial regulatory framework. Still, it’s hard to ignore how they might be operating under their own licenses. 

Is It Time to Update the Canada’s Regulatory Framework for Neobanks like Revolut? 

Virtual banking is growing in importance, and the last 12 months have been a testament to that. At one time, our regulatory framework kept our system safe and stable—and, without question, it still does. But things are changing. Technology and our needs and growing desires to be virtual are driving that change. At one time, it made sense to either exist as a bank or not exist as a bank. At one time, that dichotomy—that clear line—made sense. But as technology improves, and the demand for virtual banking increases and consumers demand better solutions, that dated framework doesn’t provide many options for neobanks that operate in a kind of middle ground between bank and non-bank. 

Ultimately, neobanks have three choices: They are forced to partner, become a traditional bank, or simply—like Revolut—pack up and go somewhere else. 

Whether it’s an outcome driven by regulation and safeguarding financial stability or it’s simply an outdated framework preventing innovation, competition, and choice, Revolut’s departure ultimately comes down to one thing: It’s a missed opportunity for Canadian consumers. 

Sources:

https://betakit.com/revolut-leaving-canadian-market/ (Retrieved March 29, 2021)

https://betakit.com/revolut-is-rolling-out-early-account-access-ahead-of-canadian-launch/ (Retrieved March 29, 2021)

https://en.wikipedia.org/wiki/Revolut (Retrieved March 15, 2021)

https://betakit.com/wealthsimple-launches-peer-to-peer-payment-cash-app-nationwide/ (Retrieved March 31, 2021)