Currency transfer and finding ways for consumers to avoid the inevitable fees is a hot spot for FinTech startups.
Bank-to-bank transfers are one thing, but many consumers might want to transfer funds from a credit card rather than have to go to the trouble of opening a bank account. Revolut, a U.K.-based company, has developed an app that allows money from a domestic bank account to be loaded onto a prepaid Mastercard. With Revolut, the money can be spent in over 90 currencies around the world at the cheapest exchange rate available, the interbank rate, with no fees, at least for now.
The European markets and the U.K. especially are set to experience volatile times, but Brexit seemed far from the minds of enthused investors that included Balderton Capital, Ribbit Capital, Index Ventures, Point Nine Capital, Seedcamp, and Venrex.
Nevertheless, despite these heavy hitters, Nikolay Storonsky, CEO and founder, had initially hoped for more. His expectations to raise £10 million ($12.8 million) in Series A funding were tempered by total funding of £6.75 million ($8.69 million). Storonsky told Business Insider that it is difficult for new firms to raise money and that Brexit had not been a factor. Storonsky exuded confidence in the company’s future by his statement, “We can raise £20 million or £50 million in a year’s time.” The firm then continued to raise a further £1 million in oversubscribed crowdfunding giving Revolut a market valuation of £42 million.
Charging no fees is an initial strategy to boost growth, but the company will most likely add fees in 12 months. But it’s all about changing habits and grabbing customers; once you can attract a customer and earn their trust, the introduction of fees may not be enough to lose them to a competitor.
But that leads us to potential problems that Revolut might encounter in the short term. One is generating sufficient transactions to keep the exchange rates and fees low, and another is assuring users of the security of a new digital technology for cross-border transactions.
Added to that is an e-money license that the company has obtained from the U.K. and that can currently be “passported” and used in other countries. Might that be compromised in the post-Brexit negotiations? Storonsky’s answer is to see what happens in two years’ time and, if they lose e-money rights, they will set up an office in Berlin for licensing.
Revolut’s greatest competitor is Travelex, which launched a similar card linked to an app that avoids fees while rerouting purchases made abroad to U.K. bank accounts. Revolut does not directly compete with peer-to-peer money transfer services such as CurrencyFair or Transferwise, because these services only transfer amounts between two existing bank accounts. So there may be room for a smaller niche player in the market.
Vlad Yatsenko and Storonsky founded the firm only a year ago but already have over 200,000 users, $500 million loaded on its cards and an additional 1,500 customers signing on every day. Revolut will make money cross-selling to users through the app, and the founders plan to add additional services that will include insurance, credit and VAT rebates within a year.
What might have investors fired up about Revolut is its potential to provide corporate foreign exchange services. According to Storonsky, “Companies are simply begging us to allow them to have this product.” Storonsky adds that Revolut’s waiting list of corporate clients is over 50 and includes a medium-sized airline that wants to use Revolut’s services to meet payroll.
Last week in investments
The week that ended the month of July for the Investment Tracker saw a boil back off a bit to a simmer, with a sub billion dollar week that yet again featured FinTech as the heaviest hitter of the two sectors. This time around B2B had only a bit more than 3 percent of the total fund flows, for the period that ended July 29.
Within that less spectacular – relative to past weeks – but still respectable showing, there were only two triple-digit deals, as measured in millions of dollars. Elevate, the online credit provider focused on non-prime customers, announced its credit facility borrowings at $545 million from Victory Park Capital. The funds will be used for expansion in the U.K., the firm said last week.
The only other deal of size and scope was the $118 million raised by Correlation Ventures for its second flagship fund, and among the investments thus far in Betterworks and other tech firms.
Much further down the totem pole was Reltio, as the data management firm got $22 million in funding for its platform as a service expansion, with a Series B funding round to accelerate hiring. The funding came from New Enterprise Associates.
As has been the case for several weeks this summer, the U.S. dominated the activity in the week.
With another full month into the year complete, it makes sense to look at how that month shook out – and for B2B, it may be fairly said that this was a month to remember with twice the dollar volume of FinTech.