What comes to your mind when you think about a bank? An office where people go mostly for depositing or withdrawing money. Apart from these, there are many services that banks provide. They provide loans, credit cards, debit cards, merchant services along, and many other services. Even before a decade ago there were no significant changes in the banking systems across the globe. You had to go to the bank if you wanted to get anything done. It doesn’t matter if the work is small or big but you had to be present if you needed something. You have to go to a bank in which you want to open your bank account and give them all the details and open your account. Once you got the account you were capable of transferring or receiving money. But if you wanted to withdraw the money you had to go to the branch which has your account. Only then you could withdraw your money.
This continued till debit cards and credit cards came into the picture. But in the past few years you there have been significant changes in the banking sector. Even though online transfers were a thing not many people could use them. This is because not everyone knew how it worked and also due to the lack of a good internet connection. But those are the things of the past. Today you don’t have to go to a bank to send or receive money. All you have to do is open your smartphone and use an application that allows you to send the money to complete the transaction. A lot of people are using neo banks these days.
For those who don’t know what a neo bank is, it is a virtual or online bank. Unlike a traditional bank, it does not exist in the physical world. It does not have any branches. All the services are provided through an application using the internet. Today you can find a lot of people using these applications. In fact, even you could be using an app like that. One such application is Revolut. Many people have been using this application because of the various services it offers no one knows any about its business model or the way it makes money. This article is completely about that. But before learning about the model and revenue-generating streams let’s know a little bit more about the company.
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What is Revolut?
As mentioned earlier, Revolut is a neo bank that offers its services through an application. It is a fairly young company as it is not even a decade old. It was founded in the year 2015 by Vladyslav Yatsenko and Nikolay Storonsky. Before starting their own company both of them had different jobs. While Yatsenko was building various software products for the companies in the financial sector Storonsky was working as a financial trader. Both of them had a good amount of experience in what they did. When they started Revolut it did not offer a wide range of services as it does now. Initially, Revolut was just a money exchange service. This is because of the experiences Storonsky had when he was traveling. As he was traveling frequently Storonsky noticed how much money he was losing. A considerable amount of money was charged as an exchange commission and transaction fee.
Storonsky did not feel that the amount of money charged as a commission by the existing financial services was justified. That’s when he got the idea for the company. The company was originally based in Level39 which is considered to be the world’s most connected tech community. Only after it raised a good amount of money in the funding round it was able to become a privately held company. Revolut managed to raise a funding amount of $250 million dollars. Revolut managed to get a specialized bank license from the European Central Bank in 2018. In the same year, it got an Electronic Money Institution license from the bank of Lithuania. Revolut has announced that it would facilitate a commission-free stock exchange in 2019 in the New York stock exchange. In the same year, it also got a global deal with Visa. This allowed it to venture into 24 new markets.
Business model of Revolut
Now that you have learned about the company let’s take a look at the business model of Revolut. The business model of Revolut depends on the wide range of features it offers. Some of them are key to their identity. Here are the services that are very important for Revolut.
Free transactions
This is a surprise to many people who don’t know anything about Revolut. But it is actually true. Revolut allows you to transfer money to other people without any transaction fee. This is not only true for the country you are living in but it also does not charge any fee if you transfer money abroad. But it doesn’t mean that you won’t lose any money in the transaction. The transaction fee may not be charged by Revolut but the recipient bank will charge a transaction that has nothing to do with Revolut.
However, this does not mean that you can transfer an unlimited amount of money internationally. There is a limit to it. A person can only transfer money upto £5000 Euros every month without getting charged. Any amount that is above that will result in a transaction fee. But it is still a good deal. Another great thing about Revolut is that it does not charge huge amounts of money as a transaction fee. Once you cross the limit it only charges a small percentage as commission. It usually charges 0.5% as commission which is really less for an international transaction.
Easy international payments
Only the people who used to transfer money to other countries in the past will know how hard it was to do it. But today you can do it quite easily. But the service may charge you a hefty transaction fee. However, Revolut is not like that. Even when it charges a transaction fee it is very less compared to what others charge.
Buying cryptocurrencies and Trading Stocks
These are some of the advanced features of Revolut. You don’t have to emphasize how popular cryptocurrencies are becoming with each passing day. If you are someone who is interested in cryptocurrency but don’t know how to buy them then Revolut provides a problem for you. Trading stocks is another thing that many people in the current generation are interested in. There are many platforms that allow you to trade stocks. But they do not provide all the services provided by Revolut. The great thing about this is that it does not charge any money for buying or selling stocks.
Budgeting
This is another great thing about Revolut. It not only allows you to send or receive money but also track it. Because of this, you will be able to keep an eye on your spending. You can make sure that you do not spend too much money every month. To help you understand the spending habits the application will give you spending analytics automatically. It will give you analytics on a day to day basis or a monthly basis. You can even set a budget to see whether you are sticking to it or not. Apart from these features it also offers another feature called a vault. You can use this feature to set aside the amount of money you want to save every month.
How does Revolut make money?
Since it offers so many services there are multiple ways in which it makes money. Let’s go through them one by one.
Subscription fees
This may come as a surprise to many people but unlike many other neo banks, Revolut offers subscription plans to its users. The user may choose one according to their needs. The first plan is a Standard plan which is free. This plan allows you to convert your money into 150 different currencies and the limit to do it for free is £6000. The second plan is called the premium plan which is priced at €7.99/month. Apart from the features of the standard plan, it allows you to convert your money into 30 different currencies without any limit along with the ability to access 5 cryptocurrencies. The final plan is called the Metal plan and it costs €13.99/month. If you subscribe to this plan then there is no limit on money transfer and currency exchange. You can do it for free. Apart from that, it offers 1% cashback abroad and 0.1% cashback in Europe. It also offers travel insurance.
Transaction fee
The Revolut app allows you to order a physical card once you have added the money. You can use this card to pay bills or withdraw money from ATM machines. Every time you use this card to spend money a small amount of money is charged as a transaction fee by Revolut. This commission depends on the standards of MasterCard. After receiving the commission it is shared between Revolut and MasterCard.
International money transfers
The money can only be transferred without any transaction fee upto a limit. After the limit exceeds Revolut charges a transaction fee. It is usually £5000 pounds. This limit is higher for users with paid plans. Once this limit is crossed it charges 0.5% on each international transaction.
Fee on trading stocks
If you use a standard or premium plan then there are only a limited number of stocks you can trade. It is 3 for the Standard plan and 8 for the Premium plan. If someone trades more than this limit then they will be charged. The fee is one pound sterling for every transaction after exceeding the limit.
Conclusion
This is the business model of Revolut. It offers a wide range of services through one application. The best part about all this is that it charges very little money. Its services benefit a lot of people in many countries across the world. You can know more about other interesting business models on Zeen. Click here to know about the business model of Transferwise.
