Revolut looks to mitigate Brexit with Lux licence

Revolut looks to mitigate Brexit with Lux licence

London-based digital payments company Revolut is applying for a licence in Luxembourg in order to mitigate any fallout from Brexit.

The fintech, led by CEO and co-founder Nikolay Storonsky, currently operates via an e-money licence in the UK and uses passporting to distribute its offering across other European Union markets. 

But the continued absence of any clarity over the terms of Brexit has led Revolut to seek an additional e-money licence in Luxembourg.

It has also decided to seek a full banking licence in Lithuania rather than the UK, again due to Brexit uncertainty.

The move will inevitably add to the debate over how Brexit will affect London's status as a leading fintech hub both globally and within Europe. 

Storonsky told the Financial Times that the company has no immediate plans to leave its London base and the Luxembourg licence application was "just to be on the safe side".

However, he also predicted that London would see its influence wain. "More banks will cut back as they make less money, they are squeezed by regulation and face competition from fintechs."

Stornosky's comments also mark a change from remarks made back in April 2017 when he criticised Brexit scaremongers."There is no doubt in our minds that London will remain a hub for fintech irrespective of what a few fear mongering individuals might say," he said at the time. 

The truth is that Brexit could be especially damaging for a London-based Revolut given that it launched in 2015 offering pre-paid cards that provided cheaper cross-border payments than incumbent operators.

Revolut, labelled as the fastest growing fintech in the UK, also announced operational losses for 2017 that doubled the losses of the previous year - £14.8m, up by 52% from 2016 - despite a trebling of its user base and a rise in revenue from £2.4m to £12.8m.

Storonsky says that the rise in profits is due to the launch of new revenue-generating features such as cryptocurrency trading and payment accounts.

However, the losses have been attributed to the costs associated with customer acquisition as well as the costs of operating its card scheme.

Comments: (2)

Roberto Garavaglia
Roberto Garavaglia - Innovative Payments Strategy Advisor - Milan 24 September, 2018, 18:07Be the first to give this comment the thumbs up 0 likes

Just a couple hot issues, among others, for PSPs UK licensed out of EU wether no Brexit agreements would be envisaged, are:

  1. Lost of pan-european passport rights (as per PSD2);
  2. Interchage Fee exemption (as per IFR), hence, high risk for cards issued by an UK licensed PSP to be banned in other EU country at acquiring side (how many merchants would be happy to pay an high MSC in case of UK card acceptance?).

Mybe Revolut will be not the fisrt one to think about the opportunity to move to other EU countries? ...

A Finextra member
A Finextra member 25 September, 2018, 10:531 like 1 like

The Lux license only will likely not save the day. One needs to move the business operations also to the EU, i.e. away from the UK. The EU does not likely accept  EU "mail-box" company set-ups for UK based financial companies. EU area personal data might not be allowed to keep in the UK, unless the UK obtains a "safe-haven" agreemenet with the EU. Card holders from the "mainland" Europe that use UK based cards may not be possible to service from the UK. If a UK decopled debit card issuer uses EU issued cards as the payment funding source, as several today do, EU "funding" card issuers will be paid 1.5 - 2.0 % in interchange fees, and will benefit the margin from 0.2 / 0.3%... and UK issuers also risk the have the UK issued decoupled card declined due to high merhant commissions in "mainland Europe". Many issues to consider for card issuers and acquirers that operate from the UK into mainland Europe if the Brexit ends up with "no-deal".