Welcome back to MondayMunday, a shorter post this week as I am about to head on holiday! Thanks for the 3 new subscribers last week, we are now at 65 of you who love this in your inbox every week! if you like these posts please subscribe and share (It is appreciated 😊 )
This week I wanted to have a quick look at Revolut and their approach to crypto product development. Over the years I have seen a lot of movement from them into the crypto space, but I wanted to understand the state of play and see what we can uncover.
Revolut was founded in 2015 by Nik Storonsky and Vlad Yatensko, they initially aimed to solve the problem of opaque international FX transfers, but have since expanded their product offering to include a multitude of personal finance, business, insurance and crypto services.
Their growth today has been impressive with over $1.7Bn raised and 20M users. Today I wanted to dive into how they are approaching crypto, as one of the few mainstream neo-banks focussing on this from building centralised services and exploring decentralised ones. Below we take a look at:
The path to becoming a ‘super app’
Revolut’s crypto announcements and hires
The execution of future of crypto services
How they could benefit Revolut
The lateral neo-bank: A quest for ‘super app’ status
FX as the wedge product
Whilst Revolut initially scaled through their no-FX fee payment card. They have subsequently expanded their product range to become a financial super-app. They have used a successful wedge product (no-fee borderless FX accounts) to eventually expanded to offering a suite of tools for individuals and businesses. Whilst initial product market-fit causes initial growth, feature addition has allowed Revolut to build competitive moats around new products. This can be seen as a ‘lateral neo-bank’ play, by focussing on a product wedge to achieve product-market fit and then laterally expanding into other banking services targeting already acquired customers.
Rejecting marketplace models
Unlike competitors, such as Monzo, who looked to become marketplaces for financial service. Revolut rejected this orthodoxy and decided to build their own financial products. This may prove to be the correct choice to grow the product, as I believe the marketplace model suffers from two problems.
Integration - Partnerships on paper sound great to create a way to quickly expand product offerings without assuming the risk of product development. However, in reality, integration with partners often leads to poor and disjointed customer experiences. Furthermore, we often see partners directly compete when offering services, this can be seen with Monzo’s saving marketplace. Their partners, such as Oaknorth and Shawbrook, have also competed with direct-to-consumer offerings.
Value capture - Majority of value is captured in the margin from building subsequent products. As we can see with trading from around a third of Revolut’s revenues in 2020. Owning and building product lines allows Revolut to capture the value of these services.
Rejecting the marketplace approach for neo-banks and going ‘full-stack’ with services has allowed them to become a ‘one-stop shop’ for finance, a super app if you wish.
Crypto becomes a fundamental component of profitable growth
As shown in their 2020 results 10-15% of revenue growth could be attributed to their crypto products. The profit generation was simple for them, Revolut’s crypto product was a centralised closed wallet, users could use their Revolut account to buy cryptocurrencies as assets and Revolut takes a % of each crypto purchase or sale.
However, this only has value for users who are betting on crypto as an asset class and not the benefits of crypto a new decentralised global financial system…
Looking at Revolut’s crypto growth we can see how they may be plotting to enter this decentralised world.
Revolut doubles down on crypto
As mentioned by Revolut’s Head of Crypto, Emil Urmanshin, “crypto is a long-term play and [Revolut] remains bullish on the crypto industry". Let’s take a look at how practically this has played out so far with Revolut’s product and hiring evolution.
Product evolution and announcements
Below we take a look at how Revolut has grown its crypto business.
August 2017 - Revolut announces they are to launch a custodial crypto product for users, initially focussing on Bitcoin, Ethereum and Litecoin.
September 2020 - Revolut support Flare network airdrop for customers
April 2021 - Revolut has 22 currencies supported on their platform
November 2021 - Revolut looking to hire a technical lead to build a crypto exchange
October 2021 - Revolut eyes launch of reward token
April 2022 - Nik Storonsky eyes expansion through crypto wallet and states crypto withdrawals, staking and lending is a piece of the app they are ‘working on’
August 2022 - Revolut add 22 more tokens to reach 80+ tokens listed on their service
August 2022- Revolut create a ‘earn and learn’ service where users win crypto rewards for participating in learning about crypto.
Here we can see Revolut has actively expanded assets supported (over 80+ tokens on their platform) and gamified education through their ‘earn and learn’ product, but they have yet to release any product to access decentralised applications. This could be the ‘first act’ of a crypto strategy to educate users and get them comfortable and educated on the use-case of crypto, before delving into a decentralised product suite. A more cynical view would be they are focussed on driving revenue growth with crypto trading products with a heavy focus on adding new coins, as opposed to accessing decentralised applications to drive consumer use-cases.
Hiring and Talent
Revolut has been aggressively hiring in the crypto space, they announced they recently tripled their crypto headcount since 2021. We have also seen a number of ex-Revolut staff building or operating at crypto companies.
For example:
Alan Chang (ex-CRO) and Charles Orr (ex-Special Projects) recently gained £78M in funding for Tesseract Energy, a blockchain-based energy marketplace
Chad West (ex-VP of Marketing) joined Argent, the smart contract wallet for Ethereum and StarkWare (Ethereum Layer 2)
Phuc To (ex-Head of Retail & Product), Mikael Peydayesh (ex-Head of Core Payments, Premium & Shopping) and Arthur J. (ex-Head of Cards and Crypto Trading) have started Boku, a new decentralised wallet company.
Hannes Graah (Ex-VP of Growth) - Founded GRO a project building user friendly DeFi projects.
Soups Ranjan (Ex-Head of Crypto) - CEO of Sardine, a fraud detection platform with capabilities on fiat-to-crypto fraud management.
We can see Revolut has hired a large number of individuals to build products around web3 and crypto, this would signal a core competence and desire to expand the crypto product suite. However, departures of key team members to building arguably competing products may be a signal of the extent to which Revolut is building in the decentralised realm.
Plans to build a full-stack crypto service
Given public information we can break down Revolut’s 3 areas of focus:
Exchange / On/Off Ramp
In 2017 Revolut posted a job advertising for a technical lead for a crypto exchange product. Whilst they already had an on-ramp solution for custodial wallets, this is built with 3rd party providers (they use Ramp for fiat-to-crypto conversion and Fireblocks for asset custody). Bringing this in-house could provide a multitude of opportunities:
They could join other CEXs (Gemini, Coinbase etc) to provide fiat-to-crypto liquidity as a base layer for on-ramping for other business. This opens up
Allows them to lower fees on on-ramping.
Here bringing this functionality in-house most likely represents an opportunity to lower costs and expand B2B as opposed to a meaningful entry to DeFi.
Reward Token
This could be an incentive mechanism for their community and an additional monetization method alongside subscription products.
Depending on the implementation this could be a blockchain based reward system or a meaningful utility / governance token for aspects of Revolut’s product and community.Decentralised Wallet
A wallet is needed to provide access to decentralised apps and use-cases, such as lending, NFTs and composable blockchain apps. It would interesting to see how they implement this into their core product to understand the extent they want users to interact with non-Revolut services e.g DeFi apps.This could be a meaningful product develop as to how Revolut can allow users to access the decentralised realm.
Why they may want to move to decentralised products?
Play to UX strengths - Let’s take the macro bet that crypto becomes a key part of users financial lives, Fintech UX over crypto rails may be the winner for normal users.
Capture the value of new markets - as shown by the rejection of marketplace models, Revolut may be expanding to capture the long-tail value of the crypto market.
Build lending without regulatory barriers - currently, Revolut is not a licensed bank, whilst this has given them the ability to move faster with greater product delivery. It can hold them back from building a profitable component of the banking stack… lending. DeFi is a way to build these services for customers without having to wait on overcoming regulatory barriers.
Marketing and super-app status - A part of being a super app, a key marketing message of theirs, is having core services for everyone. The growth of crypto makes this a key product feature to have as a super app.
Pure monetization - Services like crypto trading and reward tokens act as an additional way to create opportunities to claim fees for operational procedures e.g. access to crypto or a token to claim product rewards. The additional opportunities could be pure monetization plays chasing the market dynamics.
Whilst it is uncertain what exactly Revolut will be building towards its crypto services. We can see a potential direction of travel towards offering decentralised services. It will be interesting to see when and how Revolut launches decentralised services, such as non-custodial wallets, and their implementation. Do they create a dual world of finance where DeFi and TradFi mix? Or do they simply just add monetization opportunities to their application?
The nature of the types of products released will give us an idea of how they view decentralised services and building in this new world… I look forward to seeing what they come up with to bridge these two sides of finance.
If you have any insights on the topic, I’d love to chat! feel free to reach me by replying to this email or DM on Twitter or LinkedIn! 🙏