Background
Revolut recently announced a private valuation of $45 billion, marking a significant milestone in the journey of challenger banks. Meanwhile, Brazilian digital bank Nubank has reached an impressive 100 million customers across Brazil, Mexico, and Colombia, underscoring its significant growth and influence in the market.
As we observe the evolution of the digital banking sector, it’s time to assess the progress of key players like Revolut and Nubank. Additionally, we’ll explore the differences between challenger banks and neobanks.
Understanding Challenger Banks and Neobanks
To fully appreciate the landscape of digital banking, it’s essential to understand the commonly conflated terms: challenger banks and neobanks.
Challenger banks are new, digital-first banks that possess a banking licence. This regulatory status allows them to offer a full suite of banking services, including loans, mortgages, and overdrafts. Importantly, customers of challenger banks are also protected by national protection funds, which offer a safety net in the event of a bank failure.
In contrast, neobanks offer a subset of banking services without holding a full banking licence. They often operate under frameworks like e-money regulations and cannot provide lending services directly. Their business model mirrors that of tech startups, prioritising rapid user acquisition and product iteration.
If you would like to learn more about the difference between challenger banks and neobanks, please visit CFTE’s blog on this topic.
A Comparative Snapshot: Nubank vs. Revolut
Size and Growth:
Nubank and Revolut are among the largest challenger banks in the world. Nubank leads with a customer base of 100 million, while Revolut follows closely with almost 50 million clients. Both companies are experiencing impressive growth, with annual increases of around 20%. Despite Revolut’s recent strides, Nubank remains the larger entity.
Profitability:
A few years ago, challenger banks were criticised for being loss-making ventures. However, both Nubank and Revolut have turned the corner, achieving profitability. Interestingly, while Nubank earns more per customer ($80 compared to Revolut’s $45), Revolut manages to extract slightly more profit per customer ($12 versus Nubank’s $10).
Divergent Growth Strategies:
The primary distinction between these two companies lies in their growth strategies. Nubank has concentrated its efforts on a select few markets, whereas Revolut has aggressively pursued international expansion. This global ambition was evident even five years ago when a cohort of the CFTE extrapreneurship programme collaborated with Revolut on this very strategy.
The Bigger Picture: Revenue Potential and Market Dynamics
The digital banking landscape is dynamic and rapidly evolving, with Nubank and Revolut currently leading the charge. However, the market remains vast and ripe for innovation. As these companies grow and new players enter the field, we can expect the sector to develop further and new financial innovations to emerge.
Despite their success, there is still significant untapped potential for revenue generation. Currently, these digital banks’ revenue per user is two to four times lower than that of giants like Netflix or Facebook. This gap underscores the importance of Revolut obtaining a banking licence, which would enable a broader range of financial services and revenue streams.
Learn more about the future of finance in the Rearchitecting the financial system programme, gaining insights from top CEOs, CIOs, Founders and industry leaders at Singapore Fintech Festival.
