Sparking a Revolut-ion

MOST startup founders wax lyrical about why they became an entrepreneur, but Nikolay Storonsky is a man of few words.

"I always wanted to, and then I had the right opportunity to build this initial idea, and so I dropped everything to build it," says the chief executive of London-based fintech firm Revolut. And he stops there.

It sounds more underwhelming than it should. With over 13 million users, a presence in over 30 countries and a valuation of US$5.5 billion, Mr Storonsky and his co-founder Vlad Yatsenko have built one of the hottest and most valuable startups in the UK.

Revolut's money transfer service allows users to send funds across borders at only a fraction of what the traditional banks charge. Its suite of products now includes stock, cryptocurrency and commodities trading - offered commission-free up to certain limits.

Mr Storonsky isn't much of a keen conversationalist, but going by Revolut's expansion in a mere five and a half years, he certainly has a story to tell.

The Russia-born entrepreneur dials in one cold morning in early December to speak with The Business Times via video call. He's fresh out of a fireside chat at the virtual Singapore FinTech Festival and speaking from the company's London headquarters, where large neon signs bearing the phrases "Get Shit Done", "Never Settle" and "Stronger Together" adorn the walls.

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"To be honest, when I started working in banking, I was 20 or 21 years old. My view was always, Okay, I'll just work for two years in a bank and learn how things are done. I wanted to start my own company after two years in the corporate world," Mr Storonsky, now 36, says.

Now or never

In the end, he spent about eight years in the corporate world before getting the sense that time was running out. It was now, or never, to start his own company. So Mr Storonsky quit his job as an equity derivatives trader at Credit Suisse.

Eyeing entrepreneurship at a young age - that's a mindset that Singapore's government took years to cultivate in its risk-averse, conservative society. But Mr Storonksy always knew what he wanted. What gives?

"Well, I guess, I was born in the Soviet Union right? And when the Soviet Union collapsed, that was quite a tough time, and unless you did something, it was pretty difficult to survive back then. So I guess my generation - especially during the collapse of the Soviet Union when you're just like, six or seven years old, and you see everything - probably became quite ambitious and quite hungry and quite creative."

It helps that Mr Storonsky has quite the competitive streak. Growing up, the former state champion swimmer competed in various sports including kickboxing and skiing.

"I was always disappointed if I didn't win. But I guess it's quite natural, at least for a majority of people," he says, cracking a smile. His last win came when he was around 20 years old, in a swimming competition in London.

Now, whatever little leisure time he has is spent on the occasional kite surfing and mountaineering. These days, Mr Storonsky throws himself into competing on a different playing field.

Global ambitions

Like other well-funded challenger banks in Europe such as N26 and Monzo, Revolut has plans to expand its product to more users internationally.

The endgame is to build what Mr Storonsky calls a "financial super app" - a platform that one can use in everyday life. The idea is to make the service as personalised as possible, while being much cheaper and more convenient than what traditional banks can offer.

For instance, its foreign exchange (FX) service offers rates that mirror spot interbank exchange rates, which are the rates at which banks trade currencies with each other.

Banks typically charge up to a 5 per cent margin for consumers sending money overseas. While Revolut uses the interbank rate, it charges a small percentage mark-up for some currencies.

The idea of a super app isn't revolutionary. It originated in China, where Tencent's WeChat and Ant Group's Alipay have won over the minds and wallets of the nation's consumers. In South-east Asia, Grab and Gojek have transitioned aggressively from ride-hailing to super app ambition.

The tricky bit about becoming such an app is actually getting people to use your platform every day and to stay on it. But with loads of venture capital funding perks and subsidies, the cost of switching to a more attractive alternative is very low.

Revolut is aiming to secure long-term customers by providing its entire suite of solutions for a flat monthly fee. Its way of attracting new users is to offer its products free, up to certain limits.

"And this becomes a more economical way to use financial services compared to having external providers, who will charge you for every single transaction or for every single action that you do," Mr Storonsky says.

Revolut launched in Singapore in October 2019 after several months of anticipation. So far, it only offers the in-app FX and money transfer services, but it plans to roll out trading features and business accounts as well. It intends to pursue a capital markets services licence.

Revolut's business accounts are aimed at helping businesses send and receive payments from overseas at a lower cost, and support integration with most popular business software.

In Europe, Revolut Business has signed up over 500,000 clients since 2017. Last month, it launched a feature to allow business clients to accept payments online, a move that puts it in the same space as payments giants Stripe and Adyen.

Following launches in Japan and Australia last year, the company has plans to expand its footprint to India, South Korea, Indonesia and the Philippines. Mr Storonsky estimates that the firm will be hiring for another 160 roles for the new markets in Asia.

He's clearly excited about the firm's business prospects in Asia, though his usually passive expression gives little away. He tells BT that the Philippines' large market for remittance is one that can be served well by Revolut.

"In South Korea, there are several digital banks at the moment, but I believe they still don't have all the services that we provide," Mr Storonsky says. "One of the key (advantages) we have is obviously interbank FX rates (for instant money transfers)...Not a single bank in Korea provides this while also offering commission-free trading."

Eye on financials

Revolut's losses more than tripled to £106.5 million (S$190.7 million) for the year ended Dec 31, 2019, up from £32.9 million in 2018 amid international expansion and new product offerings.

The group went on a hiring spree in 2019 that caused its staff costs, including directors' remuneration, to increase 4.8 times to £59.3 million. Average monthly number of employees during the year, including the six directors, rose to 1,289 from 431.

Though weighed down by losses during the year, Revolut's revenue soared to £162.7 million, almost three times its £58.2 million revenue in 2018.

Notably, 63 per cent of this revenue came from the startup's prepaid debit cards that are popular with travellers for their attractive FX rates. This became somewhat of a disadvantage in 2020.

As Mr Storonsky speaks to BT from London, the surroundings in his background reveal an almost bare workspace. Several months into the Covid-19 pandemic, staff have been given the option to work remotely as cases continued to climb in the city.

The pandemic had an impact on Revolut's business as well. With travel halted, the company could no longer rely on interchange fees generated when travellers pay with their prepaid cards.

In an article published on Dec 8, Mr Storonsky told CNBC that the firm saw a 40 per cent drop in revenue in the early days of Covid-19. That said, the startup's diversification strategy paid off and it is now 50 per cent ahead in terms of revenue compared to pre-Covid levels, he added.

Mr Storonsky told BT that its strategy towards consistent profitability is to establish new revenue streams and focus on cross-selling. Revolut recently launched a new mid-tier subscription offering called Revolut Plus in the UK, which is less linked to travel.

"It's focused on people who mostly use their Revolut account at home, providing them with features such as purchase protection on damaged or stolen goods," Mr Storonsky says.

The other huge disruptor in 2020 was Brexit. As part of its contingency plan, Revolut transferred more than nine million customers to its Lithuanian entity, a licensed e-money institution, and is applying for an e-money licence in Ireland.

"It's likely that Lithuania will be the hub for central and eastern Europe, Ireland for western Europe and the UK will be the third hub. We have no plan to move our head office from the UK," Mr Storonsky says.

Growing up

Between Covid-19 and Brexit, Revolut certainly has many fires to fight. To add to its woes, the startup has been plagued with controversy over the past few years over accusations of a toxic work culture, weak compliance with anti-money laundering rules, and a surge in user complaints over frozen or closed accounts - including poor customer access to anyone at the company who could help.

Mr Storonsky acknowledges the issues. "We've been willing to pay great attention to customer complaints and customer support. We have a huge team now dedicated to ensure experiences are as smooth as possible," he says.

"We will need to lock accounts if there are suspicious transactions...and there will be cases where we lock the accounts of innocent users. We'll wait for the proof from them and the process can take time. But we continue to optimise the system, and I'm pleased to say that the experiences are much better compared to what it used to be."

Revolut quadrupled the size of its group risk function during 2020 and added key positions in all of its main subsidiaries, covering risk, compliance and financial crime.

As for media reports that the company had mistreated employees, Mr Storonsky says that Revolut is a different entity now than it was in the past.

He says that as a fast-growing, resource-stretched startup, the proper processes and experienced human resource (HR) professionals might not have been in place, which led to friction between employees and managers.

Then again, working in a startup is not for everyone, he says. "You need to really work harder, right? Be much more dedicated and much more ambitious. You're like, flying a plane while building the plane and that's almost impossible, but you need to survive this way.

"So that's why it's not for everyone and of course, part of what caused the friction was that some people are not suitable for this environment; plus on top of it, you don't have (proper) HR managers and there might be conflict," he says.

Perhaps the company's work culture has changed significantly, as Mr Storonsky says. Yet, almost three weeks after his interview with BT, yet another article regarding employee mistreatment surfaced.

The Financial Times reported that Revolut has been accused of failing to pay bonuses promised to staff in its compliance team and now faces legal action from one former employee, who said she was unfairly forced to quit. Could this suggest that the startup has some deep-rooted issues that cannot be fixed overnight?

Mr Storonsky says all the leaders in his company have had to constantly adjust themselves every year, or even every month.

"What was the hardest adjustment for me?" he repeats the question, mulling it over.

A long pause. "I think I have an extremely high intolerance to bad quality of work compared to a majority of people," he says. "And for me it was very hard to adjust it, because…" Another pause.

"There are different ways to get things done, right? So you can hire a brilliant person, and then they get everything done. Or sometimes you will need to work, say, with an average person and then do several iterations for them to get something done right.

"That was very difficult for me initially, because I have a very high intolerance to bad quality of things. But I have learnt to control it."

And now with the power of retrospect, what would Mr Storonsky tell the younger him of ten years ago?

He cracks a smile and leans back in his seat. "Well, I wish I could somehow put my knowledge about how to hire people into the younger me, or the playbook or some description of how exactly to hire and why. I think by now, I will be much more successful."

NIKOLAY STORONSKY

Founder & CEO Revolut

1984: Born in Moscow, Russia

2006: Equity Derivatives Trader at Lehman Brothers

2007: Masters in Applied Physics & Mathematics, Moscow Institute of Physics and Technology

2007: Masters in Economics from New Economic School, Moscow

2008: Emerging Markets Equity Derivatives Trader at Credit Suisse

2015: Co-founded Revolut with Vlad Yatsenko to provide fee-free currency exchange

2018: Revolut lets UK/EU customers buy and sell cryptocurrencies

2019: Launched commission-free stock trading on NYSE and Nasdaq

2019: Launched Revolut in Singapore, the first expansion hub outside Europe

2020: Revolut raises US$580 million Series D, increasing valuation to US$5.5 billion

2020: Launched Revolut in Japan, Australia and the USA