Losses at the British fintech firm Revolut nearly doubled last year, despite cashing in on the year-end cryptocurrency boom.
The digital bank – founded by the former Lehman Brothers trader Nik Storonsky and chaired by the ex-Standard Life Aberdeen boss Martin Gilbert – said it made £39m on its cryptocurrency investments last year, while growing demand for its crypto trading services helped pushed revenues up 34% to £222m in the 12 months to 31 December.
It followed the meteoric rise in the price of the leading cryptocurrency bitcoin, which jumped nearly 300% to $28,500 in 2020, before hitting a short-lived peak of more than $64,000 in mid-April this year. Bitcoin was down 8.5% on Monday, at about $32,500, after reports that China’s central bank has demanded a tougher crackdown on the use of cryptocurrencies.
While the company said it was finally profitable in the final two months of the year – coinciding with some of the strongest demand for cryptocurrencies in 2020 – further investment in engineers and share-based payouts for employees pushed Revolut to a pretax loss of £207m last year. That is nearly double the £107m loss in 2019, according to the company’s annual report.
Its finance chief, Mikko Salovaara, said the company went on to experience “very strong profitability in the first quarter” of 2021, but would not confirm whether it was heading for its first annual pretax profit on record. “We don’t give any forecasts, but so far so good,” he said.
Revolut launched in 2015 as a pre-paid card focused on offering free currency exchange to customers. It has become one of the UK’s most valuable fintech startups, worth about $5.5bn, expanding overseas to 34 other countries and adding business accounts, investments and wage advance to its financial services. The company has since secured an EU banking license and has lodged an application to become a fully-fledged bank in the UK.
But unlike UK banks, the firm has leaned in to the cryptocurrency frenzy.
The Canary Wharf-headquartered firm, which says crypto services make up about 15-20% of its revenues, allows customers to buy and sell nearly 40 different cryptocurrencies including bitcoin, ethereum and most recently dogecoin, which is based on an internet meme of a shiba inu dog.
But Revolut’s successful crypto business could complicate its ambitions to secure a UK banking licence, which it applied for at the start of the year.
Earlier this month, global regulators from the influential Basel Committee on Banking Supervision said cryptocurrencies such as bitcoin should come with the toughest bank capital rules to avoid putting the wider financial system at risk should their value suddenly collapse. If that proposal, which is up for consultation, is adopted, UK lenders could be forced to put aside enough capital to cover 100% of potential losses. That could prove expensive for a crypto-friendly company such as Revolut.
Meanwhile, Chinese regulators have banned banks and payment firms from offering clients any services involving cryptocurrencies and warned of the risks linked to trading in crypto-assets. In the UK, the Bank of England and Financial Conduct Authority have told investors they should be prepared to lose all their money if they buy cryptocurrencies, since they are not covered by consumer protection schemes.
A spokesperson for Revolut said it kept a “careful eye” on regulatory announcements and was supportive of regulations that protected retail customers and cut the risk of cryptocurrencies being used for illicit purposes, “provided the regulation is balanced and doesn’t stifle innovation unnecessarily”.
“We see good crypto regulation as essential for making crypto a mainstream and useful technology in the future,” they said.
• This article was amended on 15 July 2021 because an earlier version gave the figures for the 2020 and 2019 losses for Revolut in thousands whereas as they should have been in millions, i.e. £207m and £107m respectively.