$164 billion upstart could send chills through Australia’s big four
A finance expert believes Australia’s newest bank could pose a credible challenge to the nation’s big four if it gets one thing right.
Revolut was approved for an Australian banking licence this week, allowing the financial institution to offer products such as savings accounts and loans.
Revolut’s headquarters in London. iStock
The company launched on our shores as a personal finance app six years ago and has since amassed about a million users in Australia.
The company’s valuation soared to $US115 billion ($164.78 billion) this week after an employee share sale, according to financial news outlet Bloomberg.
Macquarie University finance associate professor Di Bu said the key challenge for the bank will be gaining trust in Australia.
“Customers may be comfortable using Revolut for travel or international payments, but moving their salary, savings, direct debits and mortgage requires a much greater level of confidence,” Bu said.
“Revolut still needs to demonstrate the reliability, customer support and long-term stability that people expect from their main bank.
“So, I would describe Revolut as a credible specialist challenger today, rather than an immediate fifth major bank.
“Its longer-term threat will depend on whether it can move from owning one part of the customer relationship such as travel or payments to becoming the institution where customers receive their salary, hold substantial deposits and borrow money, particularly through mortgages.”
Four banks dominate the sector in Australia: Commonwealth Bank, Westpac, NAB and ANZ.
Du said Revolut’s initial focus would likely be on particular parts of the big four’s business, rather than across the entire banking market.
The much harder challenge would be breaking into the big four’s core businesses including mortgages, primary salary accounts and major business-banking relationships.
“It is probably best placed to compete in areas such as international payments, foreign exchange, travel spending, digital savings, credit cards and personal loans,” Bu said.
The big four banks dominate Australia’s finance sector. Dominic Lorrimer
“Customers can move these activities to Revolut without changing their mortgage or completely leaving their existing bank.
“So Revolut could capture a larger share of customers’ everyday spending and financial activity, even while remaining a secondary bank for many people.
“Residential mortgages are central to the Australian banking model, they represent a large part of the major banks’ lending businesses and often anchor the broader customer relationship.
“At present, Revolut does not appear to offer mortgages in Australia, so it is not yet competing in the part of the market that matters most to the major banks.”
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