The London-based fintech has revolutionized banking since its launch in 2015. But is your money safe with it?
You know a product or a company has truly taken off when its name can be used as a verb. We all google things online almost every single day. We hoover our homes. And now we regularly revolut our friends money. It’s a testament to the fintech's huge popularity that it’s managed to achieve this ubiquity in English parlance in the space of a few short years.
But what exactly is Revolut? Is it a bank? Does it actually offer a current account in the traditional sense? And is your money as safe in its app as it is with any of the main pillar banks?
Who is Revolut?
Revolut is a UK-headquartered fintech company which launched in 2015 and has over seven million customers worldwide, 500,000 of whom are in Ireland according to the company's head of operations here.
Revolut is oftentimes referred to as a ‘digital bank’, with all its services being carried out through its mobile app.
Revolut offers largely free day-to-day banking. There’s no monthly or annual maintenance fee for using its app, there’s no charge for chip and pin or contactless transactions. There’s no fee for standing orders or direct debit payments either. And best of all, there’s no foreign exchange fee on purchase made outside the Eurozone.
Is Revolut a bank?
Not in Ireland. At least not yet.
Revolut is licensed in the UK by the Financial Conduct Authority (FCA). It has an electronic money or e-money licence in the UK, not a banking licence, and uses that same licence to operate in Ireland.
In late 2018 Revolut received a banking licence in Lithuania to operate as a bank there. Under EU passporting rules, a bank or financial institution which is licensed in one EU country is able to ‘passport’ or transfer that licence to another country without having to get full regulatory approval all over again. However Revolut hasn’t done that yet for Ireland. So it's a bank in Lithuania but not one in Ireland or the UK as it only has an e-money licence here.
Is my money safe with Revolut?
Many people are probably familiar with the Central Bank’s Deposit Guarantee Scheme (DGS). This scheme guarantees deposits with financial institutions, credit unions and banks in Ireland that are authorised by the Central Bank up to €100,000 per person per institution. The Irish DGS also protects deposits held at EU branches of authorised Irish institutions. So for example if AIB was offering savings accounts to German customers from a branch in Berlin, these customers would be covered by the Irish scheme and not the German one.
As Revolut has a banking licence in Lithuania, its customers there are covered by Lithuania's own version of the DGS up to €100,000. Had Revolut passported its banking licence from Lithuania to Ireland then customers of Revolut in Ireland would also have been covered by the Lithuanian deposit protection scheme. But this hasn’t happened.
Instead, as previously mentioned, Revolut is licensed and authorised in the UK by the FCA and has passported this licence to Ireland. So customers here are covered by the FCA rules.
The DGS scheme that the FCA operates covers deposits up to £85,000 and is called the Financial Services Compensation Scheme. But because Revolut has an e-money licence and not a banking licence, this scheme doesn’t apply to Revolut customers here or in the UK.
So how are customers protected?
According to Revolut, as an electronic money institution, they: “are required to safeguard money we receive from (or for) customers... Safeguarding means that we deposit the money we receive from you (or for you) into a client money bank account. The money in these client accounts is held by us on your behalf. We have client accounts with a range of large banks (that meet our and our regulator's requirements)."
In the case of Irish customers, the client money bank account is with Lloyds in the UK and Revolut, in theory, should have no access to this money.
If Revolut were to become insolvent, customers would be able to claim this money back from the bank i.e. Lloyds. And according to the FCA, depositors will get their funds back in priority to all other creditors. So Irish Revolut users can take comfort from this.
However the issue could arise where Revolut fails to "safeguard" or segregate all of its depositors’ money or where the costs of winding up the fintech, in the unlikely event of it going bust, outweigh the funds available. So there is a small risk here.
What happens if Lloyds goes bust?
If Revolut keeps your money in a Lloyds bank account the question then arises as to what would happen if Lloyds goes bust.
Lloyds, as a bank, is covered by the previously mentioned FCA compensation scheme, meaning deposits up to £85,000 are covered. However it's not definite whether Revolut customers would be covered here and some experts say we'd only know for sure in the event of an actual default.
What about Brexit?
Brexit complicates things slightly for Revolut.
Under EU rules, Revolut is operating here on an e-money licence that it has passported from the UK. When the Brexit transition period comes to a close at the end of this year, this will no longer be possible, unless a last-minute deal between the UK and the EU can be reached, meaning Revolut will either have to apply for an e-money licence from the Central Bank here or passport its Lithuanian banking licence to Ireland.
The bonkers.ie opinion
We're huge fans of Revolut here at bonkers.ie and love how the fintech has helped revolutionise banking and forced the main Irish banks to up their game. And although there are rules protecting your money, it would be tough to deny that your money isn't quite as safe in a Revolut account as it is in an Irish bank account.
So if you're lucky enough to have €20k or so lying around in savings then maybe a Revolut account isn't the safest of places to put it! However Revolut pays no interest on savings whatsoever anyway, so leaving excess money with it isn't a good idea to begin with.
But if you're just looking for a good value 'bank' account to carry out your day-to-day banking needs it's tough to find a better app to use.