One of the most commonly asked questions about new banks and fintech is if they are a safe place to keep your money. The answer is generally, yes, if they are regulated by the FCA as funds are protected by the FSCS up to £85,000. But, Revolut, is regulated as an e-money institution and not as a bank so you do not get the FSCS protection.
No FSCS
Revolut says that if they were to go bust, client funds would be paid out of a “safeguarding” account which is a type of ringfenced account where client funds are held. When funds are in this type of account Revolut cannot (in theory at least) lend them out or use them to run the business. This is how banks traditionally made money, they pay you a smaller amount of interest than they receive on the money they lend out and make a profit from the difference (among other things).
However, there is more to consider than just the safety of your money on deposit. After all Revolut is a new bank aimed at banking first-timers where deposit are likely to be smaller than at traditional high street banks.
Funds may well be ringfenced, but new banks and fintech are much higher risk places to out your money that traditional highstreet banks. The main reason being is that they generally run at a loss in an effort to grow quickly and secure more customers. Plus you have no visibility over how they are performing apart from sporadic updates. The major high street banks like Barclays and Natwest are all public companies so you can see via their share prices how well they are doing. New fintechs like Revolut have a habit of burning through money and raising funds through crowdfunding and VCs. But what happens when the money runs out? They have no profits to keep them afloat.
Revolut Versus Starling
I personally have bank accounts with Natwest and Starling Bank. I interviewed Ann Boden a few years and an I think she has a great ethos and some excellent ambitions.
Ann Boden also said at a recent Money 20/20 conference that they like to focus more on stopping scammers and protecting their customers money as opposed to promoting crypto. Which Revolut does do. Regardless of what you think about crypto, Revolut is giving its customers what they want. But just because people want to do something is it actually good for them? It just makes Revolut more of a high-risk business than those that don’t offer it. It even said last year when they announced their results that despite generating £221m in revenue, losses of £122m, an increase of £98m from the previous year.
But even with Starling, I wouldn’t keep more that what was protected by the FSCS in the account, I’d spread that out among larger more established banks.
Money Transfers
For small money transfers, Revolut is safe enough, but as with all currency conversions if you are sending over £10,000 abroad you should be using a currency broker. You’ll get much better rates, more control over when you buy and sell, help with all the AML (anti-money laundering) issues that may come up, and the ability to lock in the currency exchange rate for up to a year in advance (if you think it will move against you).
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