Revolut’s SMB milestone supports its drive to profitability

  • Revolut’s customer milestone hints at how neobanks can bundle accounts, loans, and other financial services products for the SMB segment.
  • But neobanks that expand into SMB lending have a greater revenue opportunity than solely with SMB account and services bundles. 
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About three years after launching its small- and medium-sized business (SMB) product in the UK, Revolut has announced 500,000 business users and predicted that it will double that number by the end of 2020.

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Revolut’s SMB milestone brings it toward profitability.
Business Insider Intelligence

 Though SMBs are a small portion of Revolut’s more than 10 million total customers, its revenues from the segment now eclipse retail’s and support the neobank’s drive to be profitable this year. This suggests Revolut’s longtime reliance on bundled subscriptions of retail banking and payments services could fade.

While in search of growth, challenger banks across the globe have struggled to break even. During the pandemic, neobanks have reported enormous losses and suffered valuation cuts, despite rapid user growth. And the risk for neobanks is that they diversify or spread their bets too much in search of user growth and new revenues without regard for a profitable core business. To pivot to profitability, some have bet on a hub for financial services, creating consumer or business lending products, or branching into Banking-as-a-Service.

Revolut has aimed for revenue and margin growth with new SMB products. The neobank is maintaining focus on the global expansion of its retail banking operations, but recently rolled out small business accounts in both the UK and the US, with plans for additional markets. The offering extends premium retail features to its SMB customers while adding invoicing, payroll, payment acceptance, supplier payments, and API integration for third-party services like Xero and Slack.

Additionally, in the US Revolut charges $49.99 per month for the top business subscription tier, $33 more than its retail product. Scaling the premium business product alone would add significant recurring revenues that the neobank could not tap through retail customers alone.

Neobanks that expand into SMB lending have a greater revenue opportunity than solely with SMB account and services bundles. At least up until the pandemic, lending to SMBs has proven a profitable niche for neobanks. OakNorth Bank, for example, caters to small businesses and entrepreneurs with savings accounts and loans, offering loans between £500,000 ($638,172) and £45 million ($57 million) for SMBs. It nearly doubled its pretax profits from £34 million ($43 million) in 2018 to £66 million ($84 million) in 2019.

And close competitor Starling says it is on track to make a profit, which it owes largely to its small business products. While many neobanks flounder with commoditized retail services, those that engage the SMB market with accounts and lending products could be better positioned than their neobank competitors—though mid-pandemic is a risky time to bet on SMB lending for growth.

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