Revolut poised to hit Natwest and Lloyds in deposit war

Revolut’s long-awaited UK banking licence approval is set to trigger a “deposit war” that could hand a major blow to incumbent giants Natwest and Lloyds.

The $75bn fintech juggernaut finally bagged its full-fat UK banking permit earlier this month after a four-year tussle with regulators.

Analysts are expecting the move to send ripples across the sector, with Revolut now able to accept cash as a deposit, which it can lend out to other customers as mortgages, personal loans, or business credit.

Tomasz Noetzel, senior industry analyst at Bloomberg Intelligence, said: “Revolut’s full UK banking license marks a strategic inflection point, enabling far more aggressive retail-deposit gathering and posing a direct threat to incumbent profitability, notably Lloyds and Natwest.”

The UK’s big four banks – Natwest, Lloyds, HSBC and Barclays – currently hold around 60 per cent of the industry’s £2.5 trillion and Noetzel said Revolut’s entry to the market is “likely to trigger a UK deposit war”.

Revolut deposit base tipped to surge

Bloomberg Intelligence calculates that every £10bn of current account outflows from the UK’s largest lenders could lead to as much as £375 million in annual net interest income erosion – a four per cent dent to the expected profits of Lloyds and Natwest this year.

Revolut’s UK deposit base is forecast to swell by £40bn over the next three to four years, up from the current level of below £10bn. Analysts centred the forecast on expected surge in the firm’s UK customer base to 25m and a projected increase in average balances per user to £1,300, bringing them in line with rivals like Monzo, which has held a full-fat licence since April 2017.

Noetzel said Monzo is a “great example of what a banking licence can do for a fintech’s funding model” with the firm’s deposits surging to £16.6bn by 2025, a major jump from £71m in 2018.

He added the “ultimate profitability hit” for the big four depends on Revolut’s approach and whether it focuses on keeping its own costs low through lower interest rates or they make a play to snap up more customers with tempting high-paying savings accounts.

“Each pathway implies a different margin outcome, but all point to rising funding pressure as Revolut accelerates deposit scale.”

The brewing tensions between the Nik Storonsky’s banking disruptor and the City’s incumbents have put the bosses of lending giants on the defensive.

Last December, Barclays boss CS Venkatkrishnan – known as Venkat – said fintech banks have “laid the gauntlet down,” when asked about Revolut’s new $75bn (£57bn) price tag.

But he took a jab at Revolut’s lack of licence at the time, referencing the consumer obligations enshrined in the legislation. Revolut responded saying it “abides by the same regulatory and consumer protection standards as any traditional bank”.

Natwest chief Paul Thwaite said: “Companies like Revolut have raised the bar in terms of the retail proposition”.