Neobank Revolut Reports Profitable 2021 Audit Criticism

Nikolay Storonsky, chief executive officer of Revolut Ltd., smiles during a Bloomberg Television … [+] interview.

Revolut revenue grew 34% in 2022 to 850 million sterling, Chief Financial Officer Mikko Salovaara told Forbes, as the London-based digital bank revealed prior-year results that were delayed by an accounting overhaul that followed a U.K. regulator’s criticism of the company’s 2020 audit. The company did not release further 2022 figures, but the rising top line coincided with new business operations in Brazil, Mexico, and India. Deposits are now above 10 billion sterling, Salovaara says, up from 7.4 billion sterling at the end of 2020.

In the annual report, the privately held company said it tripled its revenue in 2021, bringing in 636 million sterling and reporting 26 million sterling in net profit, following a restated loss of 224 million pounds in 2020. The results were driven by 5 million new users and a 75% increase in the number of customers paying for premium plans that offer perks such as unlimited foreign exchange with no fees and free teller machine withdrawals.

The company’s gross margin, which excludes marketing outlays, increased to 70% in 2021 from 33% the year before. “We held our fixed costs together at a lower pace of growth such that we’re able to engender this operating leverage and profit,” Salovaara says.

A cloud hovering overhead the strong report was the months-long delay in submitting it, which was caused by a redesign of Revolut’s internal accounting system. Last year, the Financial Reporting Council, a U.K. audit regulator, said auditing firm BDO completed an inadequate review of an unnamed financial services provider and noted that the risk of “material misstatement was unacceptably high.” That provider was Revolut, the Financial Times reported.

While Revolut stated that the matters raised were appropriately addressed in the 2021 audit plan, BDO noted that it was not able to independently verify 477 pounds of revenue from subscriptions, card delivery, foreign exchange, and wealth management. The auditor was inhibited because “IT systems were not designed in such a way that would allow for IT or business process controls to be effectively tested throughout the year,” it stated. Despite this, BDO said the statements give a “true and fair” view of the company’s financials.

While some neo banks struggle to diversify their revenue outside of collecting interchange fees from card swipes, Revolut has launched a slate of offerings for retail and commercial customers. Its services range from currency exchange, budgeting tools, and commission-free trading for everyday consumers to treasury management, corporate cards, and payment processing for business clients. In 2022, the company launched in Brazil, Mexico, and India. This year it plans to inaugurate services in New Zealand and is exploring new markets.

A significant portion of Revolut’s ballooning deposits is from business clients that typically bring in larger balances than retail consumers, according to Salovaara. Revolut Business has processed 125 billion pounds of transactions for its clients since launching in 2017 and processes 6.5 billion a month, Revolut’s sales manager for Spain and Portugal Elisabet Girvent told CE Noticias Financieras in December.

Loans and advances to customers as of December 2021 stood at 17.8 billion pounds. “We expect to be able to generate a steady income based on the low-cost funding provided by our customer liabilities,” the report reads.

Revolut holds a full banking license from the European Central Bank. Two years ago, the company applied for a banking license in the U.K. which is currently pending. Revolut holds a broker-dealer license in the United States under which it offers commission-free stock trading. The licenses allow Revolut to avoid costs that come from working with banking partners but may raise expenses in other areas like compliance. Revolut said it raised $800 million in a series E funding round last year at a $33 billion valuation. more news

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