[00:00:00] Mike Parsons: hello and welcome to the bottom up podcast. I'm Mike Parsons and I'm the chief innovation officer of Qualitance and this is our fourth instalment of a fantastic case study, diving deep into the world of Revolut; who some might call them the Amazon of banking. And so far we've looked at three parts of their business; the product, the people, and the promotion.

And there's a ton of learnings, that we can take from them. Most of them goods, they've obviously had some challenges on the people and the culture side of things. But the real question is. Does this all add up to the dollars and cents really come together to make this a profitable business and a business that can do really well in the longterm.

I've collected a few insights here that are all taken from our case study that you can get at  bottomup.io; you can get it all for free. It's [00:01:00] a total deep dive for an hour on all the learnings or the inspiration that we can take from a Revolut. They've done some pretty crazy things. Probably their biggest achievements so far apart from raising a lot of money and being valued at over 5 billion, is that they've generated over 10 million customers in five years, and they've largely done that, without much paid advertising.

At all. So we're looking at a pretty interesting business from a profit sense. So let's dive now into just a few key thoughts that we've discovered about how they build their business and how it all adds up. I'm going to give you three big ideas on how they make money, how their profit model looks, and some of the thinking behind it.

Thought number one, this is the big one. they have removed the middleman from their banking infrastructure. So what do we mean by that? Well, if you look at the traditional bank, [00:02:00] over the last 10 or 20 years, they have accumulated. Tens and wait for this. Sometimes hundreds of services from different technology providers, right? 

From login or Auththenitcation, fraud detection, you name it. So when they deliver to you, let's say three or four, services, or products, let's say a checking account. A loan of some sort, maybe a stock account, et cetera, et cetera. It takes them like series of, vendors and datasets and services to integrate and to sort of, I don't know, bandaid almost sometimes together and deliver to you.

What happens over time is when you keep patching in all these different third parties, the system gets heavier. It gets bogged down, and, this has been actually a massive problem for the folks that are in the banking world because the infrastructure becomes so heavy, you can't move fast. In fact, if you [00:03:00] have a look at the case study at bottomup.io, we found this study from fraedom and they're basically saying that.

Almost half of the banks that they surveyed named their legacy system as the biggest blocker to them actually growing as a business. So it wasn't a sales problem, but it wasn't a marketing or a brand problem. They're literally strangled by their legacy legacy infrastructure. Now, what's really interesting here is that.

Revolut have decided not to be dependent on third parties. And what's particularly interesting about this is that many other neobanks have not made this decision. So what is really special about Revolut is they're one of the few that have doubled down and said. All in. We're going to build it all ourselves.

We're going to provide all of the services so it's not just a checking account and we're going to build this, craft this together. Now, there's two parts to this story. First, I want to give you a little quote from Nicholas Stranovski and I'm going to read you what he has [00:04:00] said about this, and then we're going to unpack it.

Okay? Is what he said about their longterm business model:"effectively. When you run all of the infrastructure in house, you can actually make money out of this business and the business becomes quite profitable". So that's Stranovski CEO and founder of Revolut. And what he's really saying here is that once they've built their own infrastructure, and I think you got to remember that's a law of capital investment in the upfront.

That's why they've raised so much money, over $800 million. But they're building all this infrastructure. And what happens is because they've built it, they don't have a very many third party dependencies, both either in terms of technology or in terms of pricing. So what happens is that as they introduce these new services, and as they have the network effect, they get more and more customers.

They're actually making more money than their competitors do because they can move faster and they're [00:05:00] actually got less. Cost per transaction. So this is a really powerful idea. It is a risky idea. It is a bold idea because you're effectively saying, we're going to go all in and we're going to build it all ourselves.

And for a lot, I would say majority of banks, this is too big of a risk, but in this case, Revolut have taken a huge risk and they're going out in the world and delivering. A full range of services on infrastructure that largely has been built by themselves. And if you go back to the, product, episode of the show, you'll remember that I dove into a special case of where they built their own feature for a card fraud detection.

And you, if you go back to that episode, you can hear how we break that down and look at what they've done and some of the economics behind it. Again, if you are interested, jump over to bottom app.io and have a look at the, the full case study. It's, it's pretty cool. Okay, so that was idea number one.

They've removed the middleman. They've done this vertical integration or a to Z [00:06:00] or end-to-end. There's a lot of different ways people call this. The point is this, is that they've, they're doing a build versus buy strategy. But number two is that they're way more than just a savings account. So the crazy thing is if you have a look at all the different products that they're offering within the one unique experience, you've got subscriptions.

You've got, opportunity to make money on transaction fees, money transfers, internationally, perks, insurance trading, ah, loans, overdraft, business accounts. It goes on and on. So what you can see, idea number one, they've built the stack, they've removed the middleman. Now they're just offering more and more things on top of that stack and making more and more money, and that's a lot of good revenue in those products.

The other thing that gets really interesting is that they can offer more products more quickly because they control their own stack, the moving at great speed, and then they get the network effect. People like them. Because they're more than just a checking account or a savings account. So more people get [00:07:00] on, they make more money, so they invest more to make more features.

So more people get on, and this is a classic network effect, and you'll start to see some, some really exponential growth characteristics as they get a full set of services in cross or markets. To give you an example, right now, they've only just started a very basic offering in the U S so this is early days for them.

And. I think there's a lot more growth in store for the company. Okay. So that's the first two ideas. They removed the middleman and they've got a multiple products and services that they offer across the platform. I think the other really powerful thing that generates a lot of money generates a lot of positive business growth for them is their premium membership.

Now, what y...