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"There are many capable FinTech companies in the United States and around the world – technology always creates opportunities for disruption. We have acknowledged that companies like Square and PayPal have done things that we could have done but did not. They looked at clients’ problems, improved straight through processing, added data and analytics to products, and moved quickly."

Jamie Dimon, Chairman & CEO, JP Morgan Chase

Good morning!

We are already at the end of the first month of 2021 and it has been a month full of preoccupations for most of us, with serious constraints due to pandemic measures. The world as we knew it is changing before our eyes, yet we know that some things never change. Like investors wanting to see that their money is working for them. The case of Revolut is an interesting one as it is symptomatic of a more widely-held business philosophy of scaling first, and reduce the cost to serve, before worrying about profitability. Brexit has finally "been done" and is an interesting development to follow for FinTech investors and companies alike.

In the news last week:

Revolut has applied to become a bank in the UK. You understood correctly: Revolut is not officially a bank there, yet it is in other countries around the world. Currently Revolut is classified in the UK as a provider of "other information technology services" which principally reduces the amount of banking services it can offer there, and makes its clients ineligible for the UK Financial Services Compensation Scheme should it go bust. It is authorized by the FCA under the Electronic Money Regulations 2011 though.  Brexit has most likely a large role to play in this decision, because until recently Revolut had benefited from the EU's passporting rights for companies registered in the EU, in order to provide banking services across borders.

Its reputation has for some been so far unprofessional, and the move might also be seen as a wish to be treated as a grown-up financial institution. This might be difficult considering that as a company it is not yet profitable. It has broken even only twice in its five-year history, preferring to expand its range of products and customer base first, the latter standing at 13 million. In contrast, Starling Bank with 2 million customers is now profitable after six years. It is interesting to note that the two months of break-even coincided with surges in Bitcoin price, so there seems to be a relationship there.

This is fundamentally a sign of our times. Governments and central banks are generally still rather skeptical about cryptocurrency, meaning it retains a gambling-like aspect. Some services such as in Kanton Zug in Switzerland accept Bitcoin as a means of payment, but this remains the exception. When a business model becomes profitable on the back of the increasing value of a rather new product, it is not sustainable. Luckily for Revolut its investors have deep pockets and can sustain the lack of profitability for now, but eventually they will be asking to see a return on investment.

PEOPLE: Even in 2021 they remain the most important part of every business.

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