What’s the real cost of joining ion? the free banking Revolution?

IS it a bird? Is it a plane? Is it a bank? No. It’s a ‘digital disrupter’, also known as a smartphone or challenger ‘bank’. They proliferate in the UK but so far Ireland mainly has two – Revolut and N26. N26, an actual bank, has built up around 100,000 Irish customers. But Revolut, which hasn’t even become a fullyfledged bank yet, recently hit the astonishing milestone of one million Irish customers.

It’s hard to keep up with the breakneck pace of its growth. Recent reports of a tripling of Revolut’s global customer base to 10million in a year are already out of date. The lockdown saw another surge to bring this figure to 13m, Revolut revealed to us this week.

But as customers multiply, so do losses. Revolut – launched in 2015 by Nikolay Storonsky and Vlad Yatsenko – trebled pre-tax losses to €119m last year compared to 2018. Its UK rival Monzo recently warned that Covid-19 threatened its very existence.

However, it’s not unusual for tech firms to lose money and sail close to the wind financially as they build their business and I’m sure Revolut will figure out a way to make money from 13 million customers.

The question is can it build on its attractive free banking and foreign currency transfer proposition, while turning losses into profit?

WHAT DOES THIS MEAN FOR ITS CUSTOMERS?

IN this climate, don’t expect any great new moneysaving deals from smartphone banks – although Revolut offers a free app for kids.

Other ‘offers’ – such as rounding up your purchases to the nearest euro (at your expense) – smack of old fashioned bank marketing gimmicks, of no financial benefit.

And despite all the fuss about bank charges, they cost us around €70 a year at worst, while currency exchange is a once or twice-a-year deal for most.

The impending arrival of a new player in the mortgage market – Avant Money – cutting interest rates below 2 per cent is much more significant to consumers and rival banks. That could save someone on the dearest mortgage €3,500 a year – not just €70.

The biggest question hanging over Revolut for me is: can its already stretched customer services cope with the breakneck pace of growth? Elsewhere on these pages, we tell the stories of some who ‘went through hell’ when their accounts were frozen.

Most banks have to freeze accounts now and again to investigate suspected money laundering, among other things, when certain warning flags are raised, often for entirely innocent reasons. But banking sources tell me that it shouldn’t take more than a month to do so.

Does it take Revolut this long because it employs so few people?

AIB took decades to grow into Ireland’s biggest bank, with over 200 branches and almost 10,000 employees. It has around 1.34m active customers and two million account holders – that’s 200 customers on average for every employee, less if you exclude the inactive ones.

Revolut, apparently, grabbed a million Irish customers in the comparative blink of an eye, with no branches and hardly any employees here. The company announced last year that it would take on an extra 3,500 staff. But when we asked how may people it employs this week, we were told 2,000, up 400 on 2019 despite skyrocketing customer numbers.

So a few hundred added employees (so far) are trying to cope with an extra 10 million customers.

And just 2,000 staff worldwide now service nearly 13m people. That’s a total one for every 6,500 customers – 32 times more than each AIB staff member has to deal with on average.

Can so few Revolut staff provide a satisfactory service to so many people? The experience of some of our readers would suggest not.

IS YOUR MONEY SAFE WITH REVOLUT?

ANY money we put in an Irish-regulated bank is protected by the Deposit Guarantee Scheme (DGS). This means that if a bank goes bust, you will get at least €100,000 of your money back.

Revolut is not a bank and is not part of this scheme, although it makes a strong case that our money is also safe with it.

‘Licensed by the UK Financial Conduct Authority, Revolut is legally required to safeguard money it receives from customers,’ a spokesperson said. ‘All customer funds... are placed on deposit in safeguarded accounts in top-tier global banks.’ For Irish customers, these banks are Lloyds, Barclays or JP Morgan.

That’s reassuring. But it will be a hard sell to persuade jumpy Irish depositors to stash significant sums outside the DGS which has achieved a hard-won level of trust and understanding among them.

The mere fact that Revolut is not covered by it merely reminds us that it is an outlier not regulated by the Irish Central Bank.

It’s also telling that Revolut reassures us by piggybacking on the credibility of long-established banks where it ultimately puts our money!

Until Revolut grows up and becomes regulated like one itself, my Revolut account won’t contain much more than the €15 I popped in recently to test it out.

HOW FREE IS FREE BANKING?

REVOLUT isn’t the only outfit offering ‘free banking’ in Ireland.

EBS, Revolut, N26, KBC and the credit unions have accounts that

don’t charge for three main items – maintenance, ATM withdrawals and debit card transactions.

The EBS Money Manager account seems the most ‘free’ with only a few understandable charges (for things like bounced cheques and unauthorised overdrafts). However, there is no authorised overdraft facility.

The most significant ‘strings’ attached for the rest involve ATM transactions.

Revolut’s are most restrictive. Your free withdrawals are capped at just €200 per month, after which a hefty 2 per cent fee will apply to any money you take out.

N26 and credit unions restrict free ATM withdrawals to 3-5 a month, which is a more reasonable limit. After that is exceeded, credit unions charge 50c per transaction and N26’s cost €2.