Revolut is in the early stages of developing a rewards credit card, as Sifted exclusively reported earlier this week.
Founded in 2015, Revolut is Europe’s most valuable fintech after securing a $45bn valuation last summer. In its bid to become the go-to financial superapp it provides a plethora of features to its 50m customers, including stock and shares, crypto and even pet insurance.
The fintech’s latest push into rewards credit cards will see Revolut build a set of points-based credit cards for each of its subscription tiers using its proprietary points system RevPoints.
As plans get underway, Revolut will go toe-to-toe with heavyweights in the sector like American Express, a banking behemoth that will be difficult to challenge, according to industry experts.
“AMEX does have advantages,” says Nick Maynard, VP of fintech market research at Juniper Research. ”It has built relationships over a long time with key brands to enhance the value of its rewards schemes, such as airlines and key travel brands.”
The European rewards credit card space
At present, the reward credit card space in the UK and Europe is dominated by larger players such as American Express and Barclaycard, which use proprietary points schemes such as Amex or airline loyalty schemes such as Avios.
But neither really compares to their US counterparts. For example, while American Express Platinum cards issued in the UK and the US have comparable annual fees, US customers are entitled to extras such as a $200 Uber credit, $240 to spend on digital entertainment and a $300 voucher for plush gym brand Equinox.
US holders also earn 5x points on flights and hotels booked via Amex Travel, while UK users only earn 1 point per £1 spent on all transactions.
Barbod Namini, general partner at German VC firm HV Capital, says this is because credit card providers can’t make as much money from interchange fees — the transaction fees that merchants’ banks pay to cardholders’ banks for processing credit and debit card payments — in Europe.
Credit card Interchange fees are capped at 0.3% in Europe, whereas in the US, there’s no federally enforced limit and can range from 1.5% to 3%, meaning American Express makes more money per transaction.
“That’s why the standalone credit card model in Europe hasn’t really worked,” he says.
The superapp advantage
But that doesn’t mean Revolut’s rewards credit card ambitions are dead on arrival.
For starters, current Revolut cards are issued by Visa and Mastercard, which have a much higher acceptance rate than American Express. That could lead to its rewards card being more widely accepted, says Juniper Research’s Maynard.
Revolut also has the advantage of its position as the UK’s most valuable fintech. HV Capital’s Namini says Revolut can afford to run its rewards credit card system at a loss to make its scheme more competitive than competitors’.
It could become a customer acquisition tool, allowing Revolut to cross-sell products to users that are more easily monetisable, such as mortgages and loans, says Namini. “What’s exciting about Revolut is its superapp model.”.
The ability to cross-sell gives it a leg up over other European credit card fintechs such as Yonder, which focuses on rewards with local restaurants and independent merchants,.
Credit card fintechs like Yonder also have to raise a debt facility to fund its credit lines, which can be costly. The UK-based credit card fintech raised £50m in debt facility as part of its Series A round to scale its lending capacity.
And while the specific terms of Yonder’s facility weren’t disclosed, it is standard market practice for debt providers to levy both upfront and ongoing charges.
By comparison, Revolut has held a banking licence in Europe since 2021, allowing it to use customer deposits to fund its credit products. The same applies to the UK, where it’s on its way to becoming a fully licensed bank.
Namini and Maynard agree American Express’ market prowess shouldn’t be ignored, especially in the US, where Revolut has yet to gain a foothold.
“If Revolut builds the right rewards networks, it can gain success,” says Maynard. “But AMEX will not be easily displaced.”
Read the orginal article: https://sifted.eu/articles/revolut-amex-analysis/
