Written By Revolut, one of the UK’s leading digital banks, has seen its valuation slashed by almost a third in its latest funding round. The company, which was valued at $5.5 billion in 2020, is now worth $33 billion, according to a statement from its investor, asset manager Schroders.
The news comes amid a wider slowdown in fintech funding, as investors become more cautious about the sector’s growth prospects and potential risks. According to data from CB Insights, global fintech funding fell to $22.8 billion in the first quarter of 2021, down from a peak of $34.5 billion in the fourth quarter of 2020.
Revolut’s valuation cut is also a reflection of the company’s mixed performance during the pandemic. While the company saw a surge in sign-ups and transaction volumes, it also faced mounting regulatory scrutiny and increased competition from rival fintech firms.
Schroders, which invested in Revolut as part of its digital wealth management offering, said that the new valuation was based on a more conservative approach to assessing the company’s growth prospects and risks. The asset manager also said that it remained confident in Revolut’s long-term potential and ability to disrupt the traditional banking sector.
However, the valuation cut could make it harder for Revolut to raise more capital in the future, as investors may question the company’s ability to deliver the returns they expect. It could also put pressure on Revolut to deliver more profitable business models and expand into new markets, as it seeks to justify its high valuation.
The changing face of fintech
Revolut’s experience is not unique in the fintech sector, which has seen a wave of high-profile IPOs and funding rounds over the past few years. While fintech firms have disrupted traditional banking and financial services with innovative products and services, they also face growing scrutiny from regulators and investors.
In particular, fintech firms have been under pressure to show that they can deliver sustainable growth and profitability, amid concerns about high valuations, aggressive expansion strategies, and potential risks to consumer protection and financial stability.
As a result, many fintech firms have been shifting their focus from rapid growth to profitability, by diversifying their revenue streams, cutting costs, and improving their risk management and compliance practices. Some have also been expanding into new markets and product categories, in search of new growth opportunities.
At the same time, traditional financial institutions have been stepping up their own digital transformation efforts, by investing in new technologies, partnerships, and acquisitions. This has led to a blurring of the lines between fintech and traditional finance, as both sides seek to offer more innovative and integrated solutions to their customers.
The future of fintech
The changing landscape of fintech raises important questions about the future of the industry, and its role in shaping the financial services of tomorrow. While fintech firms have demonstrated their ability to innovate and disrupt, they also face significant challenges and risks, as they navigate a complex and rapidly evolving regulatory and competitive environment.
To succeed in the long term, fintech firms will need to strike a balance between innovation, profitability, and regulatory compliance, while also addressing key issues such as data privacy, cybersecurity, and financial inclusion. They will also need to collaborate and partner with traditional financial institutions, regulators, and other stakeholders, to build a more sustainable and resilient financial ecosystem.
As Schroders’ valuation cut for Revolut shows, the fintech sector is not immune to market fluctuations and investor scrutiny. However, with the right strategy and mindset, fintech firms can continue to drive innovation and growth, and shape the future of finance in a more inclusive, efficient, and customer-centric way.
