“Goodbye, my bank, goodbye…” “No, don’t leave me this way!”

Yes, I am showing my age by paraphrasing the lines from a couple of songs popular when I was growing up. But they came back to my mind last week whilst on vacation.

I recently joined the growing number of customers and admirers of Revolut, the UK-based “digital banking alternative” currently taking Europe by storm. The company was launched in July 2015 and announced recently that it has reached the milestone of 2 million users, having passed the 1 million user mark only just in November 2017. Revolut has ambitious expansion plans – it has just launched in Russia, and is seeking to expand into the US and Asia Pacific. The company is authorised by the Financial Conduct Authority in the UK under the Electronic Money Regulations, and has also applied for a European banking license in Lithuania.

One of the main attractions of Revolut is the ability to spend your money while travelling in 130+ currencies fee-free and at the interbank exchange rate. Last week our family went on holiday to Croatia, which is in the EU, but not yet in Euro; it has its own currency, Croatian Kuna (HRK). At the airport, the major currency exchange operators were offering to sell ~6 HRK for 1 GBP and buy at 1 GBP for 10+ HRK. I was counting that I would find an ATM at the airport and that my new Revolut card would work there. It certainly did and I was able to withdraw HRK at £1=8.3531kn! Throughout our holiday I only used my Revolut card for purchases and more cash withdrawals, and the rate was always between 8.35 and 8.45kn to a pound.

The only thing I had to make sure was to select to be charged in Kunas rather than in pounds. The Dynamic Currency Conversion is clearly popular in Croatia, as most ATMs and merchants are offering to fix the exchange rate on the spot and pay in pounds. One time after a nice meal, I didn’t notice that the waitress automatically chose pounds on the POS terminal and I ended up paying the DCC rate. Afterwards, just out of interest I checked via Revolut app how much I would have paid had I used their rate – I overpaid ~£10, nearly 8% of the total bill…

And just as I started to ponder why I would ever use my bank issued debit or credit card abroad, I got a text message from my bank, saying “This summer take advantage of fee free debit card purchases when abroad. Offer is until 31/08/18 local time. T&C’s apply. Please visit our website for details.” I have been topping up my Revolut account via my bank debit card, so perhaps the bank noticed it and decided to act. However, it’s not a personal offer – it is available for any customers of certain types of accounts, and it’s only for purchase transactions – ATM withdrawals still incur the fee. Oh, and the spread on the rate, while not as bad as at the airport, was still higher than Revolut’s. So, unless something changes, for now I am going to stick with Revolut as my “bank abroad.”

This is a perfect example of what analysts like us call “unbundling of the bank.” I’ve been a loyal (or inert?) bank customer for many years, and am not cutting my ties with it entirely, but I am willing to try a “fintech” proposition for some of my activities. The trouble is that those activities historically have been the most lucrative for banks. And the danger is that once customers get the taste of what’s out there, they will be looking for more.