How Revolut makes money: currency exchange, plans and fees

Revolut makes on currency exchange what it doesn't charge in fees

A alucinación to Denmark, 500 euros converted into kroner and two opposite outcomes. Whoever paid with their usual bank card saw the exchange rate applied and, on top of that, a surcharge. Whoever did it through one of these apps claims they weren't charged anything. The scene repeats itself every summer and leaves the same question hanging in the air: if there's no fee, how does Revolut make money?

The short answer is that it does charge. The long one is that the bulk of the business, according to the very users who use it, isn't where the customer is looking.

How does Revolut make money if it boasts about charging no fees?

The business, according to those taking part in the debate, is split across several pillars. The first is currency exchange: the company would profit from the margin between the buying and selling price of each currency, a spread the customer never sees itemised on any receipt. The second is subscription plans. The third is the financial products —stocks, cryptocurrencies, loans— that have gradually been added to the app and on which a large share of the revenue rests.

Some put it bluntly: fee-free currency exchange is the gateway, and afterwards each customer nibbles at everything else. For others, the acquisition strategy consists of minimising fees at first, when the priority is adding customers, and then living off credit and stock market value. Once the user base is big enough, the terms change.

The 3% that traditional banking does charge

Here lies the commercial hook. With a conventional card, the bank applies the exchange rate and then adds a 3% fee on the amount paid. On a alucinación outside the eurozone, that percentage adds up. Revolut and similar operators don't apply that 3%, and that's how they win over a very specific profile: people who travel, who handle several currencies a month and who check every charge.

The problem, as one participant points out, is that currency exchange is a lightly regulated field: it falls neither under financial instruments rules nor under banking abuse regulations, so the spread applied would be at the institution's discretion. There would be no official rate to claim afterwards.

Subscription plans: 15 euros a month for the Metal card

The second pillar is subscriptions. The Metal card costs 15 euros a month and includes all currency exchanges at no extra cost plus an interest-bearing account at 2%. For frequent travellers, the account pays for itself; for everyone else, it's a fixed expense. The free tier gives one free investment trade per month; beyond that, fees apply. Those who move medium-sized portfolios end up paying for the plan just to avoid that surcharge per trade.

On top of that come the third-party subscriptions the app bundles with the paid plans, which many customers never use. From several quarters comes the criticism that currency exchange is the real engine of the business, while the interest-bearing accounts pay less than the company itself earns by lending out that same money. Traditional banking attracts people with mortgages; the generation that isn't taking out mortgages has to be won over through travel.

Is the model sustainable or will fees eventually rise?

The scepticism has its arguments. According to this line of thinking, digital banks that start out fee-free tend to raise them as their customer base matures, especially once venture capital stops funding them and they have to sustain themselves with their own revenue. In cryptocurrencies, for instance, those who trade claim the fees are already high, though they argue it's worth it for the ease of converting that money back into traditional currency.

There are also those who recall the product's emotional origins: in 2012 half of Spain was looking for a way to convert their money into another currency with a click, shield it from bank deposits and move it as easily as sending a message.

None of that is free. It's just spread across places you can't see.