UK bank stocks have done well this year, helped by the relatively strong economy and higher interest rates that have pushed their net interest income (NII) to their highest level in years.
Lloyds Bank (LLOY) shares have soared by over 55% from their lowest levels in 2023 and are hovering near their highest level in years.
Barclays (BARC) rose to a high of 238p in August, up by over 95% from last year’s low while NatWest (NWG) was up by over 133% in the same period.
The three banks are highly popular in the UK, with Lloyds having over 26 million customers across its subsidiaries, including Halifax, Bank of Scotland, Scottish Widows, and Black Horse.
NatWest has over 20 million customers across its top brands like Royal Bank of Scotland and Coutts.
They are also large companies with a market cap of over $46 billion, $41 billion, and $36 billion, combined. Barclays has over $1.6 trillion in assets while Lloyds and NatWest have over $1.1 trillion and $1 trillion, respectively.
Lloyds Bank vs NatWest vs Barclays
The rise of Revolut
The British banking industry is being challenged by the continued rise and growth of Revolut, a fintech company that was launched in 2015.
Revolut is a company that has simplified how people, especially the young ones, handle their money and payments. Users can open their accounts, save money, invest in cryptocurrencies, and pay easily.
Revolut’s benefit is that it uses a freemium model, where people start their journey without paying any money. The premium accounts start at £3.99 a month, with the most expensive one costing £45 a month.
Holders of the most expensive card receive a platinum card, free ATM withdrawals, unlimited airport lounge access, car hire insurance, and higher interest on their savings. This subscription approach is a good one because it lets it have regular revenue from customers.
Revolut is growing
Revolut has been growing at a record pace, which has brought its total customers to over 45 million.
This growth has been helped by the substantial sums of money the company has raised over time. It raised $10 million in its seed round followed by $66 million in 2017, $250 million in 2018, $500 million in 2019, $80 million in 2020, and $800 million in 2021.
These fundraisings have made it a highly valuable brand, with the most recent transaction valuing it at over $45 billion, making it bigger than Lloyds, Barclays, and NatWest.
The most recent financial results showed that Revolut’s business continued doing well in the last financial year.
Its revenue soared by 95% to $2.2 billion or £1.8 billion while its profit before tax rose to $545 million, making it a highly profitable company. Its net profit margin was 19% while the number of new customers rose by 12 million while customer balances hit $23 billion.
Lloyds had over £19.2 billion in annual revenue and over £7 billion in profits. NatWest brought in total income of £14 billion and a profit of over £4 billion while Barclays had over £30 billion in revenue.
Revolut believes that it has more growth to come, especially now that it has received a banking license in the United Kingdom. It has also come under the European Central Bank supervision. A banking license allows it to offer more services, with plans to start mortgage lending in the UK in 2023.
Revolut will also start offering overdrafts, loans and savings to over 9 million UK users when it receives the full banking license.
Impact on traditional banks
Therefore, there are concerns about whether Revolut’s growth will affect existing banks like Lloyds, NatWest, and Barclays. Besides, the company is expected to offer its banking solutions at more friendlier terms than these big firms. Besides, it does not have many branches in the country, which helps it to save funds.
The best way to look at Revolut’s impact on local banks is to look at other similar companies in other places. A good example of this is Nu Holdings, which has become the biggest bank in Latin America by market cap. It is also the second-biggest Brazilian bank after Petrobras.
Nu has added millions of customers from countries like Brazil, Mexico, and Colombia. It has also passed other large banks in the region like Itau Unibanco, Banco do Brasil, and Banco Bradesco in terms of market cap.
Still, these banks have also continued doing well despite Nubank’s popularity. For example, Itau Unibanco’s stock has jumped by over 67% from its lowest point in 2023.
Therefore, I believe that Revolut will co-exist well with other British banks in the long term. Besides, most of its customers still do business with the other traditional companies like Lloyds and NatWest.
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