Revolut: Managing Innovation

Introduction

Innovation has become almost obligatory for business success in recent decades (Meissner et al., 2017). It allows companies to utilise more effective manufacturing and marketing processes that increase sales and attractiveness of existing products and services. Such concepts as disruptive innovation or revolutionary innovation also imply the development of good ideas that boost productivity and performance manifold and contribute to the ‘blue ocean strategy’ (Madsen and Slatten, 2019). At the same time, one of the key associated problems in this dimension is the diffusion of innovations or the readiness of the market to accept new offerings (Distanont and Khongmalai, 2018). While original ideas may serve as the source of sustainable competitive advantage, marketing effectiveness may be seen as the second main component of organisational success. Therefore, this report aims to explore the historical development of Revolut banking products and their future development perspectives within the scope of the theory of diffusion of innovations.

The Revolut company is a modern organisation founded in 2015 that introduces diffusion of innovation in the business industry through a smartphone application replacing popular banking services (Robinson, 2018). This essential product was developed by the start-up founders based on their insight into the limitations of the financial industry. From the inception of the smartphone application, the company has acquired Specialised Bank licensing from the European Central Bank in order to expand the scope of its offerings in the future. As of 2019, it has already introduced its own  debit cards and insurance services that are highly popular in Europe and the US (Appendix B). The application allows users to make peer-to-peer payments, perform traditional payments or exchange currencies from the app with minimal or zero fees for most of these transactions (Russon, 2019). Additionally, it incorporates cryptocurrency

functionality giving the users access to their wallets containing Ethereum coins, Litecoins, Bitcoins, and other popular cryptocurrencies.

The Development of Revolut Offerings within the Scope of Diffusion of Innovations

Adoption Curve

The analysis of the bell-shaped innovation adoption curve suggests that the company has achieved the early majority phase (Appendix A). Within the first two years of steady growth, the company increased its consumer numbers to 1.2 million while demonstrating the five-fold increase in revenues, as well as the expansion of  the volume of monthly transactions from $200 million to $1.5 billion (Laurent, 2019). The following figure demonstrates this exponential tendency throughout 2017-2018. The rapid improvements suggest that the Revolut product has been increasing its popularity in terms of both transaction volumes and customer numbers, which suggests that the company managed to attract the early majority.

 

Figure 1: Monthly Payment Volumes of Revolut (USD Billion)

Source: Laurent (2019, n.p.)

At the same time, projected growth figures for 2020 do not demonstrate an abrupt decline in growth rates, which indicates that the late majority phase has not been reached yet (Statista, 2019). The global applicability of the Revolut smartphone application may be one of the reasons for this outcome since this innovation is not limited to a single local market, such as its native UK market. Moreover, it may be highly useful for internationalising enterprises or ‘born global’ users who have to send and receive money across national borders (Lima, 2018).

 

Figure 2: Revolut Projected Growth (Million Customers)

 

Source: Statista (2019, n.p.) 

 

 

Innovation Characteristics

 

Complexity

From the complexity standpoint, the Revolut application is similar to most Android or iOS solutions or online banking services. This means that the users of these traditional

 

products will have a short learning curve when switching over to this innovative product (Revolut, 2019a). The developers made it possible to start using the newly installed application within several minutes after downloading it. This is highly convenient for modern audiences who are tired of the cumbersome and poorly designed traditional banking solutions.

 

Compatibility

The application is compatible with most smartphones and other portable devices in the market (Salz, 2017). From a practical standpoint, it is highly compatible with the majority of users using banking services, currency exchange services or other traditional services involving the transfer of funds or financial operations.

 

Observability

The degree of observability directly depends on the frequency of using regular banking services. If a prospective consumer regularly has to pay currency exchange fees charged by traditional financial institutions, he or she can observe immediate positive effects of switching over to the Revolut application (Groenfeldt, 2019). However, customers who use debit or credit cards irregularly for receiving salaries, making purchases or hotel reservations may not fully realise the advantages offered by market- rate currency exchange fees and borderless money transfers.

 

Relative Advantage

The lower fees charged for similar operations mean that the Revolut application has a clear relative advantage over traditional banking services. However, another key benefit is the overall speed of transactions and the number of personnel necessary for controlling fraudulent operations and confirming the completion of financial procedures (Megaw and Bradshaw, 2019). The in-depth optimisation and the use of innovative technologies verifying transaction details allowed this start-up to substantially reduce  the waiting times enabling new users to register and start using the platform within 60 seconds after installing the application.

 

Trialability

On the one hand, the Revolut application can be easily installed on most devices allowing their users to start transferring money or performing currency exchange operations several minutes after its installation. On the other hand, remote banking products require access to personal information, such as credit and debit card CVC codes (Kopp et al., 2017). This means that a person may become exposed to the risks of fraud or information theft while trying new innovative solutions in this sphere. This means that the trialability of these products may be medium with the early and late majority starting to use such products only after multiple positive reviews from reliable sources.

 

 

Innovation Trajectory and Success Factors

 

The Trajectory of the Innovation

It can be summarised that the trajectory of the innovation has generally been following the innovation adoption curve described by Rogers (2010). The gradual increase of the solution’s popularity throughout its starting phase was followed by a rapid rise in the number of followers and transactions. However, the figures suggest that the rate of transaction volume growth was increasing at a higher rate than the number of users (Laurent, 2019). This pattern may seem logical since early adopters making their first successful trial attempts may be willing to move all their financial operations to the Revolut platform. This leads to a substantial increase in the number of company revenues and turnover without increasing the number of followers.

 

Factors Contributing to the Development and Success of the Innovation

The first factor contributing to the development and success of the innovation was the insight of the Revolut start-up founders regarding the limitations of the existing banking solutions such as long transfer periods, high transaction processing costs, and low currency exchange rates (Revolut, 2019b). At the same time, the trialability of the solution was hindered by the need to use a new and unknown application having  access to customer debit and credit cards. The launch of Revolut’s cards resolved this

 

controversy by allowing users to try commission-free services based on market rates without excessive risks (Dorr et al., 2018).

The Promise of Social Impact in the Intended Audience

The promise of social impact in the intended audience could be recognised as the capability to use banking services more conveniently and affordably. As opposed to traditional money transfers frequently requiring 1-3 banking days and the fees starting with £25, the Revolut application provided instant results at much fairer prices (Smith, 2018). This promise was especially lucrative for such consumer segments as travellers, businesspersons, and expatriate workers. These categories of persons had to regularly withdraw, receive or send money to and from people and organisations or exchange currencies at market rates. As the performance of traditional banks in this aspect could be viewed as mediocre, Revolut succeeded in disrupting the existing ‘status quo’ by presenting a relatively specialised service that was primarily supported by automated processes that did not require extensive confirmations, coordination or organisational staff involvement

The Possible Future Development Pathways of Revolut Products or Service.

The findings of the previous section suggest that Revolut has not reached the late majority phase yet. This outcome may be caused by the existing legal controversies in some countries and the recent replacements of some critical executives (Megaw, 2019). The following dimensions of Rogers (2010) framework suggest potential development paths for the company and provide examples of similar choices in several industries

Complexity

From the complexity standpoint, the Revolut product has sufficient ease of use and may not require substantial improvements in this sphere.

Compatibility

One of the future development paths that is currently overlooked by Revolut is the deep integration of this financial platform with existing ecosystems and industries. This structural connection is one of the critical elements of new diffusion innovation products. Specifically, such start-ups as Uber and Airbnb mostly relied on Web 2.0, social networks, and online connectivity (Christensen et al., 2019). Similarly, PayPal achieved rapid development due to its cooperation with the eBay platform as a preferred payment method and escrow agent (Trautman, 2015). Revolut can achieve similar results by integrating its functionality into popular third-party solutions such as tourism industry products or social networks.

Observability

Improving observability may be the most critical element presently since reaching the early, and the late majority is only possible via the provision of multiple ‘success stories’ demonstrating the benefits of the innovation and a large number of satisfied clients. For example, the PayPal system has a dedicated page with ‘customer stories’ (PayPal, 2019) showing how its products have assisted consumers in realising their life goals.

Relative Advantage

Another exciting future path is further integration with cryptocurrencies. While the current functionality of the Revolut platform is limited to basic operations, the inclusion of the blockchain technology and multiple coin formats can make it the ‘one-stop-shop’ for miners and clients seeking anonymous, inexpensive, and secure transactions that are not presently provided by traditional banks (Marsh, 2019). This would further diffuse the modern banking industry that currently requires long-term approval procedures, even in the case of micro-lending operations (Dillet, 2017).

Trialability

An excellent way to convince the sceptical late majority segment is to offer a ‘free sample’ of the technology that is not associated with risks (Varadarajan and Jayachandran, 2018). One of the possible alternatives is to provide beneficial conditions

such as the premium option for the first month to demonstrate all benefits to concerned prospects. Another option is the provision of ‘bundle products’ to the tourism industry and travellers allowing them to cut costs during their trip by using a free card for their ‘holiday funds’ and getting acquainted with the experience of superior exchange rates and money transfer convenience in the process.

Conclusion and recommendations

It can be summarised that the current state of Revolut offerings corresponds to the ‘early majority’ phase of the diffusion of innovations theory by Rogers (2010), which is reflected in the exponential growth of customer numbers and transaction volumes. The main reasons for this positive outcome include high perceived usefulness and ease of use, low complexity, good compatibility with existing technologies and ecosystems, instant observability of the application’s benefits, clear relative advantages, and easy trialability (Kahn et al., 2019; Russon, 2019). The offered product can also be recognised as an example of disruptive innovation (Christensen et al., 2015). They seek to replace traditional banking products and services by offering alternative transactions processing technologies with substantially lower fees and greater convenience, which may diffuse the power balance in the financial market

However, the positive development trend may be undermined by the entry of major technology companies into the same industry (Appendix C; Rooney, 2019). The launch of Apple Card and the growing interest of other corporations in providing financial services suggests that Revolut should solidify its position in the market by establishing strategic alliances with several ecosystems, further developing its cryptocurrency offerings, and introducing consumer loans into its product range. The Canvas model shows how Revolut creates, delivers and capture value in a competitive market (Appendix D; Lumosbusiness.com, 2019). These steps will allow the company to reach the ‘late majority’ phase and sustain its current competitive advantage and growth rates (Lima, 2018).

For a better understanding of the innovations solutions applicable at Revolut, other theories could be used in the future, such as Ocean Blue Theory or The Disruptive one.

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