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For those that missed it, our latest podcast is out. This time around I spoke to Amana’s Chief Marketing Officer, Joy Dabeet.
Joy is based in Dubai and we talk about her time at Amazon, what clients in MENA look for, and how Amana is now set up for marketing activity.
You can find listening links here.
Now on to this week’s article…
Just over a year ago, we looked at Revolut and joked that they should give up on banking and add CFDs. We concluded with the following…
So Revolut could just stop trying to take over the world, chill out on the whole ‘we’re a bank’ thing and try to realise what its true calling is – letting retail clients punt on speculative products while managing their short-term finances at the same time.
Now here is CMC Markets CEO Peter Cruddas (bold text by me) announcing a partnership with Revolut last week…
“The partnership facilitates back-to-back trading with Revolut, along with a complete back-end integration, providing their customers with access to the CMC Markets Connect trading universe. FX, Index, Commodities, Treasuries and Equity CFDs will be offered initially, with the ability to support other asset classes in the future as the relationship develops and matures. I would like to thank the Revolut team for their trust and faith in our technology and team….Current expectations are that Revolut will launch to its customers imminently.”
The phrasing of this is weird but it basically seems like Revolut will add CFDs. We asked the company directly but they hadn’t got back to us at the time of publication. However, TradeInformer understands that the neobank had asked several industry providers for a ‘trading’ offering that would include CFDs.
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The thing that maybe makes this less likely is that they have no one in any role who seems like they have been hired to set this up as a product. No dealing team, no marketing person, no product people, nor are they hiring for these roles. Most of the people at the company in the company’s ‘wealth and trading’ division have a background in cash equities or similar. The roles they are hiring for also seem more geared towards a stockbroking offering. Only one product person that I see may have some connection to CFDs and potentially be working on it.
On the other hand, Cruddas’s comments explicitly say that they are adding them. And if you look at Revolut’s investing options in the UK, then you see they are set up via third parties. Stocks are offered via an appointed rep agreement and using DriveWealth, a US company that a large number of ‘commission-free’ brokers use. It does look like they are setting up to get licensed, which would mean no need for the appointed rep agreement, but the point remains that Revolut seems happy to use third party services to do product add ons, so why not do the same for CFDs?
Then the interesting question becomes whether, assuming they do launch the product, they end up becoming a new and major player in the industry. There are good arguments for and against this, which we can go through.
Before doing that, it’s worth noting that Revolut already has a lot of the licensing in place to offer the product globally. They have crypto or securities dealing licenses in place or in process in the UK, EU, Japan, Singapore, and Australia – in other words, all the tier-1 markets that brokers cover today. They also have a broker-dealer license in the US, so they could presumably do options/futures as well.
ATFX is on a hiring spree – read about it here
Could they make it work? Reasons to think so would be….
- They already made good money from crypto
If you look back in 2021, Revolut made over £200m from crypto trading. At that point I believe they were warehousing a lot of risk, plus they had insane spreads. Whatever the case, they were good at converting clients into crypto trading clients.
Doing the same for CFDs won’t be as easy for regulatory reasons. However, going through their sign up for stocks again just now, it is very, very smooth, partly because they already have a lot of your information.
This feeds into a couple of other points…
- Huge built in audience that already passed a lot of KYC / other onboarding
Revolut claims to have 26.2m retail customers. This number is probably fake because, at least in the past, they would define a ‘customer’ as someone who accepted their terms and conditions. In other words, they could just download the app, accept the Ts & Cs, then never trade, deposit cash or do anything that makes the company money. I don’t think you even have to pass KYC to reach this point.
That caveat aside, huge numbers of people do use their app – I am a (mostly) happy Revolut customer. The last two times I went to Cyprus, I paid my cab fare from Larnaca airport using the Revolut QR code. Most places in Europe you go today, it is common to see people paying with Revolut. If you look at app downloads in the finance category, they are nearly always near the top or even number one in lots of European countries. My point being that even though they define ‘customer’ in a dumb way to inflate their client numbers and build hype, they still do have a lot of people on their app.
And as a lot of those people have (1) already done a lot of KYC and (2) Revolut has a good track record of converting them into trading clients, it’s hard not to see some of these people converting into CFD trading clients.
- Product
The basic split in the CFD industry seems to be between MetaTrader churn / EA / IB clients versus everyone else who wants to use a simple app. This is what XTB’s CEO told us, it’s what Plus500’s Chief Product Officer has said, and what the CEO of another large broker also told me a couple of months ago. I guess these people could all be wrong but I reckon they know what they are on about.
Companies like Revolut are partly responsible for this and driving a culture of simple to use finance apps. In fact, the number of people in CFD world who have told me they admire Revolut, primarily from a product perspective, is huge – they are probably the company that crops up in conversations more than any other, including other broker brands.
So the point to make here is that Revolut has a good track record of making simple, easy to use products, which is what companies in this industry are all trying to do. Presumably a CFD offering would be of the same quality.
Why Revolut may fail with CFDs
Despite these strengths, there are also reasons to think Revolut would not do a good job at offering CFDs.
- Lack of focus
Wealth and trading is one of several divisions within Revolut. CFDs would presumably then be one product of many within this division. The problem here is that this is a very competitive industry. An afterthought product probably won’t be a great one.
To use a different example, Revolut’s existing offering for stocks is easy to use and access, but the actual features you can use are really poor. In the UK, you can only access US stocks and there are no tax efficient accounts, meaning it is hard to see any UK serious investor using Revolut to manage their portfolio today. CFDs are slightly different in that you can have people punting and make good money off of it. Nonetheless, if it becomes just one of many add ons, it might make money, but it probably won’t make a lot of money.
- Conflicting with other products
Another problem is that Revolut’s goal seems to be becoming more like a bank. Spread bets and CFDs are often hard to square with the products that a bank offers, given their more ‘adversarial’ nature.
Plus it’s worth remembering that in the UK, several banks did try to launch spread betting / CFD products and failed. Halifax and Barclays, for example, both gave up trying to compete. Revolut could follow them down the same path.
- Compliance
This one probably doesn’t need elaborating upon but Revolut has a poor compliance track record. They are (still) trying to get a banking license in the UK, for example.
The first of these means that if Revolut does offer a CFD product, it’s easy to imagine them very quickly running into problems. For example, the smooth sign up process could lead to breaking consumer duty rules in the UK.
The second point is that regulators hate CFDs. On paper there would be nothing ‘wrong’ with starting to offer CFDs. In practice it is easy to imagine regulatory dorks looking at it and being annoyed about it, then making life harder for them in other areas.
- No hires, no experience
As noted earlier, Revolut has not hired anyone, to my knowledge, to launch this as a product. So if they are going to launch it, they are doing so without anyone that has any long-term experience in the industry. This isn’t a requirement but it is much harder to do today, relative to say 10 or 15 years ago.
What will happen if Revolut adds CFDs?
My estimate is that if Revolut does add CFDs, they will probably do ok in the regions mentioned above – primarily the UK and Europe. The fact they have…
A lot of money behind them
A built in client base to convert
Means they can probably get good traction.
Having said that, I don’t think they’ll smash it out of the park and become Plus500 2.0 or something. It will likely be a small product in a much wider machine, rather than the core focus. Not many businesses like that do super well.
At the same time, their set up means they are unlikely to have account managers or a good premium offering. Consequently it’s unlikely they’ll be onboarding large ticket clients. It will probably just be small accounts punting on the markets, with a simple app and low levels of customer support.
Finally, it’s worth keeping in mind that Revolut is still burning cash and is only profitable by paying stock options instead of cash. In contrast, the big CFD firms continue to be very profitable and then reinvest that cash into their product. Revolut cannot do this and will probably be directing any funds raised / profits towards other areas of the business.
