Revolut and the return of the 'fee banking model' to the UK
The banks said it couldn't be done. Revolut is proving them wrong.
This is a guest post by Bruce Packard, a Financial Analyst and a former equity research analyst who worked in the city specialising in the financial sector.
The most powerful word in advertising is “free”. Many tech platforms have made billions offering a free service, then selling customer attention or bundling poor value products with the “free” service.
Before the financial crisis, UK high street banks were offering free current accounts, while at the same time reporting sky-high Return on Equity, in the range of 20-35 percent.
Some of that high profitability was financial engineering, balance sheet leverage, and mark-to-myth accounting.
But some bank excess profits would come from using the current account relationship to cross-sell poor-value insurance or foreign exchange transactions.
The regulator put a stop to the first in 2011, preventing banks from (mis)selling Payment Protection Insurance.
Despite this, in the UK at least, the free current account model endured, largely because most banks felt that U-turning on free would immediately cost them market share.
But things are changing. Competition from fintechs like Wise and Revolut has made it increasingly difficult for banks to gouge their customers on fee-based FX transactions.
Moreover, some of that same competition has not been afraid to challenge the assumption that the free banking model is commercially impossible to unwind.
Today, Revolut earns 80 percent of its revenue from non-interest income, mainly through charging customers fees. For a bank like Lloyds, the figure is closer to a third, with net interest income from mortgages and other loans representing two-thirds of revenue.
Moreover, it’s a strategy that is working exceptionally well for Revolut.
The neobank boasts some 70 million customers, growth is running at 30 percent year-on-year, and the bank generated £1.7bn in profit in 2025.
It’s all the more extraordinary when you appreciate that UK banks have historically tended to grow faster than the market only when they offer new customers better value than existing customers. Such so-called “front book/back book” pricing, sees existing customers on the back book penalised for their loyalty.
But that model doesn’t just annoy existing customers. Shareholders don’t like it either because new customers often fail to generate decent marginal returns. In fact, the model only begins to pay off when new customers attracted into the bank by promotional offers grow lazy and stop shopping around for better deals. If they stay on their toes, the whole thing risks turning into a sector-wide race-to-the-bottom.
Revolut’s growth, by contrast, hasn’t followed that old playbook. The bank has built a diversified revenue machine that customers value and recommend to their friends. Instead of spending on TV adverts or sponsoring the rugby, Revolut simply pays customers directly (often £50–£100) to refer their friends to the banking app. This is lower cost and more effective than traditional bank marketing, but of course hard to copy for traditional banks who have already alienated their own customers with poor service or by penalising their loyalty.
Jim Barksdale, the CEO of Netscape, used to say: “Gentlemen, there’s only two ways I know of to make money: bundling and unbundling.”
Fast forward a couple of decades, and Revolut is a perfect modern example of this reality. Revolut and Wise won customers by offering one product that banks were uncompetitive in: FX.
Now that they’ve got customers’ trust, they are focusing on “rebundling”. This means giving customers access to bundles of carefully curated services, such as insurance and savings deals.
The monthly fee model also allows them to throw in other perks such as airport lounge passes, hotel stays, and even newspaper subscriptions. Amazingly, rather than putting customers off, paid subscriptions now account for 16 percent of revenues. That’s greater than the income from Revolut’s FX and wealth services combined.
That said, it’s not like traditional banks did not attempt to do something similar.
For decades, many high-street lenders offered packaged accounts that bolted all sorts of supposed perks into the service. These didn’t work because, too often, such offers were just another way for banks to gouge their long-suffering customers. Travel insurance had age-related exclusions or didn’t cover winter sports (such as skiing), making it far less valuable. Banks even sold identity theft insurance, but much of the protection offered was redundant since it was already provided for free under standard consumer protection law. In contrast, Revolut set out to target a younger demographic that travelled frequently, traded crypto, and used multiple digital subscriptions.
Today it is among the banks pushing most enthusiastically into embracing stablecoins. Not only does the bank already support stabelcoin transfers and conversions for tokens like USDC and USDT, it is among the four institutions selected by the FCA to participate in a regulatory sandbox testing stablecoin services under the forthcoming UK regime, including the issuance of a GBP token.
Radical stuff.
There is a certain irony here. For years, traditional bankers argued that Britain’s “free if in credit” banking culture distorted incentives and encouraged banks to make money indirectly through opaque add-ons and cross-selling.
They should, perhaps, have been careful about what they wished for.
The institutions that finally persuaded customers to pay directly for banking services were not the incumbents, but fintech challengers.
Now, free banking is coming to an end, not because traditional banks can charge for their services. It’s because fintechs have used their day in the sun to hook customers on quality services not just cheap ones.
You can read the full testimony of Rory Tanner, head of UK Government Affairs and Public Policy at Revolut, to the Financial Services Regulation Committee here.