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Revolut and Starling have their sights set on US banks – and it’s key our regulators let them do as they please. As these UK fintechs look to expand across the Atlantic, our watchdogs have to understand that blocking their entrance would only delay the modernization of our financial ecosystem. We cannot stay in the Stone Age any longer.
I’ll provide some context. A few weeks ago, reports broke that Revolut and Starling Bank – two of the world’s preeminent fintech innovators – were looking to acquire smaller US banks in a bid to secure their domestic banking licenses. A convoluted approach, sure, but given the length of the licensing process and the maze of federal and state watchdogs, I’m not surprised they took such an indirect route.
Indeed, while this approach might seem somewhat predatory from an initial view, there is actually plenty of good that these fintechs could offer our banking system – from the largest giants, all the way to our community providers. I’d just urge our regulators to get on board.
Of course, I do understand why some people might argue my position is somewhat obvious. The US has entered a new era of deregulation, with softer takeover policing and more innovation-friendly oversight. At face value, there's never been a more opportune moment for M&A, and you would assume that our regulators would allow Revolut and Starling to proceed with their acquisitions fairly quickly.
And yet, we have a well-documented history of shunning overseas innovators. Monzo, for example, withdrew its application for a US banking license in 2021 following strong indications that regulators were going to reject it. I personally reflect on that moment as a missed opportunity – not just for Monzo, but for the broader US banking ecosystem that could have benefited from increased competition and innovation.
That’s a lesson for all of us. Our regulators need to welcome competition into the market, not deter it.
Currently, there are over 4000 banks operating in the US – yet just four sweep up nearly half of the industry's profits. The pool of competition is incredibly narrow – and the industry desperately needs a shake-up. These titans need muscling up to.
Challenger banks are the perfect contenders – they have long been driving competition in other international jurisdictions, without any break into the US market. They are more modern, customer-friendly, and dynamic, and they could spur a tidal wave of digitalization, if given access to the US market.
Suppose Revolut and Starling proceed with acquiring US banks. In that case, they won't just be tiptoeing around the status quo, looking to acquire a few more customers. They'll be hunting for market share, introducing a proven model of technology-first banking, which has already rattled traditional banking in other global markets.
Put simply, Revolut and Starling Bank could blow competition in the US wide open.
Revolut alone has 50 million global customers, and its revenue is growing at over 70% year-on-year, snatching market share at unprecedented speed. The bottom line is that these challenger banks are already experienced in tempting customers away from traditional institutions, and their presence in the market would only threaten the dominance of the likes of JPMorgan Chase, Citi and so on.
But it's not just big banks that would feel the impact. Community banks, which make up 97% of the sector, would no doubt be forced to transform amid the arrival of UK fintechs. They would have to digitalize, and quickly too, or risk falling out of the market.
Community banks play a vital role in the financial fabric of our country, particularly in serving small businesses and rural communities. Still, many continue to operate on outdated technology. Currently, only around two-fifths of community banks are using machine learning or AI in any meaningful way, and most still rely heavily on legacy core systems.
But in the face of UK fintechs entering the market, community providers would be compelled to kick their digitalization into gear. The mere presence of digital-first platforms like Revolut and Starling Bank would force them to accelerate their own digital transformation, helping to close the widening technology gap in the sector.
I keep coming back to it, but the American banking industry is in dire need of a shake-up. Innovation has been stagnating, and banks' offerings are increasingly becoming copy-and-paste versions of one another. We need a catalyst – and international challenger banks could provide just that.
Revolut and Starling's entrance to the market will ultimately reenergize the competition in the US banking sector. And when competition is fierce, we'll see innovation, growth, and digitalization en masse – shaking US banking from its over-monopolized rut and forcing the sector to level up.
Regulators must not stand in the way of the shift.
About the author
Yerbol Orynbayev is the President of TurmaFinTech, a fintech startup offering bespoke customer data platforms for community banks and credit unions across the US. Prior to his consultancy career, Orynbayev served as the Deputy Prime Minister of Kazakhstan from 2007-2013 and Aide to the President on economic policy from 2013-2015. He also worked as the Governor of the World Bank on behalf of Kazakhstan and helped steer the nation out of the 2008 Financial Crisis. You can follow updates from him on LinkedIn and X.
