Revolut Ltd. said it received a British banking license from regulators, a move that allows the fintech firm to better challenge traditional banking giants such as Barclays Plc and HSBC Holdings Plc.

The Prudential Regulation Authority authorized the permit, though it comes with some restrictions, a common step for many new banks in the UK, according to a statement from Revolut on Thursday. It allows the London-based company to enter the so-called mobilization stage, Revolut said.

Revolut has already experienced rapid growth in recent years and the company now banks 45 million customers around the world. A full UK license will enable Revolut to provide overdrafts, loans and savings products to its more than 9 million UK customers — joining the likes of rivals Monzo Bank Ltd., Starling Bank Ltd. and Atom Bank Plc.

Consumers have flocked to challenger banks like Revolut because they often offer flashy apps and a better user experience. Still, these upstarts have struggled to break the stranglehold that the UK’s biggest lenders have on the retail banking market and have amassed just a fraction of the market share in the current accounts business, according to a 2022 report by the Financial Conduct Authority.

This is “a significant step forward for Revolut” and its customers, UK Chief Executive Officer Francesca Carlesi said in the statement.

The license is the latest in a string of wins for Revolut. The company is also in talks with investors to sell $500 million of existing shares in a deal that would value Revolut at more than $40 billion, which is up from a $33 billion price tag the fintech garnered in 2021.

Bruising Years

The improved valuation comes after a bruising three years for the fintech and its rivals, which saw investors sour on the industry as profits came under pressure as central banks around the world hiked interest rates.

The company’s growth in recent years has led to greater regulatory scrutiny around the world. The European Central Bank, for instance, assumed direct supervision of the firm’s European Union subsidiary in January, meaning the fintech joined the dozens of banks that are considered the largest and most significant lenders in the euro region.

Since then, regulators at the ECB have been pressing Revolut to improve controls and governance of its unit in the bloc after identifying several shortcomings, Bloomberg News reported earlier this month.

With a UK license in hand, Revolut’s customer accounts will be covered by the UK’s Financial Services Compensation Scheme, which protects customer deposits of as much as £85,000 ($109,500) if a bank goes bust.

Revolut first applied for a UK banking license in early 2021. The “mobilization stage,” which could take as long as a year, allows the firm to test its systems as it gradually rolls out new services.

Until the mobilization stage is completed and the UK bank is launched, Revolut’s UK customers will remain with Revolut, a UK e-money institution regulated by the FCA, where their funds are safeguarded in accounts in line with the Electronic Money Regulations of 2011.

— By Aisha S Gani (Bloomberg News)