# Wirecard goes bust - implications for Revolut?



## Brendan Burgess (27 Jun 2020)

There is no connection between Wirecard and Revolut.

But as I understand it, they are both payment processors. They are not banks.

So the customers of Wirecard are not covered by the banking guarantees in either Ireland or Germany.









						An Post freezes 50,000 pre-paid cards in German Wirecard scandal
					

Listed director of Irish Wired unit faces questioning after collapse




					www.irishtimes.com
				




_The once high-flying German fintech company Wirecard filed for insolvency on Thursday after admitting it had lost €1.9 billion from a largely fictional balance sheet. With its former chief executive Markus Braun facing a fraud investigation, and out of prison on €5 million bail, the company cited its unsustainable debt position as the reason for seeking court protection in Munich. _

There was a clear fraud in Wirecard which was not picked up by anyone including EY, the auditors, for a few years.

I would think that it's a difficult business to make money from.

Brendan


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## Sunny (29 Jun 2020)

Surprised this story hasn't got more attention here. It raises a number of very serious questions about these Fintech companies. Will be interesting to see if client money has been ring fenced and is as safe as claimed. If EY couldn't even confirm a deposit account with over a billion euro actually existed, I am not sure I would be that confident that they were adhering to the rules around client money. 

Would also make me look closer at entities like Revolut even if there is no direct relationship.


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## NoRegretsCoyote (29 Jun 2020)

It's quite extraordinary.

Revolut is still privately owned.

Wirecard had been a DAX30 member for several years, supposedly subject to all the reporting, audit and disclosure requirements involved with a public listing.


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## TLO (29 Jun 2020)

Sunny said:


> It raises a number of very serious questions about these Fintech companies.



Couldn't agree more.  The Deposit Guarantee Scheme, or it's equivalent in other countries, should be extended to include Fintech because the nature of the services on offer is so "bank like".


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## Brendan Burgess (29 Jun 2020)

TLO said:


> The Deposit Guarantee Scheme, or it's equivalent in other countries, should be extended to include Fintech because the nature of the services on offer is so "bank like".





The banks have to set aside huge amounts of capital and are subject to heavy regulation.

The likes of Revolut has comparatively little regulation.

Why should the banks pay to guarantee their competitors?

Brendan


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## EmmDee (29 Jun 2020)

TLO said:


> Couldn't agree more.  The Deposit Guarantee Scheme, or it's equivalent in other countries, should be extended to include Fintech because the nature of the services on offer is so "bank like".



That's the rub though - if some of the Fintech service companies were required to put as much redundancy and capital aside and subject to the same expectations as those falling under state guarantee schemes, they might find it wasn't quite so cheap to provide the services.


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## Allpartied (29 Jun 2020)

I think the important thing to remember when using these new start ups, is that they are not banks.  
.  As pointed out these apps are not covered by any guarantee scheme and although they promise that the money is safely lodged in protected bank accounts, the money is not secure should the company go bust. 
I was horrified to discover that my daughter had loaded 5000 euros on to her Revolut app.  She has returned the money to her BoI account now, but I am sure there are many people who use these apps as  a primary bank account. 
Use them as you need them, and only put small amounts of money onto the prepaid facilities.  
It's, effectively, the same as gift cards, and we know the trouble they cause when companies go bang.


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## Steven Barrett (29 Jun 2020)

Brendan Burgess said:


> The banks have to set aside huge amounts of capital and are subject to heavy regulation.
> 
> *The likes of Revolut has comparatively little regulation.*
> 
> ...



And that's why I never hold more than €100 in my Revolut account. As with the cheap online brokers, they have to be making money somewhere, otherwise they'll go bust and how safe is your money then?


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## losttheplot (29 Jun 2020)

I keep some Sterling and dollars in Revolut but wouldn't feel comfortable with large amounts or using it as a primary account. I'm thinking about using the junior accounts though. Again, it wouldn't be huge amounts.


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## DublinHead54 (30 Jun 2020)

Sunny said:


> Surprised this story hasn't got more attention here. It raises a number of very serious questions about these Fintech companies. Will be interesting to see if client money has been ring fenced and is as safe as claimed. If EY couldn't even confirm a deposit account with over a billion euro actually existed, I am not sure I would be that confident that they were adhering to the rules around client money.
> 
> Would also make me look closer at entities like Revolut even if there is no direct relationship.





NoRegretsCoyote said:


> It's quite extraordinary.
> 
> Revolut is still privately owned.
> 
> Wirecard had been a DAX30 member for several years, supposedly subject to all the reporting, audit and disclosure requirements involved with a public listing.



This should raise more questions about the auditors rather than other players in the industry. The 'big four' have had similar issues


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## SPC100 (30 Jun 2020)

We can't lump all Fintech into risky. Doesn't n26 have full bank protection? They appeared to have better protection than revolut when I investigated some time ago.

Edit: yes they do, here is the link









						Guaranteed Money Protection - N26 Support Center
					

N26 Bank complies with the rules of the German financial regulatory authority and protects your money accordingly. Learn more about the topic here.




					support.n26.com


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## Peanuts20 (30 Jun 2020)

Revolut has a Lithuanian banking license but never rolled it out beyond there which would make me wonder. N26 have a banking licence is my understanding


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## Sunny (30 Jun 2020)

Dublinbay12 said:


> This should raise more questions about the auditors rather than other players in the industry. The 'big four' have had similar issues



Of course it raises questions for the auditors but you can't bury you head in the sand about the industry either. I know people who have saved up large balances in their revolut vaults and when I asked them, they tell me it is like having money in the bank. It is nothing like having money in a bank. The technology that these fintech companies come out with is great but you are basically leaving your money with a loss making technology company if you have a large balance with companies like revolut.


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## NoRegretsCoyote (30 Jun 2020)

Sunny said:


> Of course it raises questions for the auditors but *you can't bury you head in the sand about the industry either. *



It's a fair point. Personally I don't understand Revolut's business model (likewise paypal's) and I've never felt comfortable leaving anything more than small sums with them.

Compare it to an industry that does something tangible. Fintech presents challenges for regulators and auditors to know what is going on. 

I doubt this would have been possible in an industry that does something tangible like making furniture.


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## DublinHead54 (30 Jun 2020)

Sunny said:


> Of course it raises questions for the auditors but you can't bury you head in the sand about the industry either. I know people who have saved up large balances in their revolut vaults and when I asked them, they tell me it is like having money in the bank. It is nothing like having money in a bank. The technology that these fintech companies come out with is great but you are basically leaving your money with a loss making technology company if you have a large balance with companies like revolut.



Wirecard is a payment processor, Revolut is a bank, these companies are essentially different industries and are regulated differently. We should not mix the two up.


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## RedOnion (30 Jun 2020)

Dublinbay12 said:


> Revolut is a bank


No it's not, unless you are a customer in Lithuania.


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## DublinHead54 (30 Jun 2020)

RedOnion said:


> No it's not, unless you are a customer in Lithuania.



Revolut is an online bank, you are referring to the location of their banking licence. Wirecard and Revolut are different businesses, and the premise being made here of connecting WireCard and Revolut because they are FinTechs is wrong.


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## Sunny (30 Jun 2020)

Dublinbay12 said:


> Revolut is an online bank, you are referring to the location of their banking licence. Wirecard and Revolut are different businesses, and the premise being made here of connecting WireCard and Revolut because they are FinTechs is wrong.



No it's not. See you just proved my point.


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## RedOnion (30 Jun 2020)

Dublinbay12 said:


> Revolut is an online bank, you are referring to the location of their banking licence.


No, it's not a bank.

You should read up a bit before you correct other people.


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## NoRegretsCoyote (30 Jun 2020)

Dublinbay12 said:


> Revolut is an online bank, you are referring to the location of their banking licence.



When you open a Revolut account you are not dealing with the  known as Revolut Bank UAB.

You are dealing with Revolut Payments UAB which is a licensed e-money institution.

Revolut's marketing is (perhaps deliberately) misleading on this.


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## EmmDee (30 Jun 2020)

RedOnion said:


> No it's not, unless you are a customer in Lithuania.



Even if you're a Revolut customer in Lithuania I'll lay money you are a customer of the payment processor and not the bank. I suspect the bank license is for technical and treasury management reasons and not a customer facing entity


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## Brendan Burgess (30 Jun 2020)

Dublinbay12 said:


> Wirecard is a payment processor, Revolut is a bank, these companies are essentially different industries and are regulated differently. We should not mix the two up.



It is very worrying that a confident, well informed poster can make this dangerous error.

If anything happens Revolut, Joe Duffy will be full of callers calling for the government to do something as they allowed 1m people to be fooled into thinking that they were a bank and their money was safe.

No one should have money in Revolut for very long.  Just enough for your payments over the next few days.

If you are making a large payment in a foreign currency via Revolut, you should lodge the money just before you pay it out.

Brendan


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## EmmDee (30 Jun 2020)

EmmDee said:


> Even if you're a Revolut customer in Lithuania I'll lay money you are a customer of the payment processor and not the bank. I suspect the bank license is for technical and treasury management reasons and not a customer facing entity



Just checked - as I suspected, Lithuanian customers of Revolut contract with "Revolut Payments UAB"


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## SPC100 (30 Jun 2020)

Help Centre
					

We are here to help you. Find all the answers to your questions about Revolut and get help from our support team.



					www.revolut.com
				




No mention of bank guarantee, much more like leaving money with a stockbroker client account afaiu.


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## Brendan Burgess (30 Jun 2020)

SPC100 said:


> much more like leaving money with a stockbroker client account afaiu.



While they probably have the same legal protection or lack of it, most stockbrokers are profitable and have been around for years. 

Brendan


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## SPC100 (30 Jun 2020)

Agreed. I'm not encouraging folks to leave funds there. I have advised friends in past not to leave large sums there.


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## 24601 (1 Jul 2020)

I know someone who uses Revolut as his only account. He gets his salary mandated into it and keeps his life savings there. Very foolish. He conflates its wonderful functionality with competence and protection. When I pointed out to him that they have a high probability of failure and that he could lose a significant amount of money should they go wallop he dismissed me as an anti-tech philistine.


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## Boyd (1 Jul 2020)

Just transferred my holiday savings back out of Revolut after reading this. We'd wanna be careful not to cause a run on them!


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## RedOnion (1 Jul 2020)

Boyd said:


> We'd wanna be careful not to cause a run on them


Again, they're not a bank.

Your money isn't theirs, so technically you can't cause a run. Client funds should all be held in a segregated Lloyds Bank account.


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## Boyd (1 Jul 2020)

Fair enough, perhaps "run" was not the correct term but surely of everyone withdrew their money, Revolut would cease to exist?


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## Brendan Burgess (1 Jul 2020)

24601 said:


> He conflates its wonderful functionality with competence and protection.



That is a really good way of putting it.

I love my Revolut card and it would be very easy to trust them.

Brendan


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## Brendan Burgess (1 Jul 2020)

Even a financial website refers to them as a "bank" 









						Revolut Services Back to Normal After Going Dark This Morning
					

Digital bank Revolut experienced “technical issues” this morning which left customers unable to use features of their banking apps.




					www.financemagnates.com
				




_Digital bank Revolut experienced “technical issues” this morning which left customers unable to use features of their banking apps. _


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## NoRegretsCoyote (1 Jul 2020)

I was talking to a colleague about Revolut yesterday. He spent five years in retail banking and works on regulatory issues. 

In his head he thought Revolut had a "banking license in Estonia" and that this was the entity that app-users dealt with. Completely wrong!

If someone knowledgeable doesn't know this stuff then how on earth is a retail customer supposed to know?


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## DublinHead54 (1 Jul 2020)

RedOnion said:


> No, it's not a bank.
> 
> You should read up a bit before you correct other people.



Revolut offers banking services such as savings and debit cards for retail users, whilst Wirecard operates in the payment processing space for businesses. Revolut does have a banking license in Lithuania, but trades through an e-money license in Ireland, so the regulation is different to that of say BofI.

However, the premise outlined here is that because Wirecard a 'FinTech' has gone due to Fraud, that Revolut another 'Fintech' is also susceptible. My opinion, is that is an example of a casual connection fallacy. They are independent companies, and whilst Revolut has its own business model challenges. In fact, even under a more stringent regulatory environment that a banking licence brings we can't be sure that the WireCard fraud would have been caught, as regulators do not audit. Fraud of this nature is a company-specific event, so every company has an element of fraud risk associated, the Fraud at Wirecard shows no indication of this being a systemic industry-wide occurrence. My biggest concern is the strength of auditors and their ability to find fraud examples in any industry.

I agree with the points on using Revolut you are putting your trust in a loss-making technology firm, but that is a completely independent issue to the Fraud at Wirecard. I also, do not disagree with the suggestions of keeping money in Revolut, I am just trying to bring the conversation back to the original question rather debating the risk of keeping money in revolut.

My two cents, is that e-money regulation is going to be enhanced via PSD3 and other regulation in the coming years as European regulators really focus on a customer-centric platform based form of regulation. We have already seen this in PSD2 with more authority given to the EBA. Payments is still a rapidly evolving area.


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## EmmDee (1 Jul 2020)

Dublinbay12 said:


> Revolut offers banking services such as savings and debit cards for retail users...



Definitions are important - Revolut doesn't offer banking services. It can't do that without contracting as a bank. It offers payment processing and maintains customer cash with another (actual) bank



Dublinbay12 said:


> ...Revolut does have a banking license in Lithuania, but trades through an e-money license in Ireland, so the regulation is different to that of say BofI.



They have a bank license but don't use it for client facing activity. So it isn't a "bank trading through" anything. They use the e-money license for all customers (not just Ireland). But it isn't an intermediary between the customers and a bank. The bank and e-money entities are in the same group but there shouldn't be any confusion between the two



Dublinbay12 said:


> ...However, the premise outlined here is that because Wirecard a 'FinTech' has gone due to Fraud, that Revolut another 'Fintech' is also susceptible.



I don't think that is what people are saying. I think the point being made is that (often) retail customers don't fully understand what counterparties they have exposure to and often make assumptions such as Revolut being a bank 



Dublinbay12 said:


> My two cents, is that e-money regulation is going to be enhanced via PSD3 and other regulation in the coming years as European regulators really focus on a customer-centric platform based form of regulation. We have already seen this in PSD2 with more authority given to the EBA. Payments is still a rapidly evolving area.



This may be true - but I don't think any e-money regulation will bring full banking requirements to payment services firm. So risk won't be the same as with a bank but if people don't understand the differences there could be problems


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## Sunny (1 Jul 2020)

Dublinbay12 said:


> Revolut offers banking services such as savings and debit cards for retail users, whilst Wirecard operates in the payment processing space for businesses. Revolut does have a banking license in Lithuania, but trades through an e-money license in Ireland, so the regulation is different to that of say BofI.
> 
> However, the premise outlined here is that because Wirecard a 'FinTech' has gone due to Fraud, that Revolut another 'Fintech' is also susceptible. My opinion, is that is an example of a casual connection fallacy. They are independent companies, and whilst Revolut has its own business model challenges. In fact, even under a more stringent regulatory environment that a banking licence brings we can't be sure that the WireCard fraud would have been caught, as regulators do not audit. Fraud of this nature is a company-specific event, so every company has an element of fraud risk associated, the Fraud at Wirecard shows no indication of this being a systemic industry-wide occurrence. My biggest concern is the strength of auditors and their ability to find fraud examples in any industry.
> 
> ...



Why are you still comparing Revolut to Bank of Ireland and going on about the Banking Licence in Lithuania like consumers should be comforted by that? It has nothing to do with it. Revolut operates under a UK e-money licence and passports that into the EU. It is not bank. It is nothing like a bank. To suggest otherwise is just misleading. 

Nobody is suggesting that just because there was a fraud in Wirecard, then there is something wrong with Revolut. The point is that a lot of people do not understand Revolut and think it is something it is not. You stated more than once that Revolut is a bank. It is not and it is dangerous to think that. There is nothing wrong telling people that at the end of the day Revolut is a loss making technology company owned by two Russians, a banking licence that is not really used in a Country like Lithuania whose banking system is high up on every money laundering and sanctions check because of links to Russia. By all accounts it has a toxic work atmosphere with huge turnover of staff. The company has gone through 4-5 highly regarded Compliance Officers in the last few years. Not saying there is anything wrong with the company but it seems to have developed a 'cult' like following which always sets alarm bells ringing in my head.

Revolut could turn out to to be biggest thing in financial services but would I mandate my salary to Revolut today or save large amounts on the App today? Not a chance. So while Revolut might not see the same fraud as seen in Wirecard, there are questions that need to be asked about all these companies that operate in the e-money space. The lines between these companies and traditional banks are getting blurred all the time and people need to be aware of that because anyone who thinks they are dealing with a bank is wrong.


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## DublinHead54 (1 Jul 2020)

EmmDee said:


> Definitions are important - Revolut doesn't offer banking services. It can't do that without contracting as a bank. It offers payment processing and maintains customer cash with another (actual) bank



Ok fair enough, I was incorrect in my terminology of a Bank, I was not using it in the context of the regulatory definition, but rather the services I can get vs an actual bank for a checking account. I agree it can be misleading for those that do not understand the regulation and protection.


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## Brendan Burgess (1 Jul 2020)

It's clear that there is no connection between Wirecard and Revolut.

But the demise of Wirecard highlights something important - people who have money lodged with it are not protected in the same way that they would be protected were it a bank. 

It also highlights that a company can be very successful and provide a really fantastic service but if it's not making profits, its customers are at risk. 

I am shocked at the reports of people who have large amounts on deposit in their Revolut account. The risk might be small, but the consequences would be huge. 

It would probably be a good regulatory mover for Revolut to refuse to allow deposits which bring the balance to in excess of, say, €3,000. 

Brendan


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## DublinHead54 (1 Jul 2020)

Brendan Burgess said:


> It's clear that there is no connection between Wirecard and Revolut.
> 
> But the demise of Wirecard highlights something important - people who have money lodged with it are not protected in the same way that they would be protected were it a bank.
> 
> ...



Would it not only be the case that the funds are at risk if there is a fraud i.e. Revolut doesn't put your money in the client account? I thought under E-money regulation the institution is required to place client money with a 3rd party bank? So your true exposure/counterparty risk is with the bank? 

I 100% agree, holding large sums of money in Revolut is not the same as with a high street bank.


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## NoRegretsCoyote (1 Jul 2020)

@Dublinbay12 

I think the risk is that client funds are aggregated and Revolut's balances at third-party banks are much greater than 100k, therefore not subject to individual-level guarantee.


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## EmmDee (1 Jul 2020)

Dublinbay12 said:


> Would it not only be the case that the funds are at risk if there is a fraud i.e. Revolut doesn't put your money in the client account? I thought under E-money regulation the institution is required to place client money with a 3rd party bank? So your true exposure/counterparty risk is with the bank?
> 
> I 100% agree, holding large sums of money in Revolut is not the same as with a high street bank.



True - though as we've seen over the years, brokers holding client money have not always correctly followed proper segregation rules. But that would be fraud or certainly against the rules.

The major difference is that if you deposit with a bank you get the full deposit protection (€100k). However, when Revolut deposit with a bank, the underlying bank doesn't recognise the underlying beneficial owners. So it is one amount of €100k which would fall under the scheme.


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## RedOnion (1 Jul 2020)

Dublinbay12 said:


> it not only be the case that the funds are at risk if there is a fraud i.e. Revolut doesn't put your money in the client account? I thought under E-money regulation the institution is required to place client money with a 3rd party bank? So your true exposure/counterparty risk is with the bank?


So, the exact same as with wirecard?


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## Brendan Burgess (1 Jul 2020)

Why should anyone take the risk? 

It's easy to load your Revolut card.

Put in €500 or whatever you are comfortable with losing. 

I am shocked by the people who are using it as a bank account.  As I say, the risk is small, but the consequences for the person are huge. Imagine if someone had the deposit for their home in their Revolut account and it went bust!

Brendan


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## NoRegretsCoyote (1 Jul 2020)

Brendan Burgess said:


> I am shocked by the people who are using it as a bank account.  As I say, the risk is small, but the consequences for the person are huge. Imagine if someone had the deposit for their home in their Revolut account and it went bust!



You would just become a creditor and get in the queue. You would probably not lose anything close to everything.

Even if you were made whole you could be waiting a while for your funds


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## DublinHead54 (3 Jul 2020)

RedOnion said:


> So, the exact same as with wirecard?



The risk is the same but they are idiosyncratic events. Fraud at WireCard does not mean there is fraud in Revolut. This was the original question.


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## DublinHead54 (3 Jul 2020)

Brendan Burgess said:


> Why should anyone take the risk?
> 
> It's easy to load your Revolut card.
> 
> ...



This is an interesting point on trust and risk.

 I use Revolut for my day to day spending and load the card with my budget once a month. I do this because I feel it gives me a better user experience than say for example my BoI account both in security od payments, cost and analytics.

I am willing to accept the risk for the better product experience. 

I actually like that Revolut is a product born out of a real world problem and has therefore always been a customer centric platform. Whereas my experience with online banking with Irish banks is they are built because they have to offer the service and are functionslity driven rsther thsn customer driven. I understand banks are investing in tech heavily niw to catch up


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## RedOnion (3 Jul 2020)

Dublinbay12 said:


> The risk is the same but they are idiosyncratic events. Fraud at WireCard does not mean there is fraud in Revolut. This was the original question.


Yes, fraud was the issue.

However it was you that originally incorrectly suggested that the licencing & regulation were different between Revolut & Wirecard.

If fraud was the issue, then why confuse things by incorrectly stating that Revolut is a bank?


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## DublinHead54 (3 Jul 2020)

RedOnion said:


> Yes, fraud was the issue.
> 
> However it was you that originally incorrectly suggested that the licencing & regulation were different between Revolut & Wirecard.
> 
> If fraud was the issue, then why confuse things by incorrectly stating that Revolut is a bank?



I accepted the error I made in my description in previous posts. 

You are agreeing that the issue at Wirecard has no direct implication for Revolut?


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## NoRegretsCoyote (3 Jul 2020)

RedOnion said:


> If fraud was the issue, then why confuse things by incorrectly stating that Revolut is a bank?



I think this is well understood by now

The fraud is indeed an idiosyncratic issue.

I still have my doubts about Revolut. They have a really nice product for sure, but to my eye the business model is opaque and there are documented issues with AML risk. Extremely rapid growth in customer base is also risky in any industry.


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## Brendan Burgess (3 Jul 2020)

Dublinbay12 said:


> I use Revolut for my day to day spending and load the card with my budget once a month.





Dublinbay12 said:


> I am willing to accept the risk for the better product experience.



I agree fully with the principle. I really like my Revolut card and am prepared to take the risk that I will lose whatever cash I have in it if there is a problem.  

But I don't see why you would load a whole month's budget? 

One of the advantages is that it is so easy to top up.  Why not split your budget in 4 and top it up every Monday? 

Brendan


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## DublinHead54 (3 Jul 2020)

Brendan Burgess said:


> I agree fully with the principle. I really like my Revolut card and am prepared to take the risk that I will lose whatever cash I have in it if there is a problem.
> 
> But I don't see why you would load a whole month's budget?
> 
> ...



Good question, I have never considered that approach. I like simplicity so why transfer money four times, when I can do it once. Maybe it is because I have not been burnt by the tech bubble or financial crisis and have grown up with emerging technologies so I am much more trusting.


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