ASX bank shares Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ), and National Australia Bank Ltd (ASX: NAB) all face another competitor in Australia: Revolut.
CBA and the other majors already face a lot of competition from the likes of ING, HSBC, Bank of Queensland Ltd (ASX: BOQ), Bendigo and Adelaide Bank Ltd (ASX: BEN), Pepper Money Ltd (ASX: PPM), Mystate Ltd (ASX: MYS), and AMP Ltd (ASX: AMP).
Perhaps the biggest impact on the big four banks in recent years has been Macquarie Group Ltd (ASX: MQG), which has genuinely become a serious competitor. Macquarie is rapidly capturing market share on both the loans and deposits side of things.
Revolut is a technology-focused UK bank that's already got a valuation that is similar to ANZ Group. According to reporting by the Australian Financial Review, Revolut has recently been granted an Australian banking licence.
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Revolut to disrupt the major ASX bank shares?
The AFR reported that Revolut Bank Australia has secured an unrestricted licence from the Australian Prudential Regulation Authority – granted five years after the application.
Revolut reportedly already has 1 million Australian users, with that number doubling each of the last 4 years. Its key offering is a money management app that can make payments, move money between countries, and buy shares.
Customer deposits are now being moved to deposit accounts thanks to the banking licence. Revolut customers will have up to $250,000 of their money protected by the government guarantee.
Revolut can also pay interest on customer savings, while giving itself a better source of funding. The UK bank can also offer personal lending and credit cards.
The AFR reported that Revolut Bank Australia CEO Matt Baxby said:
The natural place to take share is from traditional banks. I don't think there's any question we're providing incremental competition and innovation. It's very difficult for them to play offence. Their natural game is defence because they've got large franchises' revenue streams to protect.
The newspaper also noted that "several major bank executives have privately cited Revolut as being one of the biggest competitors to local lenders."
So, it seems like major ASX bank shares are well aware of the potential competition from Revolut.
Should shareholders of CBA, ANZ, NAB, and Westpac be worried?
I think it could be unwise to completely dismiss what Revolut can achieve. Yes, some of the other smaller, digital banks that have come along have not been able to challenge them. They were too small, with the majors having insurmountable scale advantages.
However, I think it's important to look at how Macquarie has changed the sector. Macquarie was a well-funded business and had the scale to invest heavily, accept a lower margin, and build great tools. Revolut is already a big business, making billions of dollars in profit.
I've already been cautious investing in ASX bank shares for some time, and this gives me another reason to look at other ASX shares.
