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Comment by ptype | Hacker News Reader

Except their revenues are £163m, so it’s not exactly like they do not have a revenue source. I think you are too pessimistic. I don’t have a split but would imagine the largest revenue source is the interchange fee? I would also doubt very much that their cost base is very optimised at the moment, so I would think profit is very doable. In addition, having used their business offering, I think they have a huge opportunity there, their product is very good.

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> I would also doubt very much that their cost base is very optimised at the moment, so I would think profit is very doable.

I agree. Until recently they were literally paying users to open an account and recruit new customers. You could exchange up to £5000/month for free (now only £1000). And if you need to make a big single transfer, for instance while moving to a different country, paying one year of premium membership can still be cheaper than Transferwise's fee on that single transaction.

Europe is known to have really shitty profits from interchange fees. It’s not like North America, where these profits are a bit of a runaway train. We are currently talking about “interchange shrink” because we expect this ride to come to an end soon (aka loyalty programs are about to get really shitty, especially with the collapse of the travel industry)

For those who aren't aware, European interchange fees are regulated (In the EU, interchange fees are capped to 0.3% of the transaction for credit cards and to 0.2% for debit cards, no cap for corporate cards), which is good IMHO. Banking should be treated as a utility, lending and other services can be the profit center (as you allude to in your comments).

Margin compression is a thing for banks who haven't realized yet they're software companies that offer financial services now, and the moat continues to shrink (getting a banking license is hard, partnering with another bank in need of deposits less so). One must be willing to cannibalize margins to survive or be prepared to be left behind by those who are more efficient (and I admit that macro trends make this harder than in the past; "borrow at 3, lend at 6, at the golf course by 3" [1] is dead).

Disclosure: Part of my work is helping old banks attempt to turn into software companies, with wildly varying results depending on the org.

[1] https://en.wikipedia.org/wiki/3-6-3_Rule

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