From high-risk niche to regulated mainstream provider

How money flows has changed profoundly in the past two decades. The pain points that once were accepted as inevitable, such as multi-day settlement times caused by batch processing and slow, punishingly expensive cross-border payments have now largely disappeared in financially advanced global markets.

 

At the same time, disruptive models and fintechs that were once regarded as precarious at best are now increasingly becoming mainstream. Following a drawn-out and arduous compliance process, Revolut, has become a fully licensed bank. Buy-now-pay-later pioneer Klarna, which built a business in the grey zone between checkout payment solutions and loan products, has secured a UK EMI (Electronic Money Institution) licence.

 

To obtain the licence, Klarna introduced hard affordability checks alongside strict customer protection measures designed to reduce the risk of debt traps while also giving customers access to the Financial Ombudsman Service.

 

Stablecoin followed a similar trajectory. Initially dismissed by traditional finance because of its close association with Bitcoin and other cryptocurrencies, it struggled to gain credibility despite being backed by fiat currencies and short-term government securities.

 

While Stablecoin originally served as a safe haven for crypto traders – a place to park their money safely in times of extreme crypto fluctuations – since then, the cryptocurrency has demonstrated far broader potential.

Running on both private and public blockchains, Stablecoin can also function independently of other crypto assets as a payment rail for domestic and cross-border transactions.

 

Circle, the second-largest global stablecoin issuer, has distinguished itself as the stablecoin and infrastructure choice for regulated financial institutions – as opposed to its large, more obscure competitor Tether, which focuses on crypto trade.

 

Getting a foot in the door

 

Despite the differences between them – Circle is a US fintech providing a back-end solution, while Revolut and Klarna are European and front-end – the three companies share several characteristics too.

 

All have adopted disruptive, digital only, customer-centric models, entering financial services through narrowly focused products that addressed unmet market needs.

 

Another important commonality is the tactics they adopted to make inroads into the financial space with frontier niche products.

 

In its infancy, Revolut was essentially a prepaid travel card. Customers were attracted by its interbank exchange rates but tended to trust the company cautiously, with most topping up small balances they could afford to lose if the startup failed.

 

Multi-hour outages in 2017-18 didn’t help Revolut’s image, however; nor did the weekend charges it imposed, despite initially pitching the service as fee-free. Both undermined its promise to be transparent.

 

To eliminate the risk of being left without money in a foreign country, travellers, at this stage, carried traditional debit and credit cards with them for back-up. Ironically, traditional banks with telephone lines and physical branches staffed by real people offered a more reassuring customer experience than Revolut’s in-app chatbot.

 

Klarna, the oldest of the three, emerged in the grey zone too. Most of its revenue came from merchants willing to pay fees to the BNPL provider in return for improved conversion rates and the ability to shift default risk.

 

While Klarna proved a viable model benefitting both sides, regulators cried foul, pointing to the dangers of loan-stacking, where consumers would take out multiple BNPL loans beyond their means simultaneously, end up paying late fees and eventually default.

 

Although closely intertwined with cryptocurrencies, Stablecoin couldn’t even pretend at the outset to be anything but a bridge currency for high-risk, speculative crypto investments. As blockchain applications evolved, however, Stablecoins became increasingly associated with cross-border remittances and corporate business-to-business settlements.

 

The merits of moving money through Stablecoin ecosystems included the speed of transfer, 24/7 availability and lower transaction costs achieved through disintermediation.

 

Reaching mainstream adoption

 

Regulation and innovation are often portrayed as a zero-sum game, but the journey of the three disruptors showcases how well-paced regulation and hard-earned licences can build trust with investors, as well as how boosted credibility can secure fintechs access to a broader clientele.

 

Klarna was granted a Swedish banking licence in 2017, and Revolut upgraded its original EMI status with a Lithuanian banking licence recognised across the EU and the EEA in 2018.

 

Getting these licences served as major milestones, propelling them on their journey from payments-only companies into balance-sheet businesses capable of offering loans, debit and credit cards and overdrafts – as well as earning interest on their customers’ deposits.

 

Klarna UK’s EMI licence, earned from the FCA in 2025, and Revolut’s full UK banking licence, awarded in 2026 five years after its initial application filing, have further raised their profiles.

 

Revolut’s new status as a fully-fledged bank means that it has become mature enough to challenging the four big banks and, indeed, many expect a deposit war to unfold.

 

As Tomasz Noetzel, Head of Global Emerging Markets Banks Team at Bloomberg observed, “Revolut’s full UK banking licence marks a strategic inflection point, enabling far more aggressive retail-deposit gathering and posing a direct threat to incumbent profitability, notably Lloyds and Natwest.”

 

But Revolut must take on not only incumbents but also digital-native UK-based competitors such as Starling and Monzo.

 

While in customer numbers, Revolut has already taken the lead,  what it must improve is the number of customers that use Revolut as their primary account, where it is still lagging far behind at about 5 per cent, while Monzo’s primary account percentage nudges 50 per cent and Starling’s stands at 56 per cent for SMEs and 35 for retail customers. This is a critical area where Revolut’s fresh UK licence can turn the dial in the medium term.

 

Yet Revolut’s competitive landscape extends even beyond traditional banks and domestic challengers. Having evolved into broader financial platforms, former fintech peers such as Klarna are also becoming its direct competitors.

 

When regulation strengthens the USP

 

Circle’s trajectory differs from those of Revolut and Klarna in one important respect: compliance was baked into its business model right from the outset.

 

However, for stablecoins to attain quasi-mainstream legitimacy, legislation had to be supplied first by regulators of major global markets.

 

The missing framework began to emerge with the EU’s Markets in Crypto-Assets (MiCA) regulation, whose Stablecoin provisions came into force in June 2024.

 

MiCA requires electronic money tokens to be authorised as credit or electronic money institutions, and at least 30 per cent of issuers’ reserves assets must be deposited in European banks or government bonds.

 

In the US, the GENIUS Act, passed in July 2025, similarly recognises payment Stablecoins as a distinct asset class rather than treating them as cryptocurrency, and aims to fit them fully into existing financial supervision, covering not only the areas of issuance and reserves but also supervision and consumer protection.

 

While these regulatory regimes formalise Stablecoin’s break from its crypto genesis, boosting its credence and pedigree, important questions remain about its relationship with the wider digital asset ecosystem.

 

Both MiCA and the GENIUS Act regulate payment Stablecoins, and prohibit Stablecoin issuers from paying yields or interest to retail holders to minimise the risk of financial contagion spreading from Stablecoins to the mainstream banking system.

 

However, further regulation is required to clarify Stablecoin’s continuing links to crypto exchanges and decentralised finance platforms, where they can still generate yields under certain conditions.

 

Another contested area concerns the public blockchain infrastructure on which many payment Stablecoins operate. While these networks offer some of the technology’s strongest use cases – settlements, cross-border transmissions and remittances – they also raise new regulatory questions.

 

The latest challenge for regulators in this space has been presented by Circle’s planned launch of its proprietary blockchain with its own consensus mechanism, execution environment and fees.

 

Although Circle is regulated under MiCA as an issuer of payment Stablecoin, operating its own blockchain infrastructure introduces a potential conflict of interest that existing legislation does not fully address.

When Circle launches its Arc blockchain later this summer, it will become both an asset issuer of USDC and EURC in the EU and an infrastructure operator, thus combining two roles that MiCA seeks to keep separate.

 

What’s next for startups-turned-incumbents?

 

While some questions and uncertainties remain, there is no denying that three payment disruptors previously frowned upon as providers of fringe financial instruments have successfully entered the walled garden of the regulated financial mainstream.

 

In their early years, multi-currency pre-paid travel cards, BNPL – and Stablecoins to an even larger extent – have been dismissed as highly risky and even dodgy gimmicks.

 

However, thanks to the strategies these companies have doggedly pursued for more than a decade, as well as a regulatory environment intent on harnessing their innovative force while also curbing their disruptive agility, they are now regarded as more or less mainstream.

 

The next chapter, however, will be different. Having secured regulatory legitimacy, Revolut, Klarna and Circle must now compete on equal terms with established financial institutions rather than relying on disruptive products to differentiate themselves.

 

While they have certainly enriched the range of financial services available to consumers and provoked higher overall service standards within the industry through competition, it remains to be seen whether the trust and credibility they’ve gained through compliance will outweigh the constraints that regulation has imposed on some of the innovations that fuelled their rise.