Fintechs face reckoning over customer service

In early 2023, John started to get calls about unpaid bills from longtime business contacts. The business was fine, he says. The problem was his bank, Revolut, which froze his account without notification.

“I was horrified,” he says of his reaction when he checked his accounts with Europe’s leading fintech and found that none of his December direct debits had gone out.

“I was ringing people, saying I’m really sorry,” says John, not his real name as he asked the FT not to disclose his identity. “I had to do this dozens of times . . . My grandfather had this business. There are people dealing with us since his time who won’t do business with us any more.”

After many fruitless sessions with Revolut’s messaging service, John says he still doesn’t know why the online-only group froze his account and denied him access to balances that grew to over €1mn as money was paid in but blocked from going out.

“We couldn’t get a human being,” says the Irish-based businessman. He does not think he breached any anti-money-laundering rules, under which banks can suspend accounts without giving reasons. His account flows were in line with what he had advised Revolut to expect, he says.

The account was eventually unfrozen. Revolut says it typically freezes accounts if requests for information are ignored, and that it would always give warnings first. After an internal review, Revolut found his experience “hasn’t been as smooth and positive as we aim to provide” and offered him £75 compensation. John left Revolut.

He is far from alone in his disillusionment with one of finance’s newest frontiers, where fintechs offer online-only services in everything from payments, currency conversion, lending, investing, crypto and, in Revolut’s case, hotel and vacation home rental.

John’s experience also shows that problems that emerge in the early stages of a digital company’s life do not necessarily fade as the business grows, even when they turn into fully-fledged licensed banks, as Revolut did in the eurozone in 2019 and now hopes to do in the UK.

Complaints soar as business grows

The sharp rise of online payments firms and digital-only banks has brought consumers increased choice, speedy technology and lower costs.

But their advance has been accompanied by growing complaints in the UK and EU, as users are hit by everyday mishaps and by financial fraudsters. The problems, disgruntled clients say, are exacerbated by patchy customer services and incomplete consumer protections covering companies licensed as so-called e-money providers, as opposed to banks.

In the UK, these e-money firms, numbering 291, have general obligations to treat customers well and are bound by rules on safeguarding customer funds and operating prudently. But they are not subject to the specific regulations governing banks on matters such as record keeping, outsourcing and risk management.

Payment firms sit outside the UK’s financial services compensation scheme, so if they collapse, customers are not automatically rescued. E-money firms’ clients can also fare worse if they are duped into sending money to scammers, a fast-growing crime known as authorised push payment fraud. These firms have not joined the big banks in a voluntary “no blame” accord, to increase reimbursement to tricked customers.

The Financial Conduct Authority, the City regulator, has become increasingly concerned, warning last month that it would close payment companies unless they addressed issues generating an “unacceptable risk of harm” to customers.

Complaints about e-money issues are mounting. The UK Financial Services Ombudsman handled nearly 10,000 such claims in the past two years, nearly four times as many as in 2019 and 2020 combined. These include complaints against traditional banks, digital banks and others offering e-money services, as well as specialist e-money firms.

The ombudsman has generally upheld a higher proportion of e-money complaints than its average rate in recent years, suggesting there are more legitimate gripes than with other products.

A similar story is playing out in Ireland, where Revolut in February warned customers to be alert to phishing scams after a surge in attacks and the Irish ombudsman is reportedly dealing with a jump in complaints, though it has not published details.

In the UK, Revolut, with 6mn customers, is the biggest target for client disputes. In 2022, Revolut’s tally of 1,930 FOS complaints was nearly five times that of the second most complained about e-money firm, Wise, which had 409.

E-money companies argue that rising complaint numbers simply reflect the sector’s rapid growth. Revolut says its 2021 and 2022 complaints per 1,000 customers were “comparable” with complaint rates at digital bank Starling, which were 7 per cent lower than Revolut’s in 2021 and 6 per cent lower last year. “The number of complaints has increased proportionally in line with our growth.”

Revolut’s director of operations Carlos Santovena adds: “The overwhelming majority of our customers love our products and are happy with the services we provide.”

What are customers complaining about?

FT research into customers’ complaints highlights common themes.

Lockouts. Like John, many complainants say they were inexplicably locked out of accounts, something that firms typically do when they have concerns about fraud or money laundering. As with banks, the law requires account-holding companies to act promptly or face penalties.

Jose Cabrita Viera, a UK-based IT consultant, found that Wise blocked his attempt last September to send $50 to the US bank account of his aunt in Venezuela.

“For such a small amount, rather than coming back and saying we can’t do that transfer, they said we’re going to block that bank transfer and deactivate your account,” said Viera, who felt that he had been treated like a criminal.

Wise took nearly two months to send the roughly £300 in Viera’s closing balance to him, doing so shortly after he had complained to the ombudsman. Wise told the FT it does not support payments to Venezuela and aims to return money to deactivated customers within 10 days.

The FCA identified lockouts as an industry-wide issue in February, calling out unnamed payments firms for freezing a “disproportionate number of accounts, for too long, and without adequate explanation” and ordering them to do better.

Revolut says it has improved, reducing the numbers with no access to their accounts by more than two-thirds in the last six months, and allowing most customers to “conduct limited activity within the app even when restrictions are in place”.

Fraud. Customers often complain when they fall victim to fraudsters because of their own mistakes — arguing that payment firms do not do enough to protect them, or put things right.

Take Ryan Heath, a tech worker and Revolut user. In January, he says he fell for a text scam asking him to input his bank details to pay a small postal fee.

Later that day, he logged on to his Revolut app and found his euro and dollar accounts, together holding about €2,000, had been cleaned out by transactions in Kenya. He immediately contacted Revolut but the transactions could not be halted, reversed or even investigated.

Revolut said it took customer protection and support “extremely seriously”, invested in anti-fraud technology and could “detect the vast majority of fraud and intervene”.

Another Revolut customer, a UK-based financial trader, had their phone stolen last May. Despite locking it, they discovered the next day that about £24,000 — their entire Revolut balance — had been stolen. Revolut’s customer service agents said they were unable to help, but the company provided a full refund after the ombudsman ruled the customer was a fraud victim.

Revolut says it assesses reimbursement claims individually, looking at the customer’s actions and the effectiveness of its warnings to the client.

The ombudsman’s website reveals similar complaints against other fintechs. With Tide, for example, the ombudsman found in a December 2022 case that the fin tech had acted too slowly to try to recover funds after a fraud alert. In a case involving Monzo (which has a banking licence), the ombudsman said in a November 2022 ruling that the company had not done enough to “protect . . . from the possibility of financial harm from fraud.”

Similar complaints have been upheld over payments issues with traditional banks. The ombudsman found in November that NatWest subsidiary Ulster Bank had failed to spot “unusual” transactions when a customer lost almost £79,000 in a cryptocurrency hoax.

Customer communications under fire

A key point with cases involving e-money firms is the level of support offered — or not — when things go wrong.

Revolut communicates with its customers exclusively over a messenger function in its app, an approach it says is “fast, secure and loved by the overwhelming majority of our customers”.

The FT has reviewed dozens of pages of these chats and seen customers passed around by relentlessly cheerful operators who advise customers to “have a nice day” after telling them they can’t give them answers about their missing money.

Revolut’s Santovena says that when it comes to handling fraud concerns, “we acknowledge that there’s a lot we had to improve and we’re improving”.

Revolut now has a customer services team dedicated to fraud, so customers can connect with someone who has expertise. It hopes soon to guarantee customers a single person will handle their fraud case from start to finish.

Regulators bring tougher rules

In February, the FCA warned e-money firms would need to show a “significant shift in culture and behaviour” once new protections come into force in July, under a flagship consumer duty regime.

Lorraine Mouat, head of payment services at Thistle Initiatives, which works with e-money firms, says: “It’s forcing firms to not only say, OK, we treat customers fairly, but also to [address], how do you know so, what are your metrics?”

The UK government also plans rules on the mandatory reimbursement of people who accidentally transfer money wrongly. Meanwhile, the FCA could force fintechs that become banks to improve customer service, including offering phone support, as traditional banks do.

For some, progress will come too late.

Heath has already emptied his Revolut cash accounts and will be selling his Revolut equities and crypto holdings. “I will be leaving Revolut as a customer. The risk is just not worth the reward,” he says. “It just seems like they don’t care.”

And for him, it’s not just about Revolut. “It makes me wary of them all [fintechs] . . . At the end of the day when you as a customer need something solved, you can’t get anything done.” 

Whether many other clients follow Heath will now depend on how fintech companies respond to new demands from customers and regulators alike.