Flaw in Revolut’s system enables criminals to steal +$20 million
Britain’s most valuable start-up, Revolut had reportedly fallen victim to organized criminal gangs who exploited a flaw in its US and European payment systems, resulting in the theft of over $20 million.
The incident, which stemmed from differences between the app’s US and European subsidiaries, allowed some declined transactions to be erroneously refunded. This allowed the criminals to withdraw the refunded amount from receiving accounts via ATMs for several months last year, the Financial Times reported.
Revolut managed to recover a portion of the funds that were stolen, amounting to approximately $23 million. However, even with these recovery efforts, the net loss incurred by the company amounted to nearly two-thirds of Revolut’s annual net profit in 2021.
The issue, which has not yet been disclosed publicly, was initially identified in late 2021, and criminals took advantage of the loophole throughout the early part of 2022. A partner bank in the US raised concerns when it discovered a cash shortfall, prompting the flaw to be addressed by spring 2022 after the US subsidiary requested additional cash injections.
The undisclosed incident is expected to increase the challenges faced by the fintech company, which is already under significant pressure. Revolut faced questions earlier this year when its auditor revealed concerns over its long delayed 2021 accounts.
BDO, the UK’s fifth largest accounting firm, said it had been unable to fully verify nearly £500 million of revenues, adding that “the risk of an undetected material misstatement was unacceptably high” due to the configuration of Revolut’s internal IT systems.
The challenger bank responded to the auditors’ concerns, stating that they relate to revenues rather than the company’s balance sheet. However, it appears that the PRA remains unconvinced and is likely to proceed with rejecting the application based on its assessment of Revolut’s financial position.
Revolut’s pursuit of a UK banking license is also facing a setback as the Bank of England has reportedly informed the Treasury of its intention to reject the highly valued fintech company’s long-standing application. This decision comes after a two-year campaign by Revolut to obtain the license.
Back in September, Revolut’s co-founder and CEO, Nik Storonsky, expressed confidence that the license was nearly secured. Similarly, in March, he reiterated that the license was expected to be granted “any day now.”
This development presents a significant challenge for Revolut, as obtaining a banking license is crucial for expanding its services and operating as a fully-fledged bank.
