The last couple of years have been pretty eventful for app-only digital banks in the UK with the likes of Monzo, Tandem and Starling opening their virtual doors for business. The smartphone-only banking space is also being vigorously attacked by fintechs across mainland Europe, not least Berlin-based N26, which only went live two years ago but has already secured a full banking license and is Germany’s fastest growing bank and busy expanding into other countries.
The core elements of the N26 proposition are a bank account, a very slick app to manage transactions in real-time, and a MasterCard for use online and ATMs, all for free. User-friendliness is a major objective, reflected in it taking just eight minutes and no tedious form filling to open a N26 account via mobile. The signing on process includes a video identity check. There are no management fees or minimum income requirements, with N26 making its money mainly from a small fee charged to merchants per transaction as well as commission income from their FinTech Hub.
Since launching in January 2015 N26 has raised over $50m from high profile investors including PayPal co-founder Peter Thiel’s Valar Ventures, Horizons Ventures, Earlybird Ventures, and Axel Springer Plug & Play. Its core markets are Germany and Austria but it has expanded fast and boasts a footprint stretching fifteen other markets: Belgium, Estonia, Finland, France, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Netherlands, Portugal, Slovakia, Slovenia, and Spain. The breakneck speed at which the start-up has crossed borders certainly marks it out from much of the rest of the pack and evidence of its determination to fulfil its ambition of becoming the first pan-European bank.
While N26’s user numbers – currently more than 200,000 – might be minuscule versus the big incumbent boys, the growth rate is impressive. It secured 100,000 users in its first year to January 2016 and things are revving up: over the first quarter of 2016 alone it attracted another 60,000, suggesting a pretty robust full year outturn.
In February it revealed that had gained around 10,000 customers in Ireland, where it launched in December 2016. Ten per cent of customers in Ireland are using its new subscription-based premium current account, N26 said.
As with all digital only banks, N26’s solution relies on some clever technology but, as its co-founder and CEO Valentin Stalf explained to Fusionwire at the Money2020 conference in Copenhagen in April, the proposition also owes much to his team’s “out-of-the box” thinking about the future of banking and the online experience of consumers.
He says: “There are lots of big brands, old players in banking and payments, but they are not really admired. We realised early on that if you are trying to reimagine banking, then you have to start from scratch. You have to start from outside of the industry.
“Most of our people at N26 are more used to working at, for example, SoundCloud [a Berlin-based audio distribution platform] or Spotify and other inspirational companies that are setting standards for mobile experience and app design and functionality, be it for music or travel or whatever. We try to come from an angle where we don’t look at existing banking to get our inspiration. I think that’s something we have been very good at. We are after a mobile banking and product experience that inspires not just people working in the banking space but even more so those in radically different areas.”
Still, taking onboard novel insights from elsewhere across the mobile and app world is one thing; translating that oblique vision into a banking proposition quite another. Stalf (pictured left) says: “Most of the ideas in banking and payments are obvious: of course I would like to send money to you with a simple click; of course I want to open a bank account within eight minutes and, obviously, I want full transparency at every second on movements in my accounts. The challenge is to execute these ideas because you have regulatory hassles, capital requirements, a very difficult value chain with different players and so on.
“The key is going from an idea that is brilliant to a product that people actually love to use. And that means you have to be very focused on the users, make sure they love your product and love your brand. I think we have been quite successful with that over the last year – it’s know-how that is going to be critical going forward because we’re now building up, integrating more products around our core products. It might become more complex operationally at our end but it still has to be as simple for customers to use.”
Having kicked off by offering just a bank account with a card the start-up moved fast to install essential furniture such as balance statements, ability to set up standing orders and direct debits – all the things that one expects from a current account.
Six months after going live Stalf and his team started to think about further major developments and quickly added some financial management functionalities. In February of this year it announced it had joined forces with TransferWise to offer N26 users direct “in-app” access to TransferWise’s international money transfer service. In July, shortly after securing its banking license, it launched an investment service in partnership with German robo-adviser vaamo. “We’ve taken the first steps in going from a niche product, with just the card and an account, towards being a highly transparent, full replacement for traditional banking,” says Stalf. Just after receiving their banking license last year, N26 also introduced a premium product called N26 Black that includes insurances for travel, smartphones and extended warranty.
Looking ahead, Stalf believes technology will remain a key ingredient in ensuring N26 remains slick and easy to use. His team will make use tools and techniques to better understand the needs of the N26 user, the kind of financial products he or she might be interested in at any given time: “Maybe you have a few thousand euro on your account. Then you might need an investment product or a savings product. If you are always around zero, maybe you need a consumer credit. It’s all about making your financials simple and combining a lot of complex things in the background to give you a great experience. And that’s the thing that we’re currently working a lot on, enabling personal insights at any time.”
Banking on a best-of-breeds platform
Stalf intends for N26 to “take on every dimension of the traditional bank”, including credit, investment, saving and insurance products. More partnerships along the lines of the vaamo deal will be key: “In each of those dimensions today, you see a lot of great start-ups or other companies that have really great offerings. We have the strong belief at N26 that we should focus on the current account product, provide the base functionality, but that we shouldn’t get into developing all these products ourselves because you can imagine we would need 500 people to work on international transfers, 500 people to work on saving products and so on.
“We want to use existing players out there that have great, innovative products and offer much better deals than traditionals because they use more modern technology and leaner cost structures. We believe in integrating those players onto our platform and so give our users one click smartphone access to the best innovation in fintech around, not just in Europe but elsewhere around the world. By the end of the current year N26 will, more than ever, stand for not just great user experience and transparency but the best products and best value.”
While Stalf is keen for N26 to become engaged with a range of banking products and services he believes there also considerable potential in building relationships with customers: “If you have an account with us, we should be a partner that helps you in your daily life. We should make it easy for you to have your finances under control but also easy for you to take on the right insurance. Maybe we should give you advice if you have the wrong electricity provider, one that’s ripping you off. There is so much potential on top of the basic banking product that we want to explore over the next couple of years.”
While expansion of its footprint across Europe is a key objective for N26 Stalf makes clear that he has bigger ambitions for the venture over the longer term: “What we see today is that the financial needs of people around the current account are not so much defined by their nationality but by lifestyle. What we have seen is that people living in advanced economies like the US, Japan and Europe all have very similar needs. Some use cards more, some tend to prefer cash, some like a revolving credit, others like non-revolving credit but the basic products are always pretty much the same. Therefore, I see a great potential to launch N26 beyond Europe. We have to succeed across Europe first. If all goes well with that then I think in 2018 we can look at ideas for going beyond.”