It’s been a big year for digital challenger banks already and Berlin’s N26 has been especially active.
This year the neo bank has already announced $40m in new funding, gained its German banking license and announced new products – most recently including an investment tool.
It’s not stopping there, with co-founder and CEO Valentin Stalf telling PaymentEye the firm is “very close” to announcing a new savings product in partnership with a yet-to-be revealed startup. In the next six to 12 months we can also expect an insurance tool, a credit tool and a decision on whether to launch in the UK, he says. Meanwhile, the firm has also rebranded from Number26 to N26 in a move to simplify its branding and help pave the way for entry into new European markets.
The mobile-only banking service has been live for one and a half years, has more than 200,000 customers and believes the ‘bank of tomorrow’ is a slick interface through which customers can access best-in-class fintech products. It is doing this via partnerships, inking a deal with TransferWise at the beginning of the year, for example, to let its customers send international payments from within the N26 app.
It hasn’t all been plain sailing, however, with the firm attracting a social media backlash in June after reportedly closing a small number of customer bank accounts with no immediate explanation. The firm has since apologised for its communications and says it is working on being more transparent with customers.
Here, we talk to Stalf about learnings from that experience, what’s next for the business, the advantages of building a fintech business in Berlin and the challenges of building a new brand in finance.
UK launch – TBD
N26 is live in Germany, Austria, France, Italy and Spain and Stalf says the firm will make a decision on the UK around October. The UK would have been a logical move before June 24th and one that’s been on the cards for some time so has anything changed post-Brexit? Stalf says its remains an interesting market and it’s “likely” the launch will go ahead – regardless of Brexit.
The UK is a market getting more crowded with challenger banks as Mondo just joined Tandem, Atom and Starling in getting a banking license.
Part of the reason N26 recently rebranded is that N26 is a more international brand than the former Number 26. While the firm has a German license and very much flies the flag for Berlin fintech, he says the firm sees itself as a pan-European bank.
Bullish on Berlin
Berlin is not the finance capital of Germany, so what are the advantages for being based there as a fintech startup? “The advantages you can summarise as: talent is great in London but it’s great here too,” says Stalf. “There are people not happy with Brexit – especially when it comes to international talent and I think it is likely more people will move to Berlin as a result.” Another factor, pertinent to any startup, is cost. “We can afford a rooftop here – in London we would be in the basement.”
The main thing, though is the city’s creativity, he says, plus the distance from traditional industries. “I see it more as a benefit being away from traditional banks and the finance industry because we approach problems in a much different way and come up with different solutions to old issues.
Savings & insurance products next in pipeline
So what’s next from N26? It now offers a basic bank account plus MasterCard, an overdraft, international money transfers, cash withdrawals, investments and P2P money transfer.
The firm has been talking about plans to launch a savings tool and an insurance product for some time and Stalf says we can expect more products in the next six to 12 months.
He says N26 is partnering with a yet-to-be announced startup to offer a new savings product next that’s “very close” to going live. Then insurance, which he says is one of the most exciting areas of fintech right now. What might that look like? Stalf says he likes the idea of building a wallet for different insurance products.
“When I look at myself or my friends – they have not met their brokers for 10 years yet the brokers are getting 30% of the revenues they are paying,” says Stalf. “The industry is totally broken. Think are insurance companies seeing what is happening and building a bridge between them and the customer – there’s a lot of space for startups there.”
After that N26 will look at bigger ticket credit products, with Stalf saying he’s interested in things like real time and better credit scoring.
“There aren’t many companies that are live and getting great customer traction in areas like credit so I think we are just at the beginning of seeing great companies emerge,” says Stalf.” Some people are saying fintech hype is over but if you look at the products out there, there are not that many. The German market is also very behind the UK market for example.”
N26’s model is not to build everything in house, but rather to partner with the best companies in a particular vertical and embed their product behind its interface – eventually hoping to become a one-stop shop for all of a consumer’s banking needs.
“Our philosophy is that we cannot be the best in every dimension of banking,” says Stalf. “But there are companies that can and we always try to partner with them. We know what our consumers want because we get a lot of requests for things we have not started offering.”
Building a new brand in finance is tough, what’s your strategy?
How you create a brand today is completely different to how it was 10 years ago. If you’d founded a bank then you would have to put a lot of money to work in traditional media like newspapers and maybe having a maybe a big TV campaign.
Today you can create a brand on social media and through your product especially how people tweet about you – how satisfied they are and so on. How you are perceived as a company gives you the opportunity to create the trust in short term.
We’ve proved in the first one and a half years that people will trust a challenger bank. Meanwhile, when you look at the traditional banking brands, most have suffered throughout the financial crisis. Especially in last few years – if you look at the news at how many banks are on the watch ECB’s watch list.
It is also easy for us to stand out. If you look at most traditional brands they have same vision and their tag lines all look the same. What the market is missing is a slick mobile product with a brand more inspired by fashion and other fast-paced startups. Together that creates a unique experience and then you can create trust through the product that you need in finance.
Social can make but also break brands – what did you learn from the recent social media outcry over closed N26 bank accounts?
Obviously we were surprised at how big the reaction was – from the media especially. But you have to differentiate between media and customer reaction, which went in the other direction – we got more sign ups and more active customers.
What we learned is that we need to be much more transparent because that is one of our core values. Obviously you sometimes make mistakes and since then we’ve launched a policy giving boundaries of how to use our product. We are very much looking at how we can deal with this better in the future.
We have a lot of visibility in the media. All German media and sections of the international media picks up on every release we put out – that can obviously go in both directions. But I think you have to actively manage that and we have learned we need to be more active and be aware of what direction communications can go.
In the next one and a half years we know there will be mainly positive news we can release – new products and doing things totally differently to traditional banks. I think the harder things to communicate are behind us.
A partnership model means you can move more quickly, but ultimately you’re relying on a third party’s technology to work?
The front end experience is completely controlled by us. In the case of the investment product for example there is one point in the process where you say ‘I want to invest x’ and then there is a bank transfer in the background from our bank account to the one where the product is invested.
There is obviously some dependency on the partners and that is why we have a very detailed due dilligence process with every partner and why we spend a lot of time picking the right one. The benefit for our customers is that we do the pre-screen on the partners on our platform – most of them are not interested in spending a couple of hours or days on the internet picking the best money transfer product. We find people are very happy we do the pre selection for them.
Which product do you anticipate will provide the best revenue?
If you look at fintech and banking in general, the revenue comes from five to ten products. We have integrated TransferWise and while people do not transfer money every day they know we have that integration which means next time need to move money they will use TransferWise. So it is a very stable revenue stream and the same is true for credit and investment prod. But you can’t say 90% rev comes from this product or that product – rather it is a combination. Obviously our credit product and our account product are important for us.
You mentioned a UK launch?
The UK is a very interesting market independent of Brexit. We will take a decision internally around October. If we do, which I think is likely, I think there’s a chance we will launch before the other challengers that are still in beta or still working on their products.
N26 flies the flag for Berlin fintech – what are the advantages of being based there?
The advantages you can summarise as: talent is great in London but it’s great here too. There are people not happy with Brexit – especially when it comes to international talent and I think it is likely more people will move to Berlin as a result. The second is cost which is much lower in Berlin – we can afford a rooftop here and in London we would be in the basement.
I think the main things though is the creativity and how far away you are from the traditional industries. I see it more as a benefit being away from traditional banks and the finance industry because we approach problems in a much different way and come up with different solutions to old issues.
In old finance there is a danger of getting sucked in by traditional players and just doing things the same way they did.
You were previously at Rocket Internet, why the move?
After university Rocket was a great start for getting to know the startup scene plus learning how to build companies and how venture capital works in a fast-paced environment. The reason I stepped out to do my own thing with co-founder Maximillian was mainly the opportunity – I had an idea and worked out we could do it without the Rocket network and we found people crazy enough to invest.
It means we could also take more risks. If you are an entrepreneur in Rocket it’s not like founding a company on your couch with no salary and going bankrupt.
For me the experience with Rocket was great – there is great talent there and it has been very important for Berlin’s startup scene, but for us it was about trying something new outside.
What do you make of Rocket’s plans to launch a bank?
In fintech it is always about execution. In general I am happy to see it but overall they have not been too successful in fintech – they’ve been successful in e-commerce but I am not afraid they will build the greatest user experience in fintech.
What are you particularly excited by in fintech right now?
There aren’t many companies that are live and getting great customer traction in areas like credit so I think we are just at the beginning of seeing great companies emerge. Some people are saying fintech hype is over but if you look at products out there, there are not that many. The German market is also very behind the UK market for example.
So credit is interesting in terms of things like real time and better credit scoring. The other thing is insurance – building wallets for different insurance products for example.
When I look at myself or my friends – they have not met their brokers for 10 years yet the brokers are getting 30% of the revenues they are paying. The industry is totally broken.
Think there are insurance companies seeing what is happening and building a bridge between them and the customer – there’s a lot of space for startups there.
The other things I am excited by is something like Robin Hood in the US and having a portfolio of investment opportunities where you can trade shares.
The Emerging Payments Association discuss the impact of Brexit on the fintech industry at the latest payments industry event.
Jonathan Quin, co-founder and CEO of World First, explores how established financial institutions and newer fintech disruptors stand to benefit from collaborating with one another in the fast-moving financial services sector.
With advancements in technology and the subsequent availability of data, it seems surprising that banks seem to know less about their customers than ever before.
In an era where cheques are largely a thing of the past for organisations that operate within these shores, many people will be surprised to learn that many overseas B2B payments are still made by cheque.