“It’s not a winner takes all market”: N26 lead on digital banking

An interview with N26's head of international markets Alexander Weber. 

A handful of uber-trendy disruptors are jostling for position in the UK’s digital banking market. In Continental Europe, there’s only really one – and it’ll be in the UK before long.

N26 is an app and card digital banking offering that’s headquartered in Berlin. Like many others in the field, the bank offers instant push notifications for payments, spending analytics, real-time peer-to-peer payments and a digital marketplace of third-party services. And like some of its rivals, the bank has a global vision. Already active in 17 countries across Europe, the business will soon be entering both the UK and US.

But there are unique elements to the German firm’s approach too. Alexander Weber, head of international markets at the bank, said in an interview with AltFi that the decision to pursue a banking licence early and to swiftly transition to its own technology infrastructure has given N26 a head-start on the competition.

“You cannot cut corners around these,” he said. It's worth noting that Revolut, possibly N26’s most direct rival, is currently in the process of applying for a banking licence, and continues to rely on (at times faulty) third-party technology. That said, Weber sees room for competition.

“Other participants are moving into this space for good reason, but the banking market in Europe is very, very large. It’s not a winner-takes-all market.”

N26 offers three different core accounts to customers: Standard, Black and Metal. The first is a free-to-use option, with all the usual neo-banking bells and whistles. The Black account is a paid-for package which includes, among other things, travel insurance and premium foreign exchange rates. The Metal card comes with all the benefits of the Black account, plus dedicated customer service and access to preferential rates and deals with partner firms. These perks include, for example, basic membership at WeWork offices.

Like many digital banks, N26 is busily assembling a collection of partners for its marketplace. Consumer lending platforms Younited Credit (based in France) and Auxmoney (based in Germany) are already plugged into the app.

“Our vision is to become the one stop shop for financial services,” explained Weber, although the plan is in fact to go well beyond financial services. “We have a great partnership with WeWork, a great partnership with GetYourGuide.” The better descriptor for what N26 seeks to become, decides Weber, is “a hub for digital natives”.

One of the many planned product launches for N26 is a shared account for partners, which is just around the corner. The bank also has big – and immediate – plans for making use of PSD2 data.

“I can say that as of right now we are already working on a product or feature that will leverage this,” Weber confirmed. “Our customers will not have to wait a year or two to see a benefit.”

While excitement around Open Banking and PSD2 (each of which went live on 13 January 2018) has been building, many within the fintech space have expressed their doubts that consumers will see dramatic changes in the short-term. In the UK, 5 of the 9 banks that are being made to allow third-parties to access their data are behind schedule, and have been granted extensions by the Competition and Markets Authority.

Global expansion is high on N26’s agenda. Once again, its plans pit it squarely against UK-based Revolut, which recently raised $66m for the purpose of funding its own ambitions overseas.

“We are definitely not in a hurry, but we are an opportunity-driven company,” said Weber. He said that the focus will be on bigger markets such as the UK and US in the short term. “In the US we are going to enter with a partner bank as we did in Germany.”

For most digital banks, making money is for now playing second fiddle to acquiring customers. Monzo, for instance, reported a pre-tax loss of £7.9m for 2016, according to Business Insider. Revolut reported a similar pre-tax loss of £7.1m for the period.

Weber thinks N26 has the edge here. He explained that the bank’s costs are limited because it can rely on its own infrastructure and because it doesn’t operate branches. He also pointed to the economies of scale that N26’s global model brings. The bank’s revenues are mainly driven by card usage and by cross-selling within its marketplace.

Moving forwards, Weber sees the products that can be sold to users proliferating. “It’s really a journey,” he said. “We can start to use more and more products that are new and that are different in many ways.”