American Dream: The European fintechs (hoping to) conquer the US
Is the American dream accessible for European fintechs, or has the pandemic put a spanner in the works?
Europe has bred some of the world’s most successful and well-known fintechs, so why are so many of them hell-bent on cracking America?
Even with the appetite for digital banking in the US, some homegrown digital banks still don’t make the cut. Earlier this year, BBVA decided to shutter Simple, the first digital-only bank.
So, it begs the question: if US digital banks struggle to stick around, will a European fintech ever make it big across the pond? AltFi had a look around to see just how well European fintechs fare in the US.
The Land Of Nothing Comes For Free
Why do so many fintechs head over to the states? Put simply: it’s just more lucrative over there.
In Europe, interchange fees are currently capped at 0.2 per cent, whereas in the US interchange fees can be as high as 1.8 per cent per transaction.
Adam Davis, director of client services at 11:FS, told AltFi: “Entry into the US market as a new digital bank can be very hard but high customer numbers can lead to exponential riches, which makes it an appealing market.”
“With a healthy interchange rate and protection via the Durbin amendment, which states that US banks with less than $10bn in assets do not fall under restrictive interchange caps, it's clear that revenue and growth can be generated quickly.”
As pointed out in the latest edition of 11:FS Pulse, US Challenger bank Chime receives 1.2 per cent of the value of its customers’ transactions, while its European counterparts receive a whole percentage point less.
Chime has 12 million customers, fewer than Revolut (13m), but is worth $14.5bn, nearly triple its UK-based peer.
Davis went on: “Although European firms are looking at the US, the competition is rife, not just from the 5,000+ existing players but also the financial and payment institutions that haven’t received a banking charter yet…but which have significant scale.”
For perspective, PayPal, which has well over 300m customers worldwide, would be the 21st largest bank in America if it had a banking licence.
The US banking system is notoriously difficult to navigate. Since 2017 only three to four banking licence applications have been submitted per year, often taking two years to be approved.
“Different regulatory requirements are typical from state to state, so having a national charter really is the holy grail. But you need deep pockets and significant patience to get one, two traits not always at the ready for startups,” Davis said.
Ronald Oliveira, CEO at Revolut US, told AltFi: “The US is a large and important market with millions of customers who don’t currently have access to a sophisticated financial services app that offers the range of services that Revolut does.”
“In Europe, we grew very quickly and largely organically as people shared our services with their friends. We launched very quietly last March with hardly any marketing spend and have already amassed tens of thousands of customers and refined our product.”
Eyebrows were raised when Monzo officially submitted its application for a US banking licence back in April 2020. But last week, Monzo doubled down on its US expansion plans, with the hiring of its first female US CEO Carol Nelson.
It’s not just digital banks that are trying to crack America, other fintechs are trying too.
No more than five months later, the fintech had launched its first product, a ‘Savings as a Software’ service for American banks and credit unions.
“Europe has all the ingredients to produce global tech giants, and some VCs clearly see that, but the EU needs better-harmonised regulation, more collaboration across borders – to lean into the Union’s strengths and build on them. The more this happens and the more European fintechs can scale here, the better positioned they’ll be to enter the US market as realistic competitors to home-grown American fintechs.”
Curve your enthusiasm
Another company trying to get a slice of the American Dream is all-your-cards-in-one fintech, Curve.
Orson told AltFi: “We’ve learned from other European fintechs who’ve tried to ‘make it in the US' that you need to make your product fit the US market. The UK-EU and American markets are apples and oranges - from product and regulatory perspectives. The one-size-fits-all strategy for success in the US does not work.”
“Importantly, there is no such thing in the US as e-money or PSD2. There are also a host of regulations that must be met depending on the product. Curve also has structural advantages challenger banks don’t have.”
Despite getting out the gate quickly and not being weighed down with the same amount of regulation as challenger banks, Curve’s US launch has been pushed back from its original Autumn 2020 time frame.
The fintech now aiming for a 2021 launch, but given the Covid-19-related downturn, the brakes may be applied once more. But, it doesn’t stop there. Earlier this year, Curve closed a $95m funding round to help it realise its American dream.
It remains to be seen whether or not a European fintech will truly make it big in the US, but for now, it’s safe to say that the race is well and truly on.