N26 is the challenger bank to watch. With a $40m Series B in June 2016 in the bag, Berlin-based startup N26 has a banking license and is now active in 17 countries across Europe. This shows the power of a European banking license that works across the Eurozone.
Although they don’t have any branches, N26 are investing in multi-lingual customer support by phone, because Europe might have one currency but it has lots of languages. Their Series B lead investor, Horizons Ventures is an Asian fund, so they should get access there as needed. Via another investor, Peter Thiel, they can get connections as needed in America.
N26 could be the first digital universal bank. That is a seriously big deal.
That requires a lot of functionality. The only way to get there is to partner through an appstore.
The Back End needs attention
Being mobile is great, but not if it creates a security problem. I would prefer a klunky UI that keeps my money safe. At the end of 2016, stories of a security flaw surfaced.
According to the Fortune post, “Vincent Haupert, a research fellow and PhD student in the computer science department of the University of Erlangen-Nuernberg, told the Chaos Communications Congress in Hamburg how he and two colleagues found N26 security defenses riddled with holes that could have been used to defraud thousands of users”.
In a statement, N26 thanked Haupert for alerting the company to “a theoretical security vulnerability” and advising it on fixes, which N26 said it completed this month.
In addition, N26 has replaced Wirecard with their own back end.
Global expansion plus lots of back end work must stretch the team. This is why they have gone the partnering route for critical customer facing functionality.
The deal that has been announced is with Transferwise, enabling N26 customers to “transfer Euros into 19 exchange rates at the real exchange rate”.
You can see the logic for both parties. N26 gets new features quickly, Transferwise gets distribution. One can imagine other deals with Robo Advisers and Market Place Lenders.
This is a high stakes game where scaling speed is everything. If N26 can offer real distribution they will get lots of app partners and that will accelerate the virtuous circle network effects. N26 have to go global fast in order to keep their partners motivated.
From App Store to Rebundling
If each service is standalone but linked to your main account that is good. If each unbundled service can be rebundled to create new functionality, that is great.
We may see N26 taking on the global universal banks.
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Thanks for the information. It seems that N26 might try to lead in developing marketplace bank concept, but starting from scratch and adding functionality on the basis of the customer demand. Interesting, I thought that it would be the incumbents the first movers into that space, although it is difficult to combine strategically the two models inside the same house. Banks are trying to open and offer new services through APIs, but I wonder whether this would be sufficient. It seems to me this has to be combined with a significant reshuffle of infrastructure to prove it definitive. What comes to my mind is that there are too many banks (existing + new entrants), and it made sense when geographical reach was a comp advantage, but going forward does not seem customers appreciate it.