EXCLUSIVE: “Neobanking Around the World” – Alex Weber, N26 in ‘The Paytech Magazine’
N26 has entered – and left – international markets, but remains committed to its vision to build a global bank. We asked its Chief Growth Officer Alex Weber what it’s learned from its experience
“We are in pole position to become one of the biggest retail banks in Europe, all without a single branch,” was how Valentin Stalf, co-founder and co-CEO of German neobank N26, celebrated becoming the highest-valued fintech in the region after a record-breaking funding round in October 2021.
At more than $900million, the Series E raise was the largest financing round to date for a digital bank in Europe and took the company’s valuation to more than $9billion after eight years in operation, and with businesses in 22 European countries, the US and Brazil.
At the time, N26 said it would use its fresh funding to significantly expand its offering and scale its global team further. But just a month later, the ‘mobile bank the world loves to use’ announced it was withdrawing from the US market where it had half a million customer accounts operated under partner Axos Bank’s licence.
Writing in a company blog around the time the news broke, the bank’s chief growth officer Alex Weber described it as an ‘extremely difficult’ and ‘disappointing’ decision. But focussing on the hard-to-crack US market was clearly an expensive distraction for N26 when there was a lot going on at home – not least German regulator BaFin’s decision to put its foot on the brake by limiting the challenger’s growth to 50,000 customers a month across all markets until it strengthened risk management.
“We know we would need to invest significantly more resources, and capacity of our central teams, in order to achieve our ambitious goals [for the US],” Weber wrote, adding that instead the bank would double down on providing new services for existing customers in its core European markets and limit its expansion – in the short and medium term at least – to additional territories in Eastern Europe.
Meanwhile, the bank continues to develop its ‘fincare’ (financial management) product in Brazil, where N26 operates under its own Central Bank for the Direct Credit Society (SCD) licence, a type specifically designed for fintechs. Winding down in the US wasn’t the first time that N26 had retrenched: it exited the UK after 18 months of operation in 2020, having reconsidered its position following Brexit.
But, despite the setbacks, it’s most recent annual report showed net revenue rising 67 per cent in the year ending December 31, 2021, to €120.3million, and customer metrics all pointing in the right direction: there was a 60 per increase in premium subscriptions (for N26 Smart, N26 You and N26 Metal), leading to deeper engagement with the bank and higher spending over its platform.
“Extortion through kidnapping has also resurfaced in Brazil since the introduction of Pix, with criminals now imprisoning members of the public who are carrying their smartphones, and only releasing their victims after forcing them to make large transfers of money via Pix”
And in the months since its withdrawal from the States, it’s made good on Weber’s promise to continue meeting customer demand for new services. This summer it enabled customers to use their N26 cards to pay direct from their Spaces – sub-accounts that act as virtual piggy banks. More recently, in September, it responded to requests from Spanish account holders for access to the popular local payment solution Bizum, which allows users to connect mobile phone numbers to bank accounts; and in October, it struck a deal with Bitpanda in Austria to allow customers to trade cryptocurrency through the app for the first time.
Using Bitpanda’s white-label, investing-as-a-service solution, N26 Crypto will be rolled out in key markets in stages over the next few months, allowing account holders to trade in up to 194 alternative coins. At the same time, the bank significantly upped investment in anti-money laundering and measures to counter other financial crime across all markets.
What the experience of the last turbulent couple of years and N26’s ability to weather them has taught Weber is that there are some universal truths a startup needs to keep in mind when reaching beyond its cradle.
“There are a few things that you really need to make sure you have under control in your ‘home’ market, whether you’re talking geographically or customer segmentation – by which I mean if a B2C company wants to go B2B, for example, which is particularly relevant in the fintech space,” he says. “Overarchingly, you need to really have strong product-market fit at home. There are a few metrics that characterise that in series A/series B stage ventures, after which scale, and internationalisation, and expanding to broader segments is the focus. It’s about the general level of customer engagement with your product.
“How well do you retain customers and how frequently do they use your product, once you have acquired them? That’s a hugely important indicator of product market fit and I’d recommend not to scale a business that doesn’t have it yet, because, if you don’t have the retention and the engagement, it’s like a leaky bucket. Spending dollars on growing your top line then is not advisable.
“On top of that, a certain level of organic growth is also very important. So, usually, if you have happy and engaged customers, they’ll advocate for you and generate a level of interest and demand.
“You need to be clear on your strategy, too. Is your strategy to be in many markets but not very deep, or do you want to be in five markets, say, but very deep? Those will create different infrastructure and governance choices, which are important considerations. When I say governance, I mean also decision-making and how local do you go with that? How strong are your central functions? Ideally, you should have a point of view on that before you start internationalising, because that also determines culture, to some extent.
“If you have very strong, decentralised units where a lot of the decisions are made, it’s going to be a different company, a different culture, to one with a very centralised operation with strong functional responsibility. Governance and culture go hand-in-hand, and infrastructure also follows strategy.
“Those are the important puzzle pieces, that you need to put on the table and really think through.”
Berlin-headquartered, N26 grew quickly to other markets in the Single Euro Payments Area (SEPA), after securing its banking licence in Germany in 2016. Its product/market fit in those countries was pretty much cookie cutter, given the unmet demand across the region to disrupt legacy banking with fast, flexible, transparent financial services without high fees.
The digital child of an already largely harmonised Europe, Weber says the single market’s regulatory framework definitely helped to accelerate the mobile bank’s growth, but it would be naïve to think barriers don’t exist to expansion across the EU.
“Europe is the only area in the world where, with one licence, you can serve more than one market – you can’t do it in the US and Canada, or in Australia and New Zealand. But still there are other local regulations; and similar regulatory guidelines are implemented differently. So, in order to become compliant, you need to understand which areas of your business are different by market.
“And that brings you to the infrastructure question: how can you tailor your organisation to those different needs by market, and, based on those differences, be flexible enough to deliver two different experiences [of the same service] in order to meet compliance requirements? From an infrastructure perspective, I’d advise having a modular approach in place so that you’re able to cater to those differences.”
Voted the world’s best bank by Forbes last year, N26 has the clear confidence of its backers and is still determined to deliver on its vision to become The Mobile Bank for the world. Co-founder Maximilian Tayenthal, who’s previously described the business as a ‘liquidity-generating machine’, has said that an IPO at some point is inevitable, given the ‘many years and massive amounts of capital’ needed to realise that ‘huge vision of building a global financial institution’.
With just 2.5 per cent of the world’s banking customers using neobanks in 2022, according to Statista, and 4.8 per cent of them projected to by 2027, the opportunity for not just N26 but others in the same space to expand internationally is obvious to Alex Weber. He just wishes regulators could agree on some fundamentals to make progress easier.
“Around the world, we still have a huge way to go, in order to reach any level of harmonisation,” he says. “That’s a good vision to have. I would love to see more harmonisation, like we have in Europe, to allow truly global players in the industry. A lot of collaboration would be necessary; to enable new business models, as well.
“Even though there’s been massive growth, accelerated by the pandemic, neobanking is still in the single digit. There is, still a lot of movement and adoption to happen in the years to come
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