N26’S U.S. Success Story

How this SMB from Germany in the Financial Services industry made it in the U.S.A

Country Of Origin Germany

U.S. HQ. New York, USA

Industry Financial Services

Year Founded 2013

Number Of Employees About 700

Annual revenue $5M

 

About N26

In the last five years, N26 has become one of the fastest growing mobile banks across the globe. The service was founded by Valentin Stalf and Maximilian Tayenthal in 2013, but they launched the initial product in early 2015. Currently, the company boasts more than 2.3 million customers in 24 markets throughout Europe. The customer base holds over €1 billion in accounts and generates over €1.5 billion in monthly transaction volume. In 2018, the company announced and embarked on a journey to expand to the US market. N26 has raised more than $500 million and employs over 700 workers across three office locations in Berlin, Barcelona, and New York.

Plans to Expand to the USA

 

At the end of 2017, the company started planning to expand its market base beyond Europe. The project included efforts to see the company put up offices in the US around mid-2018. That move saw the company hire more people who are still working in New York. Most notably, the company had been doing well in Europe. Stalf, the co-founder and CEO were sure that the company would be in the position to capture the American market.

At the time, N26 was trying to create the retail bank of the future with anything customers could think about regarding mobile banking. N26 strived to create a debit card from MasterCard and a checking account for clients. With this, US customers would be able to check their banking information in just a few minutes. Moreover, they would be able to send or receive money, pay anywhere around the world. The best thing about foreign transactions would be that there would be no transaction fees or markup.

With the US expansion, the company would get into collaboration with a banking partner. This plan would help N26 penetrate all the 50 states, something that would take time to undertake without support. Typically, the project would see N26 take care of the user-facing features while a third-party accredited banking partner would manage the clients’ money. According to the feedback obtained from a market survey, the company would also initiate specific client oriented features. For instance, the company intended to provide credit cards and reinvest some interchange revenue into a reward program.

During the US expansion projection, N26 acknowledged that the interchange fee is much higher in the US. It was no secret that banks would make a lot of money from purchases made by customers using their credit cards. That is the sole reason why the company decided to introduce the reward program. Similar to what is in the German market, N26 would introduce credit lines, saving accounts, insurance products and more in the US market.

N26 was in partnership with fintech startups for some of these products. With time, N26 would launch similar features for US customers. Essentially, N26 would think carefully about tailoring its products for the US market to ensure high demand. In line with the company’s expansion plan, the focus would include expanding to the Latin America and Asian markets.

Its European competition monitored the move by N26 to expand to the US market. With the move to allow US consumers to sign up for early access, the company had acquired a feel for the market and its potential base. Meanwhile, N26 was not the only startup aiming to capture the US market. Their competitors Monzo voicing interest and Revolut also allowed customers to sign up for early access. The company should consider these major companies as competition!

Financing the US Expansion

 

In March 2018, N26 announced that they had raised a €110 million ($134 million) series C funding round to expand their service to the US. Nevertheless, N26 opened early access to users in the US in October 2017. The €110 million new capital injection would likely help the company to bring its services to market in the country.

In January 2019, N26 said that it had raised $300 million from investors in a round of funding. That funding positioned the company among the ranks of Europe’s unicorns or private startups valued at more than  $1 billion. Also, funding made the company one of the most valuable unicorns across Europe.

US private equity firm Insight Venture Partners led N26’s latest funding exercise.  It had additional backing from Singaporean sovereign wealth fund GIC. Other financiers included Chinese tech giant Tencent, German insurer Allianz and PayPal co-founder Peter Thiel’s venture arm Valar Ventures. A large fraction of the funds raised would be used to market the service across their target markets. Even with over 2 million users, the company aims to reach 10 million globally in the next couple of years.

At present, N26 has raised more than $500 million from the world’s most established investors. The investors include Tencent, Allianz X, and billionaire Peter Thiel’s Valar Ventures. Other key investors include Hong Kong billionaire Li-Ka Shing’s Horizons Ventures, Earlybird Venture Capital, Redalpine Ventures, and Greyhound Capital.

Sources