Germany’s Fintech Bank N26 Secures Next Major Funding

    The digital challenger bank N26 has just announced the expansion of its Series D financing round and successfully raised over $100 million according to TechCrunch. This brings the current financing round to a total of US$ 570 million. All of N26’s major existing investors have participated in this expansion.

    N26’s rise during the Coronavirus crisis

    The Corona crisis has brought one of N26’s biggest competitors to its knees: the conventional branch banks. While the branches of traditional financial institutions remain closed in many places and cash is avoided for hygienic reasons, the Berlin digital bank is preparing for a boom in smartphone banking and credit card offerings. As business insiders learned in advance, N26 has raised fresh capital to the tune of 100 million US dollars (92 million euros) for this purpose.

    With this cash injection, the bank wants to use the momentum to “meet the expected, growing global customer demand for mobile bank accounts”. In particular, an increase in the use of online banking is observed among the over-65s. “Digital banking has received an enormous boost in recent weeks. 

    More and more people are dispensing with cash, making contactless payments and using digital services. This trend will continue”, says N26 CEO Valentin Stalf in a statement with US news outlet CNBC.

    Global investment corporations take part in investment round

    With the fresh capital, N26 is expanding its current financing round to a total of 570 million US dollars. The same existing investors who were involved in the deal as in July when it was increased, including Peter Thiels Valar Ventures, the Singaporean sovereign wealth fund GIC and the New York venture capital firm Insight Venture Partners, participated in the deal.

    According to a spokesman, the company’s valuation remains at 3.5 billion US dollars – making N26 one of the most valuable Fintech companies in Europe. The Berlin-based digital bank has been registering steep customer growth for months, most recently breaking through the five million customer mark worldwide in January. 

    “In the long term we want to reach 100 million customers worldwide,” Stalf said at the time. If the Fintech reaches its ambitious goal, it would rise to become one of the largest German banks and the most dominant credit card provider in the European market.

    Coronavirus changes banking habits

    Due to the lower consumption in the current situation, transaction revenues also declined for N26, but at the same time the company has been seeing growth in premium credit card customers for months. This shows that more and more people have their main account with N26, said Hauer. 

    The traditional loyalty to the long-standing house bank in Germany is declining: “Covid-19 is just managing to change habits that have not changed for a long time. In the early days five years ago, the average N26 customer was in his mid-20s – meanwhile, the average age has risen to mid-30s, “with an upward trend”.

    Roadmap to global expansion 

    In the coming months, the company will continue to invest in the expansion of the 24 European markets as well as the USA – where it is currently the most successful European challenger bank. In addition, N26 is laying the foundation for its next market entry and is currently applying for a FinTech license in Brazil.

    Competition is growing – N26 must catch up

    N26 will face the dilemma of growth in the future: In new markets, preparing for market entry is complex and expensive, as demonstrated not least by its withdrawal from the UK. And in existing markets, the bank must invest heavily in advertising.

    The online marketing channels of Google or Facebook offer only limited opportunities. After all, former high-ranking employees say that a customer should pay off after one year. One way out is to invest in the brand. In concrete terms, this means, for example, launching poster campaigns – and N26 is doing this massively. In many German cities, even medium-sized ones such as Hanover, the advertising of the smartphone bank can be seen. 

    The disadvantage is that the marketing effect cannot be attributed precisely to a customer that has been acquired. Moreover, scattering losses must be accepted. “In most markets, we acquire almost two thirds of our new customers through recommendations. Even in our established growth markets, such as Germany, this figure is still 50 percent,” says N26 with CNBC, however.

    Conclusion – N26 on the bring to revolutionize global banking

    In conclusion, the competition is growing strongly. In the USA, several billion startups now offer a debit card, including Coinbase and Acorns. In Europe, players such as Klarna and Wirecard are entering the market with Boon Planet. The high ratings of Revolut, N26 and Co. are likely to influence the product strategy of the other players. This will drive up marketing prices: Boon Planet, for example, is already advertising the search term N26 in the Appstore.