In the past Start-up banks have proven in the past year that they can interrupt private customer business. These challengers have amassed a war chest, announced ambitious international expansion plans, and attracted millions of customers.
However, building a bank has proven to be even more difficult than building a startup in general. Retail banks are unwilling to sit back and watch startups at lunch. Here's a look back at the biggest moves of the challenger banks of the year, some trends to keep an eye on, and the challenges ahead for these startups.
A year of aggressive growth
Due to the regulatory framework and the size of the market, it is much easier to set up a challenge bank in Europe than anywhere else in the world. That is why Challenger banks have been successful in Europe.
If a company receives a full banking license from the central bank of an EU country, the startup can show its license in all EU countries and operate across the continent.
N26 raised a lot of money in 2019: last January, the Berlin startup announced a $ 300 million round of financing, which raised another $ 170 million in July. The company is now valued at $ 3.5 billion.
With more than 3.5 million customers in Europe, N26 has announced ambitious expansion plans. N26 is now live in the USA and is already planning a start in Brazil.
Revolut has also grown aggressively to beat its competitors in new markets. In addition to its home market in the UK, Revolut is available across Europe. In 2019 the company expanded to Singapore and Australia and currently has at least 8 million users.
While Revolut announced that it would be launched in the United States and Canada at the end of last year, the clock ran out according to this forecast. The startup was very transparent about its expansion plans, though sometimes it means that you have to wait months or even years for a full rollout.
For example, Revolut announced in September 2018 that it will be launched "in the coming months" in New Zealand, Hong Kong and Japan. Later it became "early 2019", then "2019". India, Brazil, South Africa, Mexico and the USA The UAE was all mentioned at some point. In other words, launching a banking product in a new country is difficult.
The U.S. is a boring market because you need a license in all 50 states to do business across the country
Monzo The company held up well in the UK. It has attracted 3 million customers and raised £ 113 million (approximately $ 144 million) from the Y Combinator & # 39; s Continuity Fund last year. It expands to the US, but the rollout was slow.
Nubank is another well-funded challenge bank. With support from Tencent, the startup has collected a $ 400 million Series F round from TCV. According to the WSJ, the startup has a valuation of over $ 10 billion.
Nubank, originally from Brazil, expanded to Mexico and plans to expand to Argentina.
Chime is increasingly looking like the larger player in the U.S. who recently raised a $ 500 million round of funding and reached $ 5.8 billion. It only works in the United States
Starling Bank and Atom Bank only operate in the UK. Bunq is based in Amsterdam and has a product specially developed for the Netherlands. However, it accepts customers across Europe.
This is not an exhaustive list as it is becoming increasingly difficult to cover all Challenger banks.
Subscription-based business model
There are some basic characteristics that separate challenger banks from old retail banks. Registration is very easy and only requires a mobile app. The mobile app itself is usually much more sophisticated than conventional banking apps.
Users receive a Mastercard or Visa debit card that communicates with the company's server with every transaction. This allows users to instantly receive notifications, lock and unlock their cards, and disable some features such as international payments, ATM withdrawals, and online transactions.
Challenger bank customers typically do not promise a premium fee for foreign currency transactions. However, there are sometimes restrictions on this feature.
How do these companies make money? When you pay with your card, banks charge a tiny exchange fee for every transaction. It's really small, but it could generate serious revenue for tens of millions or hundreds of millions of users.
Challenger banks also offer other financial services such as insurance products, foreign exchange or consumer credit. Some challenger banks develop these functions in-house, but many of these functions are actually managed by external fintech employees Partner. Challenger banks generate a commission for these products.
However, the most promising product is premium subscriptions. While challenger banks started with free accounts and low, transparent fees, they sold premium subscriptions for a fixed monthly fee.
Challenger banks have become a software-as-a-service industry with a freemium component
For example, Revolut offers premium accounts for € 7.99 a month with higher limits, some insurance benefits that you would expect from a premium card, and access to advanced features such as cryptocurrencies and one-way virtual cards. For € 13.99 there is a super premium product called Metal with a metal card design, cashback for card payments and access to a concierge function.
This seems a bit counterintuitive, but premium subscriptions have done well, according to talks with industry employees. You pay a lot of subscription fees to avoid low transaction fees. (And you also get a cool card.)
Challenger banks have become a software-as-a-service industry with a freemium component. This leads to premium positioning and high customer expectations.