If you don’t have the right strategy to solve a Rubik’s cube, you will probably fail. If you do, it’s a piece of cake. N26 CEO & Co-Founder Valentin Stalf believes that the same goes for FinTech, and claims that his company has the right strategy. (A Rubik’s cube consists of 26 small cubes, hence the company’s name).
N26 is one of a handful of Berlin startups daring to dream big and think outside their ecosystem. It definitely takes courage to launch an all-digital banking product in Germany’s cash-centric marketplace, but it’s even more daring to have global visions for disrupting the traditional banking sphere. Valentin and his team are setting new standards in FinTech, and step by step coming closer to their original mission: to become one of the top FinTech companies worldwide.
No doubt, they must be doing something exceptionally well. Since their launch in 2015, the company has evolved from an emerging startup to a fully-licensed bank, operating in 17 European countries with over 300,000 customers.
We’ve recently visited Valentin in N26’s outright geeky office (to be fair, the platform’s source code is printed on the carpet), to chat about MVPs for banks, machine learning and Brexit.
Everyone talks about the lean startup and minimum viable product, but launching a new bank doesn’t sound easy. What were the most difficult obstacles you had to tackle when starting the company and how did you manage to find shortcuts?
It took us 12 months to launch our first product. In other industries these 12 months could have easily been avoided. Let’s take e-commerce —you can build your own website, put your product online, ship it yourself, and there you have your minimum viable product (MVP). In FinTech, it’s really different because you can’t just fake it till you make it. The most difficult thing is to build the MVP, and by the time you’re ready to launch your product, it is by definition no longer an MVP, because by then you have to have your regulatory set-up and all partners in place. While in other industries the state of technology is critical, in FinTech you need to meet all regulatory requirements connected to your financial services.
Before acquiring our own banking license, we decided to cooperate with a partner bank. They brought us the regulatory framework, and more importantly, they were ready to take the risk with us. I have to say, being taken seriously by big and established banks in the early stages can be a tough ride. The reality is that most of them will refuse to talk to you, so it’s important to build the right angel network around you. We were lucky enough to have that.
Banking through an app is revolutionary, and a great marketing tool at the same time. Would you rather define N26 as a traditional bank with digital elements, or a truly digital bank?
We never looked at traditional banks in order to build an improved version of their mobile apps. We wanted to go further, challenge the status quo and build something that doesn’t even remotely come off as traditional banking. As we had to start from scratch, our inspiration came from truly digital companies, Spotify, Uber and the likes.
Are you planning on injecting more innovation into N26, for example introducing Bitcoin or experimenting with AI?
I think Bitcoin is a very theoretical thing. If you look at our potential customers in Germany, the end consumer doesn’t really use Bitcoin today. We are looking at the technology behind it, but we believe that there are other, easier ways to make banking better.
On the other hand, AI and machine learning are key to what we’re doing. We started out with a niche product, but over time the services we provide compete with those of any other bank. We’ve already introduced credit and investment products, and by the end of 2017 we’re planning to roll out new savings products too, so we’ll cover the full feature set you would expect from your bank. Of course, introducing more features also leads to more complexity. Now our big challenge is to highlight the relevant offerings to our users out of the endless options. This is where machine learning comes in to ensure a great user experience.
Another field where we’re currently experimenting with AI is fraud protection. We look at our users’ typical spending pattern and try to detect fraud and block fraud actions before they actually take place—a piece of technology entirely based on machine learning algorithms. We’re setting new standards here.
Berlin lags behind other European cities when it comes to card payment and has one of the most outdated banking markets. Was it a conscious decision to start the company here?
Although card payment might not be as popular in Germany as it is in the UK or Scandinavia, everyone here owns a bank account, so the market potential is huge. We felt that the user experience with German banks is particularly poor, and customers often feel ripped off by banks, so it was a conscious choice to set up shop here and offer an alternative.
I think part of the problem we encounter in Germany is that until very recently vendors were charged with a fairly high fee for each card transaction. Recent EU regulations reduced this fee, which means now it’s much more affordable for merchants to accept card payment. We already see that this is contributing to a massive trend towards accepting card payment. Let’s face it, today, there is no valid reason to use cash over cards.
You’ve recently acquired your own banking license. What’s next?
We are fully independent now, which means everyone who has an account with us is a full N26 customer without being attached to any other bank. Our mission for 2017 reflects this change—going from a niche player to a platform for all financial services, from savings, credits to investments and more.
In FinTech there are so many companies that produce great products in a specific niche, and our idea is to combine the best players. Before we launch a new product, we always look at the market. If there are other banks and service providers who have a great product that we can leverage, we partner up with them, like we did with Transferwise. However, if we think we’re in the position to launch an even better product that has superior value to our customers, we just do it on our own. Bringing these products together with ours creates an undeniable advantage for N26 users, accumulating all the latest innovations in one place.
Your vision is to become the first truly pan-European mobile bank and you’ve recently expanded your market in Europe. Are you planning to launch in the UK anytime soon?
Having a banking license that is valid across Europe provides us with the massive opportunity of serving all EU countries, and bringing digital banking to millions of customers. We believe that it’s time for a truly pan-European bank, a bank without borders if you will. We’ve recently launched in 15 new countries, which has brought us closer to our vision.
Regarding our expansion to the UK, this is something we’re currently looking at, and hope to enter the market in 2018.
What are the major trends in FinTech you forecast for 2017?
The FinTech market in mainland Europe is still not mature. Most transactions happen offline, there’s a lot of bureaucracy and hassle with paperwork. There are a lot of low-hanging fruits (banking products that have already been present in the US for several years), unused potential, and even more frustrated customers. I can see a clear trend towards mobile, and enabling customers to make informed and easy decisions on their phones. I also think we will see lots of new companies both on the investing and financing side.