Unpacking N26

Read time: 3 minutes

GM! It's Friday, May 26th - Today we're unpacking why one of Europe’s fastest-growing companies gave up on its plan for US domination.

Let’s dig into N26!

THE FEATURE

This Neo Bank Just Failed In The US…

European neobanks, financial institutions that operate solely online, have struggled over the past year with the European tech industry losing $400B in value, causing the collapse of neobanks Rukky and Bank North.

While unfortunate, it cleared the playing field and enables us to see the frontrunners more clearly. One of which is the German online bank N26, which saw a drop in its value from $9B in 2021 to $3B today.

Let’s look closely at N26 to see how their business model kept them afloat while other online banks sank.

So, What’s the Business?

N26 was founded in 2013 and raised $1.7B across 11 funding rounds from investors like Tencent, Peter Theil’s Valar Ventures, and Allianz X.

What enticed investors was a fully online banking system with global capabilities that offered users fast and free accounts.

In 2021, when N26 was valued at $9B, it was worth more than Germany’s second-largest bank and drove $230M in annual revenue through a multi-tiered subscription model.

• “Free” accounts: 1.7% forex fee when withdrawing money abroad and ATM fees if more than 3 withdrawals in a single month.

• N26 Smart (€4.90/Month): Issued an N26 debit card with 5 free ATM withdrawals and customer support phone calls features.

• N26 You (€9.90/Month): This card allows free withdrawals abroad as well as multiple travel insurance options.

• N26 Metal (€16.90/Month): 8 free ATM withdrawals, purchase protection, and zero foreign transaction fees.

While this subscription model generates substantial revenue, users can still have a totally free experience if they are careful about how they use N26’s entry-level account.

N26 and other neo banks can offer users a more affordable banking experience since they don’t have the overhead costs of physical branch networks.

How They Win: Appealing to Tech-Savvy Consumers

Traditional banks have deployed their own mobile apps, but N26’s completely online platform gives them an edge in appealing to digital natives.

N26’s mobile app has a wide array of features that make it a one-stop shop for managing all financial needs: Budgeting Tool, Spending Habits Insights, Split the Bill, and N26 Insurance.

Freelancers and self-employed consumers also flock to N26 for their business accounts that have streamlined accounting functions. One accounting feature can even provide you with an AI-driven overview of your business expenses and growth trajectory.

Key Observations

N26’s drop in valuation was due to the burst of the European tech bubble and the closing of their US branch.

However, the closing of its US branch will likely drive profitability in the company as it can transition its marketing resources towards a European consumer base which is easier to appeal to with its business model.

Europeans travel between their interconnected countries frequently and are much more likely to opt into subscription models for free foreign transactions than their American counterparts.

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