Germany-based challenger bank N26 announced on 11 February that it is closing all its UK accounts, citing Brexit-related challenges. Although on the face of it this appears to be bad news for the UK, Gregory Magana for Business Insider reports that its withdrawal has led to “surges in transfers and customers” seeking a replacement bank.
According to Magana, UK challenger bank Monzo saw a 250% spike in payments from N26 accounts on 11 February, while Monese saw a “200% swell in incoming payments from N26” on the same day.
Starling Bank has also seen a rise in customer numbers since the announcement. This is on top of a “burst of momentum” that it is enjoying right now, following the announcement on 10 February of £60m capital raised from existing investors Merian Global and JTC. Plus, Magana reports, it has reached 1.25 million accounts and £1.25bn in customer deposits.
However, Magana warns that the “sudden exit could cut both ways”, potentially shaking “UK consumers’ conception of the stability of neobanks” by instilling doubt about how long they will stay in business.
Business Insider article
Launching in the UK
The N26 news has not discouraged Italian digital financial services company FinecoBank from increasing its presence in the UK market, according to an article for AltFi by Aisling Finn.
Finn quotes Alessandro Capuano, head of global brokerage at FinecoBank, who says that while Brexit will make it more complex to launch in the UK as a European fintech, it is “not impossible”.
The bank “offers in-app trading services” that trade “across 26 markets, in more than 50 foreign exchange pairs”, and enables clients to "hold 13 different currencies in one account with no fees”, writes Finn. It is in talks with the UK’s banking regulator to open its first branch in the country. Capuano says that while they “only have a small customer base in the UK at the moment”, FinecoBank’s business model means they have “more longevity” than others, because it “started as a trading platform, then an investment platform and later a bank”, while “challenger banks are doing it the other way around, which is easier to sell and easier to acquire clients, but we don’t think that that type of approach is generating enough revenue. Investment and trading [are] helping justify the effort to launch in the UK”.
AltFi article
Expanding in the UK
Meanwhile, Monzo is looking to expand its workforce by a third and relaunch its premium accounts, writes Robin Amlot for IBS Intelligence.
The expansion will take its overall headcount to around 2,000. Amlot refers to a Reuters article that quotes the bank’s CEO Tom Blomfield as saying that the premium accounts will be relaunched before the end of Q1 2020. The bank is also, according to Amlot, forecasting to “have 5.5 million users by end-2020”. The premium accounts had previously received criticism for their complexity, Amlot reports.
Blomfield is also reported to have said that Monzo plans to list its shares within three to four years. The challenger bank isn’t yet profitable though, and Ian Bradbury, chief technology officer for financial services at Fujitsu UK, is quoted: “Monzo’s challenge is to now monetise this brand value by getting its customers to voluntarily pay for its services – rather than take the traditional bank route of making good returns from investing its deposits. This will be a challenge in a world where many banking services are still ‘free’.”
IBS Intelligence article
Should N26’s UK withdrawal serve as a warning sign to the challenger bank sector, or is this an opportunity for others to shine? Leave your comments below.
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