N26: a German Fintech at the GEM Audit and Finance Bootcamp

The participants of the GEM Audit and Finance Bootcamp on September 19th must have heard of N26; a Neo-bank founded in 2013 in Germany. Two representatives of this company were present at the event: Max Schertel, Head of Business Operations, and Jeff Lovejoy, Global Future Talent Programme Manager. This article reports an interview with them and introduces some interesting subjects they mentioned over the various conferences during the Bootcamp.
M. Schertel introduced himself as a GEM alumnus. He studied in the MIB program in 2014 and joined N26 after graduating in 2015. For him working at N26 was an obvious choice after a rather dissatisfying experience with the traditional French banking system. M. Lovejoy has joined the company more recently.
They presented the company, explained its $3.5 Billion valuation, and showed us why it is a budding venture start up. N26 had around 3.5 million customers in June 2019, which should have further increased today since it is “the fastest-growing mobile bank” (N26, 2019). An indicator of this growth is the expansion plan the company has for the future. It has new offices in Sao-Paulo and will launch there by next year. This could be a good strategy in view of the current situation of banking in Europe. They are also getting into the US neo-banking market, further diversifying their clients’ portfolio.
Their success can be attributed to their capacity to disrupt the traditional banking industry. They identify themselves as the “Netflix of Banks” and keep focusing on innovation as a strategy to compete with the traditional banking industry. Examples of upcoming innovations for their application are the following: improving notifications on future expenses (e.g. rent, bills, and other recurring fees), giving access to more transaction inventory, improving the warning systems on suspicious money transfers and having a better system to validate these transactions.
The effectiveness and user-friendliness of their mobile application is essential since, as a Neo-bank, they do not have local branches to meet their clients. Everything can be done through their app, like paying directly with your smartphone, opening an account (in less than 8 minutes!) and managing your overdraft. M. Schertel took this last example of the overdraft management system to demonstrate how N26 is more transparent than traditional banks. They clearly show each client’s credit rating and fees directly on the app. N26 also let the users choose the maximum overdraft amount on their own.
The possibility to open an unlimited number of accounts and share some of them with friends, roommate, etc., access to special discounts and offers with some of the bank’s partners (e.g. the partnership with lime that enables their premium users to have 50% off on all Lime services) are some additional advantages for N26 clients. The quality of services they offer to consumers and their availability in multiple languages is a key advantage they have over traditional banks.

Questions asked at the conference and during the interview:

Getting to know N26:

Who are N26’s main competitors?

The traditional banking industry is N26’s main competition since it holds the majority of their potential consumers in Europe. The neo-bank considers other Fintech companies as a lesser threat.
The strategy N26 is adopting to cope with this competition is through innovation. They also want to increase the notoriety and trust customers have in their product through digital and brand marketing, which impacts the younger generations the most.
Their low fees make them an interesting alternative to traditional banks. This is especially true in France where banking fees are higher compared to other countries such as Germany.

Who are N26 customers?

Although N26 knows it has to target the generations which would not be reluctant to manage their accounts on their smartphones, they still have more senior customers. The average age of their users is around 31.
N26 users are mainly individual customers. They are not yet present in the B2B banking sector, although entrepreneurs could represent a future target.

How does N26 make money?

Most of the company’s revenues come from fees paid by consumers on financial products (e.g. overdraft services). It is also important to keep in mind that their expenses are lower than traditional banks since most of the activity is online. The company has a low risk activity since it provides only limited lending services. In other words, one can expect their revenue to be rather stable.
They insisted that the revenue generated was not the primary focus of their bank.

How will N26 be impacted by the fall in interest rates?

M. Schertel thinks the situation could turn to their advantage. As a venture funded company, they are not as dependant on generating revenues based on an interest model.
Low interest rates add pressure on the traditional banking industry’s revenues. The sector has also seen its margins reduce over the years. Since N26 considers the traditional banking industry as its main competition, they might benefit from this situation.

Does N26 also have an investment branch?

N26’s activities are centred around bank accounts and credit cards for now, but the representatives of the company did not exclude the idea of developing investing activities through future partnerships. Other aspects of their business are performed by partners such as the data migration from a previous bank to their system when a new customer opens an account. The reason they use this strategy is for simplicity. Every country they operate in has its own regulation, which would require them to treat each market differently. Having local partners taking care of a set of tasks in their home country saves them time and effort to research all banking and data protection rules of markets they want to enter.

Working at N26:

Is N26 hiring? For what type of jobs?

N26 is looking for recruits in any division, including their tech and customers relations teams. They recruit around 100 students per year. M. Lovejoy recommends those who are interested in working with them in the long run to start with an internship as they are more accessible. Most interns are then offered a permanent position.

What is their ideal candidate profile?

The recruitment team is not necessarily looking for people with a heavy finance background (except if the position requires it). They look at candidates’ problem-solving abilities, autonomy, and motivation. They pay close attention to candidates with the “start-up attitude” who will be able to figure out solutions on their own instead of waiting for their senior to provide an answer. They need dedicated employees who can cope with the pace at which N26 is growing.
They attract applicants through their start-up working culture and something essential M. Lovejoy said: when applying for jobs, you have to ask yourself “Do I think my manager will support in my growth?”.

Is working in a Fintech different than working in the traditional banking sector?

There is some stress in every type of jobs but the kind of stress you get in N26 can be different. N26’s hierarchy is quite flat, similarly to other start-ups. The work environment is therefore very different than in larger banks and financial institutions. Simply put, if you choose to work at N26, you will be given more autonomy and will have less pressure coming from your superiors. There is also less distance between management and employees. Everyone is approachable thanks to the company’s “start-up spirit”.
However, more autonomy means that more will be expected from you. You will need to learn how to find solutions on your own.

How long can an internship at N26 last?

N26 is flexible when it comes to internships and their duration. However, since the company is growing and is receiving more and more applications, this is going to change. Future projects in HR include the elaboration of a 6-months training program in partnership with Code Academy in Germany for example.

What is the application process?

M. Lovejoy and his colleagues in the HR division check applicants’ CVs and call them for a first interview. There are other rounds of interviews and panel interviews in some cases with the heads of the department’s applicants wish to join. Students may be asked to complete case studies and tests evaluating both their qualitative and quantitative skills.
As representant of the HR department, M. Lovejoy advised applicants to network with N26 employees if they want to stand out.

What challenges did M. Schertel and M. Lovejoy face as N26 employees?

One great challenge was linked to the company’s rapid growth. When M. Schertel started working at N26, there were only 20 employees and no clear hierarchy. But as the company grew larger so did the need for more structure. This required more management skills that employees had not necessarily learned about before.
Expansion of activities in other countries also meant stepping into new markets they did not know well, hence the need for local partners to be integrated in the solution.

Strategy questions:

Is the absence of physical branches locally an issue when entering emerging markets?

Although they acknowledged that the culture in some countries might differ and require them to re-think their strategy, they do not believe that physical presence locally is always necessary.

Does N26 plan on entering the Asian market?

This would represent a great opportunity for the company which is very dependent on the European economy today. However, N26 is not ready to enter markets such as China and India because of the tough competition in their Fintech industry, and because they would rather expand in countries they know better first (e.g. the US and Brazil). In addition, the Chinese market is very protected which makes it even more challenging to enter.
But they do not rule out the idea of ever expanding in Asia in the future.

What are relationships to shareholders like?

As a venture start up, N26 had to pitch its ideas and convince initial investors of their long-term viability. The next stages depend on the ability of the company to network and find VCs with larger capital to invest. N26 is at a stage where they need larger investments to fund their growth. It is tough to have this kind of investment from Europe. This is how the Chinese company Tencent became their main shareholder.

Deutsche Bank recently invested in another Fintech. Is this a threat?

According to M. Schertel, this demonstrates that traditional banks realised that they need to improve their services. He is not worried. It means they were right about the usefulness of their product in the first place.
In addition, traditional banks have a slower decision-making process than a start-up. He doubts Deutsche Bank will be able to fully integrate this new partner into their solution and therefore feels like N26 can always be one step ahead.
Lastly, he thinks going public would suit N26’s culture better than if they were acquired by a large bank. He is not worried about this kind of take-over since N26’s valuation is now around $3.5 Billion, which would be a lot of money to invest in a Fintech company.

How do you deal with regulation?

Since their activities are limited to consumer banking, they do not have to worry too much about regulation. Most of the rules they need to comply with are about protecting their clients’ capital and privacy.
This is a key issue today since, according to a BFM Business article published in September 14th, the 3D secure system supposed to protect consumers capital by securing bank transfers is obsolete, leading to an 144% increase in the number of frauds since 2010. This pushed the EU to impose tougher security standards through the DSP2 directive adopted in 2007. Measures decided under this directive were supposed to be in place since September 2019, but many European bank are still not ready to comply. N26, however, developed the right technology “in two months” according to M. Schertel.

In conclusion, N26 is a promising fast-growing start-up. They are defining the new age of online banking. They will recruit some interns for this summer, so watch out and get your CVs ready!

Florianne ROMANET