The banking sector has undergone a profound transformation that has reshaped its very foundations. Who could have imagined a time when individuals could manage their finances entirely through smartphone apps like N26? However, this seemingly strange concept has now become the new normal.
This transformation can be likened to a revolution, and at the forefront of this revolution is the innovative entity known as Neo Bank.
Neo banks have emerged as a disruptive force in the banking ecosystem, customers no longer need to deal with cumbersome paperwork. Instead, you can have financial services at your fingertips.
As a result, the global neobanking market reached a substantial value of USD 66.82 billion in 2022. The projections indicate a remarkable compound annual growth rate (CAGR) of 54.8% from 2023 to 2030.
The onset of the COVID-19 pandemic further fueled this growth, as people increasingly relied on online banking services. Notably, in 2020, Indian neobank startups secured over USD 200 million in funding, exemplifying the sector’s rapid ascent.
If you’re inspired by the remarkable success stories of neobanks like N26, Monzo, or Revolut, then this blog is an invaluable guide for you. Through a comprehensive analysis, we aim to uncover the secrets behind N26’s business model, to help you develop your platform based on these learnings.
So, let’s begin!
In 2013, Valentin Stalf and Maximilian Tayenthal founded N26 as a fintech startup, initially named “Number 26.” The goal was to provide prepaid cards for teenagers, controlled by parents. By 2014, the team realized the need to pivot. The real-time connection between the card and the app was a hit, signaling an opportunity to challenge traditional banks.
Despite facing numerous challenges and initial skepticism, the N26 team accomplished a remarkable feat by securing a banking license in Germany within a mere year of its founding. This achievement, which many deemed nearly impossible gave a new vision. The company rebranded as “N26” in July 2016, a remarkable moment in its evolution as it embarked on a journey to redefine the future of banking through digital innovation.
1.Rapid Expansion and Valuation (2017-2019)
N26 expanded its digital banking services across Europe, amassing a growing customer base. In January 2019, it raised $300 million in a funding round, achieving a valuation of $2.7 billion, surpassing competitors to become Europe’s most valuable mobile bank.
2.U.S. Entry and Further Funding (2019-2020)
The U.S. market beckoned, and N26 made its soft launch in July 2019, partnering with Axos Bank. Additional funding rounds followed, extending its funding and valuing the company at $3.5 billion. However, in February 2020, N26 announced its withdrawal from the UK due to Brexit-related regulatory changes.
3.Internal Developments (2020-2022)
N26 continued to evolve internally. Subsidiaries elected works councils in late 2020. In 2021, experienced executive Jan Kemper joined as CFO, later taking on the role of COO. In October 2021, N26 secured a significant $900 million in a funding round, reaching an impressive valuation of $9 billion.
4.Exit from the U.S. and Legal Changes (2021-2022)
In November 2021, N26 announced its exit from the U.S. market, opting to concentrate on its European core business. In a major move in November 2022, N26 changed its legal structure from a German Limited Liability Company (GmbH) to a German Stock Corporation (AG). A new five-member board of directors was appointed, signaling further changes on the horizon.
5.Rising from the Ashes of Past Challenges
N26 continues to captivate with its dynamic expansion strategies. In a move that showcases its relentless global ambition, N26 unveiled its presence in Brazil in May 2023. This momentous launch follows the company’s earlier announcement of its entry into the Latin American market in 2019. N26’s ability to navigate complexities and overcome setbacks helps it consistently push the boundaries of digital banking. This also demonstrates its unwavering commitment to providing innovative financial solutions on a global scale.
Being a financial solutions provider, N26 operates as a platform that seamlessly integrates various elements into its business model.
To better understand its approach, let’s delve into the N26 business model canvas.
Now that you understand that N26’s business model reflects a holistic approach to delivering an efficient digital banking experience. Going ahead, let’s explore how N26 makes money.
While N26 is seen as a big challenge, the way it earns money is quite similar to traditional banks. In 2021, N26 went beyond its basic banking and payment systems, adding new services to generate revenue. This broadened their sources of income in the sector.
Now, let’s break down how N26 makes money.
N26 earns its primary income from various subscription plans for both individuals and business users. There are four main plans:
N26 collaborated with insurance robo-advisor Clark. to provide various insurance plans, covering areas like liability, legal, household, automotive, health, disability, and more.
Users who haven’t subscribed to N26 Metal can opt for these insurance plans separately. N26 earns a minimum of €4.76 per insured product. In the insurance realm, N26 acts as an intermediary, connecting users with traditional insurance brokers.
3.Interest On Cash Deposit
N26 follows a conventional banking practice of utilizing user account deposits by lending them to other financial institutions, earning interest known as Net Interest Margin (NIM).
A portion of this interest is shared with users as savings account interest. N26 offers up to 1.38% interest on cash held in its savings accounts, aligning with standard banking practices.
N26’s revenue stream includes loan interest. The company provides personal loans ranging from €1,000 to €50,000 through its N26 Credit division, with repayment periods spanning 6 to 48 months. N26 profits by applying interest rates on these loans, ranging from 1.99% to 19% per year.
Also, N26 has partnered with auxmoney, Germany’s leading loan marketplace. This expands loan options for users and increases their income from interest charges.
5.Buy Now Pay Later
N26 participates in the popular “Buy Now Pay Later” trend, a concept favored by many fintech companies. Users can split expenses up to €500 into 3-6 month installments. N26 generates revenue from this service by imposing an annual interest rate, which ranges from 7.49% to 11.99%, determined by the user’s credit score.
1.N26 partners had flexibility in their vision
N26 didn’t start as a digital bank. Initially, they aimed to provide prepaid cards for teenagers, managed by parents. But when they noticed parents were using it for themselves. They swiftly adapted to the idea of becoming a digital bank, focusing on user-friendly mobile banking.
2.N26 addressed the problem customers had
N26 understood the importance of solving real customer issues. Instead of assuming what customers needed, they identified common frustrations and inconveniences people faced with traditional banks. This customer-centric approach guided their development.
3.Focusing on creating value, not a buzz!
N26’s success wasn’t built on flashy gimmicks but on creating genuine value. They leveraged the technology intending to simplify banking. They also offered a more cost-effective, flexible, and user-friendly alternative to traditional banks. This focus on real value helped them acquire customers efficiently without excessive advertising.
N26’s journey is an inspiring one that has appreciably impacted the fintech industry, transforming the way people bank. We have covered all the significant aspects from how N26 works, and its revenue model, to its business canvas for your understanding. So that you can embark on such a venture effortlessly.
For those interested in building similar apps like N26, Apptunix offers valuable expertise and assistance. We provide a wide range of services to empower your development journey.
Apptunix is a trusted partner, where vision becomes a digital reality.
Get the weekly updates on the newest brand stories, business models and technology right in your inbox.
Suite #304, 11200 Manchaca, Austin, Texas, US, 78748
#2011, Floor 20, Burjuman Business Tower, Dubai.
If you want our experts to help you with software or app development, just book a call!