A German mobile banking app is expanding to offer current accounts to users across eight eurozone countries, joining a handful of other digital lenders that have launched across Europe at a time when conventional banks are facing increasing competition from financial start-ups.
Number26, a Berlin start-up which has received investment from PayPal co-founder Peter Thiel’s Valar Ventures, announced on Thursday that the app would be available in France, Spain and four other eurozone states in addition to Germany and Austria where it launched earlier this year.
Its entry into other European markets follows the launch of Germany’s digital-only Fidor bank in the UK in September, while BNP Paribas’s Hello Bank operates in five eurozone countries.
Because digital-only banks lack the resources of their more established counterparts, they have to push into new markets to reach scale quickly, analysts say.
Aurelie L’Hostis, analyst at Forrester Research, said: “It’s difficult for these digital-only mobile-centric banks to reach scale. They start from scratch so they have to gather a certain number of customers to reach profitability.”
With less to spend on marketing than traditional banks, digital lenders have resorted to innovative techniques to win customers. Fidor, for example, raises the interest rate on savings accounts according to the number of likes it receives on Facebook.
Despite public anger at the established banks following the financial crisis, customers’ conservatism when it comes to financial products makes winning business an uphill struggle for banking start-ups.
Alistair Newton, analyst at Gartner, said: “If you want to change behaviour in financial services, you have to do one of two things, you either have to incentivise customers financially, or offer them something that’s more secure or convenient. The customer experience has to be world class.
“We’ve seen it with Apple Pay. It’s great new technology but the customer is not incentivised to use it.”
The big banks have also responded to the challenge from start-ups by simply buying up their competitors. Spain’s BBVA acquired US digital bank Simple for $117m last year and took a nearly 30 per cent stake in UK digital lender Atom last month.
In Germany, Number26 allows customers to deposit and withdraw cash at the checkout counters of partner shops. About 3,000 stores in Germany have signed up to the scheme.
Customers are also able to withdraw cash from bank ATMs using a MasterCard, and have access to an overdraft facility.
Valentin Stalf, co-founder, said the company, which has 80,000 users in Germany and Austria, wanted to build “the first pan-European bank”.
Analysts are sceptical about the strength of the company’s business model, warning that it faces a squeeze on revenues from card fees following the introduction of EU regulation.
The Interchange Fee Regulation, which came into force in June, makes card payments cheaper for retailers but reduces payment related revenues for card-issuing banks.
Mr Newton said: “If you have a business model that is based on revenue that is headed downwards — from the outside, you’re scratching your head and asking: how is that going to work?”
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