What Neobanks Can Learn From N26’s American Failure

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Earlier this month, the Germany-based digital bank N26 announced its decision to wind up its operations in the United States. 

The digital bank has more than 500,000 customers in the American market, and they will no longer be able to access the app from January 11 next year. The fintech company, which achieved a market value of $9 billion in a recent funding round, wound up its U.S. business to concentrate on its core European business.”

While the company justified its market exit decision by arguing that’s strategy was to prioritize markets and investment, experts say this incident is a lesson for other neobanks and fintech firms in an industry witnessing increasing competition.

In an interview with Forbes in 2019, N26’s CEO Nicolas Kopp had said that his company sought to better the “poor” mobile banking experience in the U.S. According to Kopp, the company also wanted to eliminate hidden accounts and overdraft fees that American consumers faced at that time. N26 could reduce costs for customers by not charging any monthly fees and requiring no minimum balance, no fees for ATM transactions, and an overdraft. Kopp had further stated that the product differentiation offered by N26 was new to the American market and sought to acquire customers through paid channels.

It is argued that the seeds of N26’s failure in the U.S. were sown even before the launch of the services in the market in 2019. It has been argued that N26’s judgment that Americans hate their banks and the poor banking apps was misleading. 

According to an analysis of S&P Global, mobile applications of American banks offered 18 value-added features in addition to the basic transactional features. The report noted that, on average, 16 of the 18 identified value-added services are offered in their apps by the major U.S. banks – Bank of America, JPMorgan Chase, Citibank, and Wells Fargo.

Further, the 2021 American Consumer Satisfaction Index (ACSI) found that national banks of the company performed best on mobile app quality and had a score of 84.

Further, it was also noted that the websites of all the banks in the U.S. display a schedule of their fees. Likely, customers do not read those. But such fees should not be classified as ‘hidden’.

Other assumptions of N26 of no product or segment differentiation by American banks and insufficient marketing were also likely misleading.

The N26 saga in the U.S. leaves enough scope for all neobanks to take a lesson.

All digital banks seeking to challenge conventional banks need to go for product differentiation based on customer experience. It is also important for neobanks to know the target market and seek to create a community such that the differentiated products and services offered are best suited for the community being targeted.

Neobanks also need to consider the fact that traditional marketing is not dead yet. Referral marketing remains an important element of the marketing mix, and old-fashioned advertising is still required for awareness creation in a competitive and crowded market.

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