App-only bank Number26 doubled customers in 5 months - its CEO says he's building a bank like 'Uber or Spotify'
CEO and founder Valentin Stalf shared the figures with BI at the Money2020 Europe conference in Copenhagen this week.
It means Number26 has effectively doubled since launching across France, Greece, Ireland, Italy, Slovakia, and Spain in early December. Back then, the bank had 80,000 customers. The startup, which aims to create a "borderless bank" in Europe, only opened to the public last January.
While it's still a tiny number of customers - Deutsche Bank has over 27 million customers for comparison - it makes Number26 one of the fastest growing banks in Germany. Growth is accelerating too: it took a year to reach 100,000 but at this rate it will add 240,000 new customers this year.
PayPal co-founder and renowned Silicon Valley investor Peter Thiel is an investor and Number26 was also named as one of the hottest fintech startups to watch in this year's Fintech 50 list.
The startup is one of a number of app-only banks, known as "neobanks", that are springing up ac cross Europe at the moment. In the UK there are at least four likely to launch this year: Tandem, Atom Bank, Mondo, and Starling.
Stalf sat down with BI at Money2020 Europe to explain how Number26, founded in 2013, is building a mobile-focused bank, funding and expansion plans, how it wants to create a marketplace for financial services, and more.
BI: How is Number26 different from traditional banks?
What we've been doing is banking as it should be in 2015 and 2016. We try to reimagine how a bank should work and we tried to build something that is like using Uber or Spotify or any of these apps you love to use. We said first it should be mobile and secondly, if you use it, it shouldn't be something that you hate.
Also, we've spent a lot of time on how can you be more efficient in building or doing banking in general. If you look at a traditional bank they've got a big branch network and they're using technology out of the 1980s. We tried to make a backbone, together with the app that we have, that is much superior to the traditional banks and give you a product at a free price for the base account and then be much superior in the things we build around that.
We started with a fairly niche product - an account and a card. Now we've gone from there to a fintech hub around that where we try to leverage all the innovation that you're seeing here in Money2020.
If you do an international transfer, it doesn't have to be done like it has been done 30 years ago. Maybe it can be done through TransferWise. We've integrated with TransferWise so you can use it but you don't have to leave the app. We're doing that for savings and investment. We're planning to do that for consumer credit products in the future.
I don't believe in having three different apps - one for credit, one for savings, one for managing your cards. I think you should have everything you want in one app and get everything that you need with one click. It makes more sense to build a marketplace - the fintech hub - and lets everyone buy things in one place
BI: It sounds quite a lot like Fidor Bank [another online-only German bank that's trying to build an app store for banking]. Do you see them as your big rivals?
We've announced that we had 100,000 customers by the end of last year and now we're a little more than 160,000 already. The last number we announced was 130,000. So you see that we have a growth that is one of the strongest for a retail banking product in Germany or I would even say in Europe [Fidor, founded in 2009, has over 100,000 customers]. If you compare that to what we have spent on marketing - which is almost nothing, over 80% of our growth is driven organically - you'll figure out that is the key.
If you ask me what is our difference to Fidor, it's the execution of the product and making people love the product. That's what we have been very good in. If you look at other banking apps, there are some good ideas - do an international transfer seamlessly - but not many people really like to use it.
BI: When are you coming to the UK?
I think that's going to be the second half, end of this year but it's not decided yet. It's on the road map but depends a little bit on how we're doing in the German market and other European markets and if we have the right capacity to go to the UK. If we launch something, we want to be superior and the UK is a big market.
Have you seen the app? Let me show you.
What we spend a lot of time on is algorithms that learn with our customers. [Stalf shows me how spending is automatically classified in categories like restaurant or travel]. If this is wrong I can reclassify it. It's not, but if I did it would be learning with me.
The key is to reduce complexity. Most people don't have a lot of time to spend on their financial matters. What they want is a good recommendation. Let's say you have €2000 too much in your account, maybe we should know that that's not something you'll spend throughout the month but you could put aside for saving. We should recommend you the right product. That is kind of the engine we're building behind at the moment to understand what you're spending, understand what products we can recommend you.
BI: So it's intelligent financial services.
Absolutely. I think in the past you had that experience in the bank branch. Maybe the advisor knew you personally.
Today, from a cost perspective, that doesn't make sense anymore. I think this personal advice has to be automated. That's what we're trying to build.
10 years ago you went into a bank branch with a clear idea of getting a mortgage. Today I think it's different. Today we can tell you with the credit rating that you have, the salary you're getting, and the rent that you're paying, maybe it's a better idea for you to buy a flat and not pay rent every month. You can do it the other way around. You can help people to show them the opportunities that they have and what they're missing out on.
BI: To show them what they can do.
Absolutely. I think that's how banking is transforming. If you look at our app, people are logging in on average at least every two days. That's the basis for building this engagement.
BI: How is the deal with TransferWise going?
We just launched like four weeks ago. I think in general [international money transfer] is not something that people do every day. It's a niche product but I think it's very cool for us to have on the platform and it's showing a very good example of where we want to go with the company.
BI: In terms of being a platform?
Exactly. I think the next big thing that we're launching, and it's in the next two months, is around investment and savings. We're launching again with partners but I cannot disclose who yet but it's out of the fintech space.
We'll be launching no risk, low risk, and high-risk products and then it's very easy for you. You just say you want to save something, you select something and in the background it's the partner doing it but it's all completely automated.
These deals normally work on a revenue share basis. Normally you're investing into an ETF portfolio, obviously that costs a little bit.
BI: The TransferWise deal is interesting. They're still relying on other providers to do the transfers, for example Currency Cloud. Why don't you go direct to Currency Cloud?
It always depends. TransferWise has a very good strategy and the brand. If you use it for the first time [on the Number26 app] we say 'We're beating all banks, together with TransferWise.'
What we want to create within out product is competition. In the future it might not be just TransferWise on the platform, maybe there'll be WorldRemit and maybe another one. If you imagine our platform 5 years or maybe 8 years from now you will select the best transfer rate for you based on the offers that we get.
BI: That sounds almost like an Amazon for finance rather than a traditional bank. You can get products delivered by Amazon or by other retailers who just set up shop on Amazon Marketplace.
Absolutely. But what you have to know is that the integration is much more - if you buy something from the Amazon Marketplace sometimes it can still be a bit fishy. That's the difference.
I don't see having a thousand partners integrated. I see maybe this year we'll have 10, maybe a little less or more, maybe it's going up to 30, 40 partners in Europe. But it's not going up to 1,000.
BI: So you're the gatekeeper that's making sure the right people are getting through.
Absolutely.
BI: Are you guys fully licensed?
Today we are working with our banking partner who is Wirecard Bank, based in Munich. That's for now I think a good solution. Obviously we're looking at different options for the future.
We didn't confirm that for GrunderSzene and we cannot confirm it now.
BI: But you're not denying it?
I'm denying that we're looking for €40 million round. Obviously as a startup you're fundraising from time to time. Sometimes you're fundraising a little more, sometimes a little less.
BI: There seem to be loads of digital-only banks popping up - Atom, Mondo, Starling Bank, you guys. Why now?
I think we have been very early. We have been around a year before all the others. Obviously I think it has to do with more financing available.
Why now? People are really unsatisfied with their traditional banks. The original start of this was the financial crisis when the brands of the big banks really suffered.
And then over the last few years the pick-up of what the mobile phone can do. If you compare us to Simple in the US - when they started the mobile phone wasn't as advanced. They were much more online focused.
But what still has to come is someone has to put a product onto the market that people really want to use. It's not about the licence, it's not about putting out another retail account. It's about figuring out how to get people to love your brand and love the product you do.
BI: The big reservation about digital-only banks is that you won't be able to reach a critical mass. You'll get early adopters but can you get the disaffected middle?
I'm a strong believer that if you have the best product, obviously you will be superior in winning customers. We have lower overheads and better engagement with our user, giving us lower customer acquisition costs, and we have the better offers on the platform in the future.
I personally think that in the long run the better products will survive. Maybe in the beginning it will be early adopters but still. Today there is no reason to sign up to an account that is more expensive and has a worse app.
Today we are the fastest growing retail banking product in Germany, with competition that puts more than €50 million in marketing every year. I think the time is right now that people are moving away.
Maybe we don't have to get the non-digital natives. Maybe we start with the digital natives - there are around 60 million in Europe. If we win 6 million out of that, 10%, I think it's going to be pretty successful.
Obviously we're not going to replace Deutsche Bank but the question is where are the future customers? Are they with us or are they with Deutsche Bank?