German challenger bank N26 is quitting the UK less than two years after launching here, blaming Britain’s exit from the EU.
As part of building Currensea, we conducted a lot of surveys and research to understand UK customer needs. The news of N26’s exit from the UK and their stated rationale for that exit, made for curious reading in the light of those findings.
We’d asked UK users of challenger banks for the reasons why they had opened an account with these banks. 41% of respondents said that the main reason was better rates and no fees when they travel. The other, less prominent reasons that followed included better tracking of their spending (32%), budgeting (24%), and savings (10%).
Taking into account the data above, the current account switching number from Pay.Uk make for interesting reading. In the 12 months to the end of 2019, switching rates ran at around 2%, with high street banks still featuring heavily in net switching gains. The implication here, is that the majority of UK consumers are still not using challenger bank accounts as their primary accounts. Monzo, as one of the strongest brands in this space, have echoed this, stating in their annual report that only 30% of active users deposit at least £1,000 per month. Clearly profitability is significantly harder to achieve if customers aren’t fully engaging and depositing their income and savings.
The total UK fintech sector value is frequently quoted as leading compared to the other tech hubs. However, that has drawn a significant crowd of digital banks competing for UK customers. N26’s substantial marketing investment over the two years of its existence in the UK brought only 200k customers. A number of incumbent challengers grew somewhat faster.
Looking across the challenger bank sector, with a large number of customers using accounts simply for cheap travel rates, a small number of people using accounts as “primary”, and strong competition in the space – Did N26 exit the UK simply because of the cost and time to get a license? One shouldn’t underestimate the time and complexity of acquiring a UK banking license, however we are talking about a fast growing international bank with a strong existing compliance function and a large balance sheet. With a UK regulator supportive of fintech, competition and positive customer outcomes, throwing in the towel for this rationale alone seems curious.
Now, what lies ahead for N26 customers? Those who used their cards purely for travel have a number of alternative options. The choices include other challenger banks, prepaid cards, or our new Currensea card – a standalone debit card using Open Banking to work with existing bank accounts.
Our research showed that travelling UK adults saw opening another account or taking up a prepaid card as an inconvenience. We addressed that by designing a card that doesn’t need top-ups or a new account just for travel. Instead it connects directly to an existing high street bank account and offers 85% savings on bank rates for spending abroad.
For those who want the benefit of a challenger bank’s rates, with the convenience of their existing and trusted bank account, a Currensea debit card maybe a great option