LONDON (Reuters) – The smartphone-based bank N26 expects to peel away 5 to 10 percent of retail customers aged 18 to 35 from established banks in its core continental European market in the next two to three years, its chief executive told Reuters.
The Berlin-based fintech start-up has been signing up 1,500 to 2,000 customers a day in recent months, putting it on track to triple in size to around 1.5 million clients within two years from its current 500,000 users, Valentin Stalf said in an interview in London on Friday.
The company, which counts Chinese billionaire Li Ka-shing and Silicon Valley investor Peter Thiel among its backers, is competing with traditional branch-based retail banks by offering a suite of mobile banking services that customers can use entirely from their smartphones.
It also faces competition from other digital banks such as Revolut and Monzo, and even French telecom operator Orange (ORAN.PA), which launched its own banking service last week.
Since its launch in Germany in 2015, the company has expanded rapidly into 17 European countries including Austria, France, Spain and Italy. It recently said it will start operating in Britain and the United States next year.
“We see the U.S. as a big opportunity because digital banking is underdeveloped,” Stalf said. “There are no clear rivals for us there.”
The regulatory environment is also becoming more favorable, Stalf said.
In 2018, new European Union rules will start to force banks to allow customer data to be made available to other companies if the customers agree. That will help the likes of N26 identify potential customers and offer them better deals than their current lenders.
Stalf said that within three years N26 expects to have a 5 to 10 percent share of the market in the main countries where it operates.
N26 offers a free current account, its “anchor product”, but makes most of its money through card usage, savings, credit and insurance services.
The company made its name taking on traditional banks but came under scrutiny itself last year after a security researcher found that its apps exposed users to potential account hijacking. N26 then implemented fixes to prevent such problems.
Stalf said the main advantages of being an app are having daily interactions with customers and as a result being able to better understand their needs and offer tailor-made, value-added services.
“If I happen to book a trip and hire a car with my N26 card, my app would instantly use that information to offer me travel and car insurance.”
With marketing costs of 5 to 10 million euros per year – far lower than those of traditional banks – and customer data gathered via payments, N26 has been able to either make a profit or break even from each newly acquired customer.
Stalf said that excluding marketing costs, the company could be profitable in about a year.
Acquiring a banking license has also helped keep costs down, and the company is now betting that word-of-mouth and good Apple Store ratings will help it contain its marketing costs and help it move along the path to profitability.
“Today you can create a trusted brand much faster because everything is more transparent,” said the 32-year-old Vienna-born entrepreneur.
(In the first paragraph, company corrects to say .. retail customers aged 18 to 35 ..not.. all retail customers)
Reporting by Sophie Sassard in London; Additional reporting by Eric Auchard in Frankfurt; Editing by Hugh Lawson