Finextra reported today that German challenger bank N26 would be exiting the U.S. market to focus its investments in its EU business. This is not entirely unexpected as the digital-only bank has been struggling a bit with disgruntled workers as well as concerns from regulators regarding its ability to meet anti-money laundering regulatory requirements.
I have often wondered how the phenomenon of challenger banks would mature. Many do not make money or are marginally profitable despite having systems and infrastructures that are far more efficient than their more traditional competitors. How long will investors continued to fund money-losing businesses? If card interchange (a major source of revenue) is cut, can these organizations impose fees or add credit products to their offering to generate new sources of revenue, or will that reduce their appeal? In years to come, the retreat of N26 from the U.S. may be viewed as the point that the market began its pivot to a more traditional financial services structure. In the meantime, we will watch how the hundreds of thousands of U.S. N26 account holders are treated and where they choose to get their financial services next.
From the Finextra article:
The app-based bank opened for business in the US in July 2019 and has amassed 500,000 customers, who must now find a new banking partner before the shutters come down on 11 January.
The firm says its renewed focus on its European operations will enable it to move into new verticals to include investment products in the coming year.
In a statement, the company says: “On top of strengthening its core business operations in Europe, where digital banking adoption continues to be in its infancy, N26 is also assessing future expansion into additional markets in Eastern Europe in response to growing customer demand in the region.”
The withdrawal from the US comes two years after the bank pulled out of the UK market due to Brexit-related constraints and follows on from fellow UK challenger Monzo’s decision to abandon plans to acquire its own banking license in the US.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group