What is holding back European neobanks in the United States?
Neobanks are the biggest fintech export in Europe. These category-defining startups from the UK and Europe have spread across the globe and spawned legions of copiers.
But in the United States, the world’s largest market, success did not come quickly or easily to the likes of Monzo, Revolut, Curve, and N26.
Sifted spent the past week chatting with key people involved in these four neobanks’ expansion efforts to get a feel for how the race for the U.S. market is shaping up.
Here is the last one:
Revolut in march requested a banking charter to deploy a full range of products in all 50 states. Currently, it relies on clearances from a local partner bank, and by the end of March, it had racked up 200,000 retail customers in the United States.
Two people close to Revolut told Sifted that the start-up’s international expansion strategy was “dependent on obtaining banking licenses in the markets in which they operate.”
This is consistent with news a few weeks ago that Revolut has withdrawn from Canada – a year and a half after the beta launch there. The same sources told Sifted the decision was made because the start-up “didn’t see a way to get a banking license” in Canada and speculated that this may have been due to the persuasive powers of the company. oligopoly of the big Canadian banks.
Another person familiar with the situation said the startup had hoped to bring “the full Revolut service to Canada, but that’s not possible at the moment.”
Obviously, Revolut is hoping to return to the market – but that may require a change in attitude on the part of local regulators.
Curve has yet to launch in North America, but has a team on the ground and has “all the technical partnerships” necessary to get the thing going, according to US product manager Dan Poswolsky.
Poswolsky believes that Curve is better positioned than its European rivals to launch in the United States, because it has adapted the product to suit Americans. So how will it be different?
He said Curve would double its “all your cards in one” and cash back functionality, but the big difference seems to be point-of-sale loans. US customers will be able to get a loan from Curve to finance their purchases directly at the point of sale – in effect, a Buy Now, Pay Later tool.
“In the United States, Curve Credit is going to be integrated into the user experience. So every customer will have the opportunity to use Curve Credit, ”Poswolsky said.
Curve will rely on lines of financing from institutional investors to finance these loans.
The startup plans to launch in the United States in beta mode later this year. It has partnered with an anonymous bank to enable it to facilitate payments, and will seek state-level fund issuer licenses in the future.
N26 is winning the race for the United States right now. The Berlin-based startup had racked up 500,000 customers by August 2020 and has a team of around 60 people on the ground in New York City, which it plans to grow by 75%.
The big difference in N26’s approach, compared to its European rivals, is that the startup is not currently applying for a banking license in the United States. Instead, the company appears to be comfortable continuing to work with Axos Bank, a San Diego-based bank regulated by the Office of the Comptroller of the Currency (OCC).
“They issue the debit cards and bank accounts on our behalf, so technically every N26 customer is actually an Axos Bank customer, and we provide the back-end technology and front-end application experience for it. client as Axos’ service provider. “Stephanie Balint, Interim US Managing Director, told Sifted.
While Balint wouldn’t rule out applying for a banking charter at some point, N26 has made a clear decision – just as it has in Europe – to focus on short-term growth.
“You have to think about the trade-offs between investing time and resources in charter and investing time and resources in creating your product and creating something for your customers, and being able to develop and serve your customer base.” , added Balint.
The growth that N26 has achieved so far in the United States has come despite the absence of a CEO in the market since June of last year, when Nicolas Kopp left the company to launch his own startup. N26 announced Kopp’s departure in March 2020. However, more than a year later, he still has not found a replacement
“We are looking for the right person for the job. I think as you can imagine with Covid last year… we had different things we needed to be worried about, ”Balint said.
Monzo launched a smooth launch in the US market in June 2019. Progress has been slow since then. A person close to the startup told Sifted that the app is still in beta mode. Going beyond this point seems to depend on the regulatory status of the company. Like Revolut, Monzo applied for an American banking charter – back in April of last year.
The startup recruited a new US CEO, Carol Nelson, in February. She is currently leading a team of 10 in the United States, according to another person familiar with the situation.
This same person said that Monzo is deploying a strategy in the United States similar to that used in the United Kingdom in 2015, when the bank was just getting started. The product will be tailored to the US market, the person added, while retaining basic functionality such as instant spend notifications and jars.
At the height of the pandemic in April 2020, Monzo closed his office in Las Vegas and let go of the 165 employees who were based there. But that office had focused on providing overnight support to UK customers and does not appear to have slowed the US push.