September 01 2020

N26 remains focused on user numbers, not profitability

For all of their slick technology, neobanks can sometimes seem like a dime a dozen. Take this example: "the mobile banking platform redesigning banking for the 21st century." That could be just about any neobank in existence. In fact, the phrase comes from an Aug. 26 press release published by German neobank unicorn N26, whose backers include Tencent, Peter Thiel, Allianz and reportedly Mike Bloomberg. N26 put out the press release to announce it had reached the milestone of 500,000 customers in the United States after one year in the U.S. market.

It would have been nice if the press release had included the costs of N26's customer acquisition in the U.S. as well as an update on the company's overall finances. That would have helped put its U.S. expansion drive into perspective.

The U.S. market is large and by some measures, ripe for disruption, but it's already getting crowded with challenger banks. N26's fellow European neobank unicorns Revolut and Monzo have entered the U.S., while there are a number of homegrown digibanks: Chime, Current, Varo, MoneyLion and Simple, to name a few.

According to Apptopia, N26 had just a 3.55% share of the U.S. digital bank market in April measured by monthly average users, better than Revolut's 0.97% and Monzo's 0.23% but well behind Varo (12.5%), Current (15.7%) and Chime (58.7%).

N26's plan to expand its U.S. business will almost certainly rely heavily on customer subsidies, which will ensure the company keeps burning cash. "In the coming months, N26 will roll out additional rewards and cashback opportunities with the N26 debit card, with additional product features to be announced," the press release said.

Fortunately for N26, it was able to raise another US$100 million from investors in May as part of an extended Series D round. That money could go a long way.

However, if N26 is following a similar trajectory to Revolut and Monzo, its losses will be mounting as it continues to spend heavily in an effort to scale up. In its latest annual report, Monzo revealed that its losses had risen to £113.8 million from £47.1 million even as revenue increased substantially. The company warned of choppy waters ahead. Revolut's losses tripled in 2019 to £106.5 million, up from £32.9 million in 2018. Revenue jumped 180% but it wasn't enough to offset Revolut's cash-burning spree. Still, the ever-plucky Revolut expects to reach profitability in 2020.

We look forward to seeing N26's 2019 fiscal year results.