Last installment of original content. In chapter 15 of the we discover what the Challenger Banks are and how they work from the hand of Alfonso Sainz de BarandaChief Growth Officer of bnext; Matthew GladstoneCountry Brand Ambassador of Revolut; Y Fernando GarciaSenior Business Development Manager of N26.
His projects are present in Spain. They have accommodated themselves and are beginning to expand in order to challenge the dominant position of the large financial institutions. If you want to know their lines of business, what use they make of the apps and what improvement of the user experience they propose, be sure to read (and listen to) this post (podcast).
Challenger Banks Roundtable | NEXT ePayments
02:03 Rubén Bastón: Who are you and what is your project?
Alfonso Sainz de Baranda: Bnext is the first Spanish neobank, with more than 180,000 active clients and 130 million euros per month in transactions. A challenger bank is a new entity that has its own banking license and compete with major banks; a neobank does not have its own license. We do not have it nor do we seek it, we use those of others. Our business model is based on a place where you can find the best loan, the best mortgage or the best insurance, be it from the bank or the insurance company. We provide them with sales and they pay us for it. In addition, we seek the KYC (Know Your Costumer) be unique; so that we offer the best of both worlds: the freedom to choose the financial product that suits you best and the ease of use of banks that have everything integrated.
05:28 Matthew Gladstone: Revolut has been running for four years and is about to reach five million customers in Europe. Spain is the fifth largest market for Revolut with 200,000 users, 60,000 of which are active. Our specialty is the FX market (Forex), especially aimed at people who travel and need to use more currencies, that’s why we offer interbank exchange rates. Many people choose the Revolut card to travel, and that is when they realize that it is also practical on a daily basis and continue to use it. This year we hope to open in Japan, Singapore, Hong Kong, Australia and New Zealand; and maybe we will reach some state of the United States. We have a very ambitious international expansion plan.
07:35 Fernando Garcia: At N26 we are developing what we consider to be the first fully digital bank operating globally. It started as a fintech where parents could create an account for their children to travel, control their payments and top up the card when needed; but the founders realized that this product was also of interest to the mass market so they took the leap and for three years we have been operating with a banking license from Berlin. N26 works to be a bank substitute for traditional banking and is based on three pillars: a very powerful brand that connects with digital natives, the best user experience in online banking and Transparency in prices, competitive, without conditions or hidden commissions. We currently have 2.5 million customers, we operate throughout Europe and in the second half of this year we will launch in the United States and .
11:07 Rubén Bastón: What are the barriers you have and how do you try to overcome them to gain ground against traditional banking?
Alfonso Sainz de Baranda:LThe main barrier is apathy. We don’t really compete in product because we are so far above in all the criteria that a client can apply: usability, product offer, customer service… that the problem is another.
Challenger Banks | Business model
12:40 Rubén Bastón: To sign up for a Challenger Bank, you download an app, you become a customer and, as such, you have an account, normally free. What happens when requesting a card?
Alfonso Sainz de Baranda: In the case of Bnext, it costs nothing, you just have to make an initial deposit of 25 euros so that we can send it to you for free.
Fernando GarciaNote: N26’s standard product is the transparent card, which is shipped free of charge. We also have the Black card and the Metal card, our premium services, which include travel and purchase insurance and are paid for: 10 euros per month for Black and 15 for Metal. 20% of our clients upgrade, and the remaining 80% maintain the free service.
14:03 Rubén Bastón: And where do you get the money from?
Fernando Garcia: Our business model is based, on the one hand, on costs. We have almost three million clients, everything is operated from an office with 1,000 employees, the bank is in the cloud. It’s all very efficient, very economical, and the cost structure is radically better than traditional banking. That allows us a solid business model with very little income. On the other hand, the two main channels of revenues are the memberships and the use of cards. When a customer pays with the card, the added cost for him is zero, but we have a commission that the merchant pays.
15:18 Matthew Gladstone: In Revolut exactly the same, except that we have the premier partnership with and for what we take a small part of the commission that those cards take when the client makes a transaction, without the client or the merchant paying any extra. Therefore, Our income comes from transactions and from memberships15 or 20% of customers, who pay to have a Premium or Metal card.
Challenger Banks | Against user suspicion
17:03 Rubén Bastón: We are left with the idea that the only barrier for these business models to add millions of clients is that people think about it.
Fernando Garcia: On the one hand, people have to consider it and, on the other hand, we have to reach them. The public is huge, reaching everyone is very complicated and very expensive. In our case, we know that if we manage to adequately impact users who are also part of our target audience with our message, the conversion is very good. College students, young professionals, someone who wants a secondary account for online payments or travel; the market is moving very fast in this direction.
18:13 Alfonso Sainz de Baranda: Let us also stay with the fact that, in Spain, only 2% of people change bank accounts in their life. In the end, the banking service is a commoditiesthat’s why the great battle in which we are all is in create powerful brands that connect with people, that people respect; a little what Apple, Amazon, Google have done, which have created brands with which people want to participate. That is the foundation of the things that we are doing from the Neobanco – Challenger Bank world, and we are already seeing its fruits. In the case of Bnext, the fluorescent pink card, which glows in the dark, is a differential element of brutal evangelization.
20:22 Rubén Bastón: The important thing is to overcome the mistrust of users when putting their money in an unknown bank.
Matthew Gladstone: That’s why we all started with a prepaid card, with limited risk. No one puts all their savings on one card at once.. Start with the current expenses and little by little you gain confidence in the system. But what is more difficult, especially for millennials, is the process of opening an account in a traditional bank. It’s appalling and it’s getting harder, at least in Britain.
21:50 Alfonso Sainz de Baranda: In Spain there are already many banks that offer you completely online registration, in fact, banking in Spain is light years away from any other European country. He was born in England because English banking has terrible technology. Today you go to a German, French or English bank and you come across applications that we had in Spain 10 years ago. Everything is paper, queues and waiting. That is why it is normal that Fintech has triumphed in countries like England and that is why it is normal that it has cost more to take root here, because the technological differentiation was not so clear.
23:30 Rubén Bastón: Why does Bnext appear in Spain and not in another market?
Alfonso Sainz de Baranda: Because we are from here and we wanted to release it here. We had the challenge of seeing if a neobank could scale in Spain, because the competitive terrain is different, users are considered more suspicious than in the rest of Europe and because really no fintech, except its eternal half million users, had managed to go beyond an initiation phase. I argue that it is a matter of go to market. if you do a go to market appropriatecustomer-centric, thinking about all the limitations that your product has, things work. The Spanish client is not more conservative than othersWhat’s more, financial education in Europe is rock bottom, wherever you go; and we are the second country in Europe in fintech penetration in certain areas, therefore it is a great country to do fintech, but there is a lack of money, it is very difficult to raise money in Spain.
25:58 Rubén Bastón: How are your users?
Matthew Gladstone: The vast majority of users are young, millennialspeople who feel comfortable with the mobile to manage money.
Fernando Garcia: In our case too, digital natives or digital lovers, who are a bit older, although it is striking that half of N26 customers are over 35 years old. Where we invest the most is in digital natives and in younger people, because that is where we have better conversion rates and where we enter with more force, but the truth is that the oldest customers are the most profitable. If you get them to put their payroll on N26, they become a long-term bet, which is what we aspire to as a bank.
28:09 Alfonso Sainz de Baranda: Our average is 33 years old, but almost all of them are older than 27. One of the clearest differentiations that we have made from the beginning is that we focus more on the mass markertto the point that 40% of our clients are outside the big cities. We have focused on making a very basic product that is what people want, that we can get financial products that they may be interested in in the future.
Challenger Banks | the public asks
29:57 What role are neobanks playing and what role will they have in the future in underbanked markets such as Latin America?
Alfonso Sainz de Baranda: Bnext has planned its expansion in the Latin American market. And we start from the idea that there are three types of market: the traditional, the unbanked and the one called underbanked, people who may have a bank account but due to their credit score, their circumstances, do not have access to any of the products that a traditional bank can offer them. I believe that most of Latin America is in this segment.
In this context, it will not be the neobank that will motivate the change but the technology that can be used when creating new financial products. The big leap is that they can give you a credit score based on your activity on Facebook, that they can give you a mortgage on an inferior house because thanks to Google Maps the government is able to appraise…
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