Technology

Posted on February 18, 2020 by staff

Are customers really engaging with challenger banks?

Currensea co-founder James Lynn says even market leaders may find achieving profitability difficult

Technology

The recent exit of German digital bank N26 from the UK market may be indicative of a lack of engagement with challenger banks.

That is the opinion of Currensea co-founder James Lynn, who believes that the majority of customers of the likes of Monzo, Revolut and Starling are not using these accounts for large-scale payments such as mortgages.

N26 blamed Brexit for its recent decision to pull out of the UK and close more than 200,000 customer accounts after barely 18 months. They have less than two months to move their money.

Currensea is a travel debit card which connects to high street bank accounts and saves customers up to 85 per cent on charges. Lynn says that while researching the market, it found that the main reason customers opened challenger bank accounts was the better rates available and absence of fees when travelling, with 41% citing this.

The other, less prominent reasons that followed included better tracking of their spending (32%), budgeting (24%) and savings (10%).

“The news of N26’s exit from the UK and their stated rationale for that exit made for curious reading in the light of those findings,” Lynn told BusinessCloud.

“N26’s substantial marketing investment over the two years of its existence in the UK brought only 200k customers. A number of incumbent challengers grew somewhat faster.

“Did N26 exit the UK simply because of the cost and time to get a license? One shouldn’t underestimate the time and complexity of acquiring a UK banking license; however we are talking about a fast-growing international bank with a strong existing compliance function and a large balance sheet.

“With a UK regulator supportive of FinTech, competition and positive customer outcomes, throwing in the towel for this rationale alone seems curious.”

He also cites data from Pay.Uk which found that in 2019 current account switching rates ran at around 2%, with high street banks still featuring heavily in net switching gains.

“The implication here is that the majority of UK consumers are still not using challenger bank accounts as their primary accounts,” added Lynn.

“Monzo, as one of the strongest brands in this space, have echoed this, stating in their annual report that only 30% of active users deposit at least £1,000 per month.

“Clearly profitability is significantly harder to achieve if customers aren’t fully engaging and depositing their income and savings.”

“The timings and framework outlined in the EU withdrawal agreement mean that the company will in due course be unable to operate in the UK with its European banking licence.”

N26, which has five million customers in the European Union, has now deleted blog posts from late last year in which it reassured customers that it would continue in the UK after Brexit.

Will Sorby, general manager of N26 UK, said: “We would like to thank all N26 customers for their support. We’ve planned the next steps carefully to ensure this process is as smooth as possible for every customer in the UK.”