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India’s NiYO ‘neo-bank’ raises $35M to help blue-collar workers access financial services
NiYO Solutions, a Bangalore-based “neo-bank” that helps salaried employees and blue-collar workers access company benefits and other financial services, has raised $35 million in a new funding round to expand its business in the nation and explore international markets for some of its products.
The four-year-old startup, which serves small and medium businesses and other salaried employees across India, raised its Series B from Horizons Ventures, Tencent and existing investor JS Capital. It has raised $49.2 million to date, with its $13.2 million Series A closing in January last year.
NiYO Solutions serves as a “neo-bank” that relies on traditional financial institutions (Yes Bank and DCB banks, in its case) and offers to customers additional features such as lending and insurance. Blue-collared employees in India (and many other markets) continue to struggle in availing crucial financial services from banks that typically reserve them for the privileged segment. With its payroll solution and other products, NiYO is trying to drive financial inclusion in the country, it said.
The startup also offers a global travel card with no mark-up fee. More than 50,000 users have already signed up for the travel card — and NiYO intends to scale that figure to 500,000 by April next year. In an interview with TechCrunch, Vinay Bagri, co-founder and CEO of NiYO, said the startup is exploring bringing the travel card to other markets — though he did not share any names.
He said the startup will also use the fresh capital to build new product offerings and in expansion of its distribution and marketing efforts. It also wants to grow its customer base from about 1 million currently to 5 million in the next three years. Bagri said NiYO is looking to acquire other startups that are a good fit for its vision.
Neo banks are increasingly becoming popular across the globe as traditional banks show little interest in addressing the needs of niche customer bases. Tide and N26 are showing remarkable growth in European markets, while Azlo in the U.S. and Tyro Payments and Volt Bank in Australia are also among the top players.
In developing regions such as India, too, this tried and tested idea is increasingly being replicated. Open, another Bangalore-based neo-bank, helps businesses automate their finances. It raised $30 million last month.
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N26 faces banking regulator order about fraudulent transactions
Fintech startup N26 received an order from BaFin, the German banking regulator. According to the regulator, N26 hasn’t been doing enough when it comes to money laundering and terrorist financing. The company has a specific period of time to implement changes and rectify its internal processes.
“Today, BaFin published an order for N26 Bank GmbH. An order is an instruction from them to improve processes within a certain time frame. The order requires us to optimize existing processes to prevent money laundering and increase N26 staffing levels,” the company says in a blog post.
A few articles have highlighted a handful of cases of fraud in recent weeks. Customers tried to use N26 for money-laundering purposes. It took some time before N26 reacted and closed those accounts.
It’s not that surprising given that literally every bank suffers from this issue. For instance, all the big French banks (BNP Paribas, Société Générale, Crédit Agricole and Crédit Mutuel) have been fined in the past for the same reason.
Banking regulators don’t review suspicious transactions directly. They make sure that banks have the right processes and teams to catch the vast majority of suspicious transactions.
As N26 has more than 2.5 million users, it’s been hard to scale its workforce appropriately. In other words, it has been short-staffed. In recent months, the company has been hiring customer support and anti-money laundering teams like crazy, by hiring more people directly and signing deals with subcontractors.
BaFin asks N26 to catch up with its backlog of flagged transactions. The company plans to be done by the end of next week. BaFin also wants to see written descriptions of processes and workflows. Finally, the regulator says that N26 should recheck the identity of some customers and redo the KYC process (“know your customer”). N26 says that it plans to implement BaFin’s requirements before the deadline.
Creating a startup is hard, but creating a bank with startup-like growth is even harder. Banking regulation is tough, and it’s a good thing for N26 customers that BaFin is keeping an eye out. Let’s hope that today’s order is just a bump in the road.
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N26 opens tech hub in Vienna with a focus on security
Fintech startup N26 is opening an office, its fourth, in Vienna. Eventually, the company plans to hire 300 software engineers, product managers and IT specialists.
N26 is building a mobile bank and has managed to attract 2.5 million users over the past few years. It raised a $300 million round back in January.
This is interesting news, as the company says that the new tech hub will focus on security, in particular detecting fraudulent activity. N26 plans to use artificial intelligence to develop a sort of real-time risk scoring system. The company will compare card transactions with your smartphone location, as well.
Multiple articles have highlighted a handful of cases of fraud in recent weeks. Customers tried to use N26 for money-laundering purposes. It took some time before N26 reacted and closed those accounts.
Every bank suffers from this kind of issue. In France, BNP Paribas, Société Générale, Crédit Agricole and Crédit Mutuel have all been fined in the past, for instance. But it’s interesting to see how N26 is reacting to those risks.
N26 has experienced tremendous growth, and the startup wants to scale its workforce appropriately so that it’s not short-staffed when faced with those issues. Similarly, it creates challenges when it comes to customer support and average response time.
It’s in the company’s best interest to follow strict rules when it comes to fraudulent activity — as a company with a banking license, N26 is regularly audited. N26 sent me the following statement a couple of weeks ago regarding audits:
N26, as all licensed banks, is subject to regular internal and external independent audits, including those by regulatory bodies such as BaFin, the German Financial Authority. Since we have a German bank license, we’re supervised by BaFin and audited on a regular basis. Any findings are promptly reviewed, implemented and monitored in coordination with the BaFin. We strive to meet all requirements consistently and take any required measures as quickly as possible.
As a bank it is imperative to continuously evaluate and improve all our structures, safety measures and service. We continuously invest in our security systems, customer support, and in hiring the right talent. To ensure we have the right talent to handle our responsibilities as a bank, we’ve increased our company size to more than 1,000 employees. The number of employees in customer service alone has tripled in the last year, and we will continue to grow across all departments to ensure regulatory compliance and serve our customers in the best way.
That’s why today’s news makes a ton of sense. There are already hundreds of people working for N26 in Berlin. Opening a new office in Vienna is a way to reach a new talent pool and make sure N26 is at least as secure as a traditional bank.
The team in Vienna will also work on shared Spaces and peer-to-peer payment improvements so you can create sub-accounts and share them with other N26 users. The startup also launched local IBANs for new users in Spain today. The company currently has offices in Berlin, Barcelona and New York.
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N26 launches its premium offering in the UK
Fintech startup N26 recently launched in the U.K. with a single product offering. You could sign up to a free account that gives you free payments around the world, but no insurance and no free withdrawals in foreign currencies.
The company just added a second tier to its lineup in the U.K. And N26 is choosing to focus on N26 Metal in the U.K. You can now sign up to a Metal account for £14.90 per month (€16.59).
In other N26 markets, people can currently subscribe to N26 Black for €9.90 per month or N26 Metal for €16.90 per month. It’s interesting to see that N26 is using its fresh start in the U.K. to simplify its offering and target premium customers. The startup can still change its mind and launch N26 Black later down the road.
Basic customers can pay anywhere in the world without any foreign fee. The company uses Mastercard’s foreign exchange rates and doesn’t add anything on top. But ATM withdrawals in a foreign currency still cost 1.7 percent of the total amount.
Metal customers get the same perks in the U.K. and other European countries, such as foreign ATM withdrawals with no fee, a travel insurance package from Allianz and dedicated customer support.
N26 also provides partner offerings for N26 Metal subscribers. For instance, you can work from a WeWork office for free one day per month. Deals vary from one country to another; British customers get airport lounge access thanks to LoungeKey.
Your mileage may vary depending on your favorite airport, as LoungeKey doesn’t have a lounge in all terminals in all airports around the world. Now let’s see if N26 users outside of the U.K. will get a similar service in the future.
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N26 says it now has more than 2M customers
N26 announced today that it now has more than 2 million customers — up from 1.5 million in October.
The German fintech startup’s CEO Valentin Stalf was interviewed onstage at Disrupt Berlin with Tandem CEO Ricky Knox, where they discussed the growth of what are sometimes called challenger banks or neobanks — new banks that are taking on the incumbents by focusing on digital tools.
Stalf said N26 is seeing more than €1.5 billion in transactions each month, with €1 billion in deposits. He also discussed the company’s recent launch in the United Kingdom — he didn’t know the exact number of U.K. users, but estimated that the company has tens of thousands of U.K. accounts, with between 1,500 and 2,000 new signups on a single day three days ago.
Meanwhile, Knox said Tandem now has nearly half a million users in the U.K. (“This year, we’re seeing everybody’s growing really quickly.”) He also noted that because Tandem allows users to aggregate different accounts, he’s noticed some of those users are starting to become more focused on individual services.
“What tends to happen, particularly with the early adopter audience, is they will open [an] account with everybody because they want to check it out, they want to get the best product,” he said. “And then what you’ll see is over time, them kind of picking a horse — depending on the functionality they like, depending on, you know, the service they’re getting there — and settling in.”
Tandem is also expanding geographically, specifically to Hong Kong through a deal with Convoy Global Holdings. Asked why he’s making the leap to Asia before launching in other European markets, Knox said, “There are a load of massive Asian markets … The exciting thing here is the opportunity, as I said, for a global bank, and some of these Asian markets are really ripe for disruption.”
In discussing the different models for challenger banks, Knox warned against the dangers of the “marketplace bank” model, where banks make money by connecting customers to third-party services.
“What we found is, the more we try and push revenue in that area there, the less customers love it,” he said. “That’s the challenge with marketplaces: If you build your business model around it, you’ve got an inherent contradiction between customers loving you less when you make more money.”
Instead, Knox argued that customers have a better experience if the bank is willing to recommend free or low-priced services: “And actually at the backend, we’re still making money the same way the bank makes money. So we’re able to fund, if you like, all this great customer stuff at the front end.”
Moderator Romain Dillet quickly pointed out that Stalf was shaking his head while Knox was making his arguments.
“What we see with our customers is, I think if we have a great product, they’re normally also willing to pay a little bit for it,” Stalf said. “It needs to be transparent, and it needs to be a good value to consumers. But I think it’s untrue that customers are always not choosing a product if you price it.”
As for whether we’ll be seeing consolidation in the industry over the next few years, Knox argued, “I’d say there’s plenty of room for the existing cadre of neobanks to be incredibly successful on a global basis without any mergers or acquisitions.” He suggested it’s more likely that the established banks start trying to acquire the challengers, although he said, “That’s not a route we want to take.”
“I think there’s a couple players that are set for being a global bank, and I think we are trying to take the shot to be a global bank,” Stalf added. “I think it’s about building up 50 to 100 million users in the next couple years.”
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N26 faces criticism regarding its identification processes
Fintech startup N26 is growing quite rapidly. Building a startup is hard, but building a startup that manages your bank account is even harder given the increased scrutiny. German weekly magazine Wirtschaftswoche published an article that questioned N26’s identification processes. According to Wirtschaftswoche, it’s quite easy to create an account with a fake ID document.
“One or two people got through with a fake ID document. And we detected that afterward. Unfortunately, we didn’t detect it in real time,” co-founder and CEO Valentin Stalf told me. “Unfortunately, it can happen.”
But Stalf also insisted that it’s not a widespread problem and that all banks face the same issue. According to him, N26 complies with all regulations when it comes to onboarding.
Currently, N26 has three different procedures depending on the country and works with a third-party company called SafeNed for some of the verification procedures.
In many countries, you can initiate a video call with someone so that they can check your ID and compare it with your face. In Germany, you can also print a document, go to the post office with an ID document and make a post employee check that you are actually you.
In some countries, you can open an N26 account by uploading a photo of your ID document and a selfie. Other banks also take advantage of this procedure. For instance, it’s a common process in the U.K.
More generally, other banks also have to deal with fake ID documents. But security is never perfect. That’s why you can’t simply eradicate the issue. You can try to keep the fake ID rate as low as possible.
“Security is our top priority at N26, which is why secure identification processes and constant review of our security and monitoring mechanisms to prevent identity theft are of great importance to the company,” the company told me in a statement.
In other words, N26 monitors this fake ID rate. And N26 also has ongoing transaction monitoring for those who have already opened a bank account. The company tries to detect fraudulent activity as quickly as possible.
You might think that uploading a photo of your ID document leads to more fraudulent activity. But N26 has noticed that there’s a higher fraud rate for customers who go to the post office to check their ID document.
So fraud is nothing new in the banking industry. Nobody has eradicated fraud, and nobody will. In fact, many startups (such as DreamQuark) are working on improving fraud detection using machine learning and more sophisticated processes. But even artificial intelligence won’t solve this problem altogether.
All eyes are on N26 because it’s the hot new thing. But if you look at what’s happening, it’s a pretty boring story. “In one of the articles they said we used weaker method to grow faster. This is complete bullshit,” Stalf told me.
This story is a great example that it can be tough to manage your startup’s reputation. Building trust takes a long time. But it can go away much more quickly. That might be why N26 debunked the issue so intensely.
Here’s N26’s full statement:
Security is our top priority at N26, which is why secure identification processes and constant review of our security and monitoring mechanisms to prevent identity theft are of great importance to the company.
After the customer’s identity is verified, we carry out ongoing transaction monitoring along with numerous other security measures, in a bid to prevent criminal activity such as money laundering and terrorist financing.
We therefore take the findings put forward by Wirtschaftswoche very seriously, will analyse the facts and take appropriate measures if necessary.
Contrary to the statement in Wirtschaftswoche, the use of photo verification by N26 is legally compliant. N26 works with a regulated payment service provider, SafeNed, in this regard. SafeNed is a UK business which is authorised and regulated by the UK Financial Conduct Authority (FCA) with regards to the prevention of money laundering and terrorist financing. SafeNed verifies its customers using the Photo Ident process, which is compliant with UK law.
According to the German Money Laundering Act, N26 is allowed to use a third party regulated in the EU, in this case a payment service provider in the UK, for the verification of customers (Section 17 (1) GwG). The respective verification procedure is then determined by the law applicable to the third party (in the above example, therefore, by UK law). This understanding is also confirmed by BaFin in its interpretation and application notes on the German Money Laundering Act (p. 67 et seq.) for customers not resident in Germany.
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N26 is launching its bank in the UK
Nearly a year after German fintech startup N26 announced that it would launch its service in the U.K., the company is launching in the U.K. N26 is already quite popular in the Eurozone, with more than 1.5 million customers. In this new market, it will face tough competition from existing players, such as Revolut, Monzo, Starling and many others.
N26 is going to roll out its product in multiple phases. Some lucky few will be able to open an account right away. The startup will then go through its waiting list — 50,000 people already left their email addresses to express interest. After that, anybody will be able to download the app and sign up.
This might sound like a convoluted process, but N26 expects a full public launch in just a few weeks. So it should be quite quick if everything goes as planned.
So what can you expect exactly? British customers will get all the basic N26 stuff with one killer feature — U.K. account numbers and sort codes. This way, customers will be able to receive payments and share banking information with their utility providers just like they would with a regular Barclays or Lloyds account.
When you open an N26 account, you get a true bank account and a MasterCard. Basic accounts are free, and N26 has a proper banking license — your deposits up to €100,000 are guaranteed by the European deposit guarantee scheme. You can then send and receive money and pay with your card. Sending money to other N26 users is instantaneous (they call it MoneyBeam).
N26 recently launched Spaces, a new feature that lets you create sub accounts and put some money aside. It’s still limited, but the company plans to add more features.
Your MasterCard works like any other challenger bank. Every time you use it, you receive a push notification. You can set payment and withdrawal limits, lock your card if you lose it and reset your PIN code. N26 will also bring Black and Metal plans to the U.K.
How does it compare to Revolut?
Let’s be honest, the elephant in the room is Revolut . The company has hundreds of thousands (if not over a million) customers in the U.K. N26 lets you do many of the things you can already do with your Revolut account.
So let me point out a few differences. As I noted, N26 has a banking license and U.K. banking information. N26 cards work in Apple Pay and Google Pay.
When it comes to international payments, N26 lets you pay with your card anywhere in the world without any additional fee. The company uses MasterCard’s conversion rates. Revolut first converts the money with its forex feature and then lets you spend your money.
There are an infinite number of forum posts about the exchange rates you’ll get. Sometimes Revolut is cheaper, sometimes N26 is cheaper. It mostly depends on the day of the week (Revolut conversion rates are more expensive on the weekend) and the currency. Unless you plan to spend tens of thousands of GBP during your vacation, you won’t see a huge difference on your bank statement.
Revolut also has many more features than N26. You can insure your phone, buy bitcoins, buy travel insurance, create virtual cards and more. It’s clear that N26 and Revolut have two different styles.
Revolut has a bigger user base than N26. But it’s always been a bit hard to compare them, as N26 wasn’t available in the U.K. Of course, they will both say there are tens of millions of people relying on old banks — multiple challenger banks can grow at the same time if they capture market share from those aging players. Still, the battle between N26 and Revolut is on.
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N26 launches a revised metal card
Fintech startup N26 is updating its N26 Metal product and launching it tomorrow. You might remember that the company first announced its premium card at TechCrunch Disrupt Berlin in December 2017. Shortly after the conference, the card was available in early access for existing N26 Black customers.
But the company had to go back to the drawing board and update the card design. N26 Metal customers had some complaints about the design of the card in particular.
While the original metal card was primarily made of a sheet of tungsten, the metallic part was still surrounded by plastic. Customers complained about scratches and the overall feel of the card.
It didn’t really feel like a metal card. It was more or less a heavy plastic card with a metal core. You could easily get scratches and the MasterCard logo was just a sticker.
@N26 such a shame my Metal card has a big scratch… it doesn’t even look like a scratch but something deeper under the plastic 🙁 pic.twitter.com/7qFTNEkqlH
— W Bonnaud-Dowell (@bonnaud_dowell) March 5, 2018
Even more surprising, some customers had some issues going through airport security because tungsten was an uncommon material.
Travelled 2 times since I have the @n26 metal card and get an extra security check each time because of this.
— Alex. Delivet (@alexd) May 14, 2018
At an event in Berlin, the company announced a revised version of N26 Metal. The front of the card is going to be made out of actual metal. The MasterCard logo will be engraved. And the name of the customer is moving to the back of the card.
You can join the waiting list now and customers will start getting the new metal card tomorrow. Everybody will be able to sign up next Tuesday.
But N26 Metal isn’t just a fancy card. For around €15 per month, you get all the advantages of N26 Black as well as partner offerings.
These offerings include the basic $45 per month WeWork subscription so that you can access a WeWork office for free for one day per month and pay for extra days. You also get 10 percent off hotel bookings on Hotels.com, promo codes for Drivy, Babbel and other services. The company says that there will be new offerings in the coming months.
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N26 partners with Younited Credit to launch credit offering in France
German startup N26 is now live in 17 European countries, but many features first launched in Germany and never made their way to other markets. The startup is slowly expanding core features to other key markets. That’s why the company is partnering with Younited Credit to launch consumer credit in France. It works pretty much like the existing credit feature in Germany. In the app, you… Read More
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N26 announces plans to launch in the US by mid-2018
European fintech startup N26 has plans to expand beyond Europe. The company’s co-founder and CEO Valentin Stalf is announcing today at the Money20/20 conference that N26 is going to launch in the U.S. around mid-2018 and has hired a handful of people who are already working in New York. Read More
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