What will the future of banking look like?
In truth, we are already well on our way, and the signs of what banking will look like in years to come are already pretty clear today. COVID-19 has accelerated this shift, and we expect many of the new trends in banking today to become the standard in future. Digital banking won’t be a particular way to deliver banking services. The concept won’t exist anymore – digital banking will just be banking, and all banking will be digital.
We already see this today. We’re moving away from branches – with banks closing branches by the thousands, even before the pandemic hit. In the future, it’s likely that fewer than half of the bank branches that exist today will remain – and they will likely look very different, focusing much less on everyday banking services and more on value-added services like private banking, home loans and mortgages. We’re moving away from cash, where already, in certain European cities, cash payment simply isn’t the norm anymore. Look further East and we already see mobile payments dominating in economies like China. Unsurprisingly, cash will play a very different role in the future. Finally, personalization will change the way people manage money – just like it has with platforms like Spotify and Netflix, where your entire experience is tailored around your needs and preferences. From being able to choose from subscriptions that suit your needs, to customized recommendations on how to manage your finances without ever having to wait in line to speak to a human advisor at a branch, the way people will access financial services will change completely for the better.
To which extent do you think that cash will be relevant or used in the future?
As mentioned before, there are already numerous examples today where cash doesn’t play the role it used to in daily life anymore, and we expect this trend to continue, especially after the pandemic. Of course, different countries, societies and cultures will not only have different relationships with cash, but also have different levels of availability when it comes to the technology that allows for secure and accessible alternatives to pay. Going cashless has a number of advantages, and we believe that there are many reasons why this will be the standard in the very near future. First, it’s convenient – imagine never having to go to an ATM, or search for a money changer when you travel. Second, it’s safer – not only are bank accounts and payments protected today with industry-leading technology, but carrying less or no cash also can have a societal impact of reducing petty crime. Finally, it puts you in control – financial decisions will be more conscious and well-informed, because people will be able to understand how each purchase is reflected against a total account balance or budget – rather than an arbitrary amount of cash left in your wallet. This will also make charitable giving a more deliberate, thoughtful and conscious exercise – with people making decisions to support causes and those in need with greater intent, rather than based on the amount of spare change you have in your pocket at any point in time.
To which extent did the pandemic influence the banking sector?
2020 has been a year of upheaval for leading players in a range of industries, and banking has unsurprisingly, been one of them. Change in our industry is not new – the last decade has seen a significant amount of digital disruption and innovation. But what we have seen in the last year or so has been clear – the traditional banking business model is in question. As traditional banks have had to accelerate their efforts to digitize, and are still contending with costly branch networks that have not been operational because of lockdowns, smaller, more agile players like N26 have been able to respond more quickly to customer needs. Just two months into the pandemic, we launched a new “instant banking” feature that would allow customers to start banking and spending digitally with N26 without even having to wait for their physical card to arrive in the post, especially at a time when lockdowns were making postal services less reliable. A few months later, we launched N26 Smart, bringing together all our most iconic everyday banking features in a new monthly subscription to help customers save and spend confidently, all fully digitally. Digitization is naturally something the pandemic has accelerated, but at a broader scale, the pandemic has created an opportunity for challengers to truly disrupt an industry previously dominated by incumbents, and today, customers are getting to benefit from more innovative, transparent and tailored solutions to meet their needs than ever before. With this, there will be growing pressure to deliver innovative and customer centric financial service solutions in full compliance with regulation. Only those who are able to do both well will be able to set themselves apart.
Revolutionizing the Mobile Banking System: How did you develop this idea and what are the key success factors of N26 in this regard?
We began our journey in 2013 with an initial idea to be a payment app for teenagers, and pivoted the proposition to a digital banking account after we saw a hugely positive response from parents, who loved the transparency and ease of use of what we had built. We launched our product in 2015, and got our German banking license in 2016 from the European Central Bank. Today, N26 has 7 million customers across 25 global markets, and 1,500 employees in 8 offices around the world. Important factors to this success include:
- A relentless focus on delivering an excellent product and customer experience that not only meets customer needs, but empowers them too
- We always aim to deliver a world-class digital banking product and service experience for customers, focusing on how we can help make banking simpler, more transparent, and more suited to their needs today. This customer-centric approach underpins all that we do, so that anyone that banks with N26 can feel more confident when it comes to managing their money.
- A business built around agility and flexibility to evolve and quickly as our world changes
- We’ve built our IT systems and banking infrastructure in the cloud, meaning we have both flexibility and scalability to expand our offer as well as to new markets, and deal with increases and changes in customer demand immediately without ever having to worry about legacy systems weighing us down. This is mirrored in the way our businesses and teams are set up, so that we can always be quicker to react to changes in customer needs.
- A commitment to bringing together the agility and spirit of innovation of a fintech challenger with the trust and credibility of a fully-licensed bank
- N26 was not only one of the first to launch a bank that was 100% digital – but also one of the first to obtain a full German banking license issued by the European Central Bank. This gives our customers the assurance that they will always be protected by all the regulatory and statutory requirements that apply for traditional banks when putting their trust in N26. This has allowed us to give our customers the best of both worlds and deliver innovative and customer centric financial service solutions in full compliance with regulation.
Where do you see the biggest challenges for the banking sector and how would you cope with it?
At N26, we’ve always believed that technology is what helps drive change and improve lives. Technology has the power to connect and break down barriers, especially geographical ones, in a world where many people work, live, spend and play in a way that is much more global and connected than before. Even before COVID-19, people were choosing to travel, study, live and work internationally more and more. After the pandemic, “working from anywhere” is even more relevant in a world where being remote is the norm. Yet, one of the very characteristics of banking remains that it is a highly nationalized industry, governed by regulations that differ significantly across markets and that can get in the way of someone being able to bank in a way that matches an international and globalized lifestyle. Today, it isn’t possible to grow up in Spain, study in France, spend a year in Singapore, and find work in London without having four bank accounts, one in each country. And it will take significant change in our industry for this to ever be possible.
For N26, we have addressed this in Europe by taking advantage of the common regulatory framework, which has allowed us to operate across 24 European markets with our existing German banking license. Even then, we do sometimes face IBAN discrimination, where employers and service providers may not accept foreign IBANs as a means of paying out salaries or setting up direct debits, even though European regulations that came into effect in 2014 have outlined that European IBANs should be accepted in every EU country. We are continuously looking at ways to work with consumer protection organizations and local authorities to improve the situation, and have also chosen to accelerate the process of launching local IBANs. But that’s only a single aspect of a larger challenge that our industry is facing to truly be able to address an important customer need. It is something that multiple players across different markets will need to work together on, so that we can make banking as an industry much more global.