N26 is a “challenger bank” using a dyadic-product business model to offer banking products for personal and business customers. Even though N26 is a platform firm offering services to depositors and borrowers alike and uses deposits to fund loans, the main business of N26 is dyadic because a depositor does not fund a specific loan and vice versa a loan is given without a linked deposit. The company operates a digital-only banking model to help customers to spend, save, and truck money from their smartphone. Specifically, N26 provides intelligent and flexible banking services, a transparent fee structure, and the possibility to choose between ‘standard’ and ‘premium’ accounts.

Every N26 online bank account comes with a free Mastercard debit card (with no markups and no fees), accepted worldwide, and of course, this Mastercard is a multi-sided business model offering because it links merchants and customers via the bank. Customers can use the online application for real-time account management, set daily spending limits, make transactions, and receive payments in any currency. N26 product business model is based on charging private consumers or business owners for premium subscription plans. Other channels of income include overdraft fees, interest paid on loans, cashback programs, and commission fees for insurance sales.

The company’s point of differentiation against competitors is its quick and easy onboarding, better digital experience packed with features, low cost, and fun brand. However, N26 is not the only challenger bank offering a digital-only customer-centric model. When looking at direct competitors in the UK, such as Starling, Revolut and Monzo, it’s still a bit behind because it offers fewer features and charges for foreign ATM withdrawals.

From the recent cohort of banks founded in the past 5-10 years, N26 to date counts a customer base of 3.5 million, followed by Monzo (3.1 million). In 2019, N26 was the highest valued fintech company in Europe, offering its services throughout most of the Eurozone, the UK, Switzerland, and the US, and is expected to start operating in Brazil soon.

Founded in 2013 by Valentin Stalf and Maximilian Tayenthal, N26’s vision was to create a retail bank that’s flexible, transparent, and speaks to today’s digital lifestyles—reimagining the retail banking experience for digital natives.

Headquartered in Berlin, Germany, nowadays, N26 offers its services throughout most of the Eurozone, UK, Switzerland, and the US (N26, 2019). N26 now employs more than 1300 people. N26 has been valued at $3.5bn in its latest funding round; secured $470m of series D investment to fund their aggressive expansion plans into UK, USA, and Brazil. Their main investors are Valar Investors, Chinese internet giant Tencent Holdings, Allianz X, Insight Ventures Fund, and Singapore sovereign Wealth Fund GIC (Crunchbase, 2019).

N26 has one main customer group: digital natives i.e. Millennials and Gen Z. Specifically, the company targets young European retail and business customers (freelancers & self-employed) aged 18-35, to acquire approximately 5-10% of that demographic from traditional banks by 2020.

Customers are demonstrating a high engagement level with N26, consequently, the company sees a very high recommendation rate of around 50% (Loritz, 2019). This very high recommendation rate could be partly explained by the network effect as N26 creates features such as “spaces” with quick easy ways to transfer money to other N26 customers as well as shared savings or bills accounts.

Learn more about the Product Business Model

A dyadic transactional relationship where your good or service can be designed and delivered without prior interactions with the customer.

Engagement  — Value Creation Proposition
How N26 creates value for young retail and business customers:

The value proposition is centered around a pledge to customers to allow them to manage their bank account and spend/set aside money in real-time from the phone. Customers can choose between a standard and two-tiered subscription options. N26 creates value for all customers offering a user-friendly app and banking products at no or low-cost transparency, security, and extra benefits provided by like-minded partnerships. Also, premium customers get free payments anywhere in the world with Mastercard exchange rates, free cash withdrawals at ATMs in the UK, and the N26 banking app.

Delivery — Value Chain
How N26 works for young retail and business customers:

Every customer that opens an online bank account with N26 gets a free Mastercard debit card, accepted worldwide. After signing up with the mobile application, customers can instantly make bank transfers for free as well as send, receive, or request money. N26 allows customers to send money in 19 different currencies using the Transferwise feature, conveniently built into the N26 app.

N26 drives the acquisition of new customers through no/low-cost banking. Revenues are generated through interchange fees, subscription fees, and partnership revenue shares. The challenger bank has scaled quickly by hooking onto existing payment and banking platforms and then assessing whether it’s viable to establish their banking license–as they did in Europe.

In the US, N26 has partnered with Axos Bank which is acting as a white label partner. The firm focus and openness to operate with Affiliates and Partnerships keeps them relevant and enables them to offer benefits to customers that otherwise would not be achievable.

Monetisation — Value Capture
N26 makes money primarily from the freemium model with a basic account for free, then two-tiered subscription options (N26 Black, N26 Meta). Also, the company captures value from additional usage and interchange fees. On the customer side, fees can be charged for overdrafts, transactions, withdrawals, and FX over and above limits (Business, 2019). On the payment platform side, N26 receives income from interchange fees driven by their customers’ transactions but paid for by the merchants selling goods. The German challenger bank has raised $470 million in 2019, for a total of $692.8 million (17 July 2019), according to TechCrunch.

Digital Technology
N26 harnesses the power of artificial intelligence (AI) to categorize customers’ spending, presenting all the expenses in diagrams. Also, the challenger bank offers customers the possibility to create personal hashtags and attach them to transactions for a better organization.

In the future, the company should use AI to increase customer engagement, providing tailor-made solutions on a mass scale, or anticipating customers’ needs (considering the number of N26 Affiliates and Partnerships); moving from a “product” to a “solution” business model.



https://craft.co/n26/competitors?competitors=n26%2Cstarling- bank%2Crevolut%2Cmonzo

https://www.crunchbase.com/organization/n26/timeline/timeline#section-recent- news-activity

https://www.fintechfutures.com/2019/08/n26-officially-launches-in-the-us/ https://www.theguardian.com/business/2012/aug/09/financial-crisis-anniversary-trust- in-banks


https://www.inc.com/james-paine/why-the-banking-industry-is-ripe-for- disruption.html

https://www.statista.com/statistics/943068/estimated-growth-of-online-banks- globally/



Disclaimer — Written by Chriss Ball and revised by Francesca Hueller under the direction of Prof Charles Baden-Fuller, Cass Business School. This case is designed to illustrate a business model category. It leverages public sources and is written to further management understanding, and it is not meant to suggest individuals made either correct or incorrect decisions. The information contained here should not be used for investment advice and is simply indicates the individual’s understanding of the company’s business models as of April 2020. © 2020