European fintechs, challenger banks poised to invade US market

A new wave of European fintechs are planning a new invasion into the U.S. banking industry, promising to disrupt the incumbent banking industry with nimble, accessible and appealing business models that they hope will steal away millions of young adults who have grown tired of what they perceive as second class treatment by traditional banks. 

The entry of these European fintechs, combined with the rising number of U.S. entrants into the digital banking space, is leading to a mad scramble for investment dollars, unique customer service propositions and an industry-wide shakeup that could change the face of banking in America.

"We think that the European players have an extremely interesting proposition which will likely gain some traction in the U.S. market," Nick Maynard, senior analyst at Juniper Research, told Mobile Payments Today via email. "N26 in particular has created an attractive simple proposition to users which offers a strong feature set."

Maynard pointed out that the fact that N26 has expanded to 24 countries with a total of 3.5 million customers makes it a compelling business model, and that the product is "highly suitable" for millennials, which is a key target market of these challenger banks. 

"Given the complexity of the U.S. banking market, the simplicity of fintech approaches will be a highly effective customer acquisition strategy," Maynard said. 

N26 earlier this month made its long-awaited entry into the U.S. with its fast growing, yet simple digital banking concept of a no-fee mobile checking account that allows users to create sub-accounts for savings and a Visa debit card. N26 has partnered with Ohio-based Axos to provide FDIC insured backing for the checking account, and there are plans to add additional features this summer, including a limited number of two free ATM withdrawals per month and a later a premium metal card with enhanced features. 

Valentin Stalf, co-founder and CEO, said in the announcement earlier this month that N26 would "radically change the way Americans bank" the way it already has in Europe, and later plans to enter the Brazilian market, which has been a major focal point of fintechs like Airfox. 

Just last month, U.K.-based Monzo announced plans to enter the U.S. with a simple mobile banking app and Mastercard debit card. Monzo will have its own unique features, like a savings feature called Pots, to help customers set aside funds and the ability to send person-to-person funds. 

Monzo thus far has been wildly successful in the U.K., with more than 2 million customers, and it announced a funding round of $144 million led by Y Combinator Continuity and Latitude. 

Mutual atttraction

Raisin, the Berlin-based savings and investment platform, is in the process of building out its team for a major entry in the U.S. market, and just this week got some additional backing from Goldman Sachs, which invested $28 million, which will be used to help Raisin's previously announced plans to enter the U.S. as well as two new European markets. 

Raisin COO Michael Fuchs told Mobile Payments Today that the Goldman Sachs relationship will help drive Raisin's entry into the U.S., not only based on the actual funding, but also the vast experience that Goldman has in the marketplace. 

"Goldman Sachs is a well known brand in the U.S.," he said. "So their backing and their insights as well as knowledge of 150 years in the U.S. market will be very helpful."

Raisin recently hired Paul Knodel as U.S. CEO after he spent more than 20 years in senior management positions at Citigroup and Merrill Lynch, along with stints at TD Ameritrade, E-Trade and robo-advisor Wealthfront, according to Fuchs 

He noted that Knodel recently led the extension of Wealthfront's product suite into cash savings. 

All eyes have been on Goldman for more than a year as it expanded its Marcus digital banking product, which led to speculation about what plans it had for international growth and whether it would seek to form strategic relationships with other players in the digital space. Both companies said there are no current links between Raisin and the Marcus business, but said the investment is part of a wider strategy by Goldman's Principal Strategic Investment arm. 

"PSI seeks to make long-term strategic investments in fast growing technology companies, so Raisin fits well into the overall strategy," a spokesperson for Goldman Sachs told Mobile Payments Today via email.

She said that the team considers Germany a focus market of the investment arm, pointing out that PSI previously invested in Elinvar in May. Elinvar, founded in 2016, is a digital platform for asset and wealth managers. The company said in the announcement that Elinvar would be expanding to other countries in Europe, but did not specifically mention any plans to enter the U.S., despite the new Goldman Sachs investment