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What N26’s UK exit tells us about entering new markets
As the German challenger prepares to leave British shores, what can we learn about its attempts to break into the market?
By now, it’s common knowledge that N26’s days in the UK are numbered.
Earlier this month, the Berlin-based challenger announced it was pulling out of the country rather than applying for a separate banking licence. With passporting rights set to expire on the 31st of December, the bank would have to apply for a UK permit before that date, and then successfully complete the licensing process over the next year or so. Instead, it will leave, closing all outstanding accounts on the 15th of April.
While the company cited the withdrawal agreement as its primary reason for the exit, attention quickly turned to the bank’s performance. News sources such as the BBC and Yahoo! Finance each reported figures from April 2019 that put the bank’s British customer base at 200,000 users.
When they weren’t snatching up their rival’s customers, competitors and industry insiders took N26’s departure as a learning experience. Monzo CEO Tom Blomfield announced his company would adapt its US launch strategy in the wake of its rival’s departure from the UK.
Despite moving into a full market, N26 did relatively little to distinguish its offerings from other challengers
“The lesson [with N26] is if you take a product and just move it across unchanged it doesn't do well,” he told AltFi. “N26 didn't connect”.
The announcement served as a timely reminder that one-size-fits-all products often falter in saturated markets. 11:FS’s own David Brear underlined the need to tailor products to specific environments, describing N26’s time in the UK as a struggle against more familiar brands like Monzo and Starling Bank.
Before new fintech firms enter an already-saturated UK market, they need to differentiate themselves from their homegrown competitors.
Sizing up the competition
When N26 entered the UK in late 2018, plenty of its homegrown rivals had already established sizable presences. Revolut and Monzo were each founded in 2015, and both companies reached one million customers before N26 announced its British launch.
Despite moving into a full market, N26 did relatively little to distinguish its offerings from other challengers. AWired review notes that its consumer accounts lacked features unique to challenger banks (spending controls, round-ups), as well as essentials such as standing orders and overdrafts. Even the marketing campaign looked like it had been copied and pasted from Europe with little thought for cultural differences, leaving UK consumers baffled and confused. Instead of adding new features to compete in a different market, N26 attempted to port its existing products to meagre success.
With so many competitors already entrenched in the market, new entrants should consider offering more tailored products to break in
This lesson still applies today. At this point, plenty of UK challenger banks already provide mass-market products with substantial adoption rates. Monzo, for example, announced in September that it had reached three million customers. Revolut has reported 10 million users in the UK and Europe, while Starling Bank hit one million accounts in November. If new entrants want to compete with these players, they need to do something different.
Finding a niche
With so many competitors already entrenched in the market, new entrants should consider offering more tailored products to break in.
Consider the example of Monese, which CEO Norris Koppel founded when he faced difficulties obtaining a UK bank account after moving from Estonia. By honing in on this pain point, the company has continued to set itself apart even as new competitors have emerged.
This specificity has allowed Monese to achieve sustained, long-term growth. Last month, Finextra reported that the company had hit 800,000 UK users (and 2 million overall), nearly four times the number of customers N26 cited when it announced its departure.
Although Monese entered the UK market three years earlier than N26, its specialised proposition, which includes a cross-border Joint Account, has helped it to thrive in areas other challengers haven’t been able to match. Salaries make up 70 percent of its deposits, according to Finextra, while customer growth has tripled to 9,000 users per day since 2019.
Success is never guaranteed when entering a new market, but if a company lacks a unique product and a set of customers who need it, failure is usually assured. By identifying underserved customers and unfulfilled propositions, new entrants can ensure their futures in the UK remain bright.