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Hi all, Julie here.

In case you missed it, last week, German challenger bank N26 announced plans to leave the US market by early next year. I remember when N26 first said it was opening shop in the US in 2019. At the time, I talked to a few employees, fintech investors, and other operators to get their thoughts. It was hard to find anyone that thought this was a good idea.

Some people obviously did though, since the company spent tens of millions of dollars trying to make the US part of its presence. Even a mere few months ago, the company said it was doubling down on the US and had plans to grow its headcount by 75%.

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What went wrong?

Taking a step back though, WHY didn’t it work, and what does this say about the future of other challenger banks that are trying to make a name for themselves in countries outside of their home markets? I asked the Fintech Today Slack Community, and here are some on-background thoughts:

1. Optimization. The US neobank market is increasingly optimized for communities/audiences. There’s everything from SoFi going after the future high earners to Current going after Gen Z and Daylight going after LGBTQ.
2. No clear customer profile. It’s not clear who N26, Monzo or Revolut are actually for. Having better tech than incumbent banks is just not enough anymore. There were also some weird quirks at N26. You couldn't add the account to a credit card for bill pay, the debit card often didn't work at gas stations, and the company launched by asking users to push funds for funding where people got an N26 account and routing number and then N26 said “send money to this address.” Normal in some countries, not normal in the US. This was later fixed by adding ACH debit, but it showed a lack of understanding of the differences between the US and UK right from the start.
3. Foreign Exchange. Very few consumers in the US care about free (or cheap) FX. EU neobanks underestimated how core to their product market fit in Europe that was when they came over. Even before the pandemic, people in the US didn’t travel abroad nearly as much as people do in other countries. That means saying you have better FX rates isn’t a big draw here, and if that’s the only thing you might be doing better than the already established neobanks, well…
4. Crypto. I’m adding this one myself. While a slew of other fintech startups in the US are gaining market share and growing revenue thanks to crypto, DeFi and the like, N26 has yet to enter this business line. I’d assume along with focusing on European operations, crypto will be another area of increased attention.

What’s next?

This isn’t the first market that hasn’t worked out. N26 also bailed on a UK expansion last year after spending a nice chunk of change trying to enter that region as well. Monzo and Revolut are also reportedly struggling to gain market share in the US, so I’ll be watching closely to see if they decide to redirect their efforts elsewhere too.

I’m also keeping a close eye on N26’s LatAm ambitions. It recently acquired a banking license in Brazil, has a team of 40 employees already on the ground in São Paulo, and said it expects to roll out its app publicly in the country within the next year. In its blog post announcing its US exit, it merely mentioned focusing more on Europe and nothing about LatAm. That might mean nothing, but it might be a sign of future news as well.

I should note, however, that despite all of this seemingly negative news, the company recently announced a new $900M funding round led by Third Point and Coatue at a $9B valuation, making it one of the most valuable banks in all of Germany.

Thoughts? Tips? Ping me on Twitter or at julie@fintechtoday.co

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Julie VerHage-Greenberg is the co-founder of Fintech Today, where she focuses on editorial content and brand. Prior to joining, she was Bloomberg’s first fintech reporter, covering Robinhood from before it was a billion dollar company, breaking the news that Plaid was acquiring Quovo, and interviewing executives on Bloomberg TV and at several large conferences.