Something strange happened to a few hundred customers of startup, app-only bank Number26 last week — their accounts started closing.
With no explanation other than to cite terms and conditions allowing unexplained account closures, Berlin-based Number26 emailed a clutch of its 160,000 customers to tell them their accounts would shortly be shutting down.
Many customers took to Twitter to complain. This, after all, is a bank that promised to be more like “Uber or Spotify” than a High Street lender.
Number26 told BI in an emailed statement that the account closures were for “various reasons”, including suspicious activity, but admitted at least some of the closures were for a very weird reason indeed — customers using their services too much.
…Essentially, Number26 let users withdraw money for free on the assumption that they wouldn’t really do it very much. But people did use it and it ended up costing Number26 too much money.
This odd incident gets to the heart of a key question asked over and over about the fintech (financial technology) sector — can any of these guys actually make money?
…Many startups have underpinned their promises with services delivered either at cost or with razor-thin profit margins. Think of TransferWise, which charges just 0.5% on top of the mid-market rate on many international money transfers, and Revolut, which lets people spend money at the best rate abroad on its card with no commission.
But these kinds of models aren’t exactly money spinners. While TransferWise’s revenues and total transfers are rocketing, the startup made a loss of £11 million in the year to March 2015, up from just £2 million the year before.
Even Funding Circle — the biggest UK peer-to-peer lender, which takes a cut of loans made over its platform — lost £10.8 million in 2014, the most recent year accounts are available for.
…But critics say many of the business models are unsustainable and simply being supported by the financial teat of venture capital money. The likes of TransferWise and Revolut can only afford to offer such cheap services because of a plentiful supply of free and easy cash from investors that subsidises prices, so the argument goes, not because of any real technical innovation.
…We could be about to see which side is right. VC cash is drying up —with investment in UK fintech startups collapsed 41% in the first quarter of the year. That could spell trouble for business models conceived during the boom times.
Interesting excerpts from Digital-only banks face big challenge to usurp traditional high street giants (emphasis added):
“Only a small minority of consumers strongly agree that (online, digital) providers will offer better service, rates, or security than they receive from their existing banks, and well over half would prefer to avoid banks that lack a track record or do not have a high street presence.”
He added: “Consumers’ primary criteria when selecting banks include whether the organisations have an established reputation and conveniently located branches. This plays right into the hands of traditional banks and leaves the challengers at a disadvantage.”
To emphasise the importance of actual walk-in branches, the analysis revealed that although online is growing in significance as an acquisition channel, more than half of current accounts opened between 2013 and 2016 were arranged in-branch.
“Our research finds that, if anything, younger consumers are even more dependent upon branches for day-to-day banking than those in older age groups,” said Mr Fakhri.
“Given that these new entrants are targeting precisely this younger demographic, they will find it particularly difficult to gain significant numbers of customers.”
…Borrowers are sceptical about non-traditional lenders, with over half stating they do want to use lenders that lack established reputations and a minority agreeing that online lenders offer better rates or service.
Earlier this week, I chaired a panel discussion in London at Digital Business India.
Some key points that emerged from the various discussions were:
- Huge opportunity emerging in digital media/ digital business (probably the fastest growing market globally)
- Specific sectors of interest include education, animation, production, advertising & branding services
- Doing business is not easy and challenges remain
- Very attractive opportunity to leverage the large (and rapidly growing) mobile user base*
I hope to add more flavour to these notes later on…
* India added about 15million new mobile subscribers in Jan ’09.
From last month’s IBEF newsletter:
…Manoj Mondal is the inventor of the crank pedal – he successfully tweaked the pedal of a bicycle to an extent that it generates almost double the torque (force multiplied by the distance from the centre) than in normal circumstances. In other words, the speed of the bicycle increases from, say, 20 km/hr to 40 km/hr.
His feat has already made him the toast of incubators, the green lobby and a host of companies which are coming forward to adapt Mondal’s technology commercially.
Besides, Mondal’s invention is slated to benefit rickshaw-pullers as the Centre for Rural Development has shown keenness to convert 10,000 rickshaws into the crank pedal mode this year…Dr Pradip K Sarmah, executive director of the Centre for Rural Development is banking on the crank pedal “to reduce the drudgery of the 10 million rickshaw-puller of India” . The centre runs a Rickshaw Bank to cater to the urban poor, and already has an improvised rickshaw by IIT-Guwahati, which costs Rs 12,000 a pop with insurance, licence, uniform and the works thrown in. “Mondal’s invention will add speed to the existing force and cost Rs 100 extra,” contends Sarmah.
…Next, he’s working on a prototype where pedalling on a stationary cycle has the potential to dig a bore deep enough to make a drain, and construction major Escorts seems to have shown interest in the new technology, says Mondal…
While this is probably not something that a VC would fund (or that needs VC funding either), it is nevertheless a fine example of low-cost innovation that will make a material difference to the lives of millions (literally)…
Quick notes from a Web 3.0 panel discussion that I participated in [ at the Red Herring ATRE Conference in Mumbai y’day ]
1. Satya Prabhakar (Founder and CEO, Sulekha.com) mentioned: “Scarcest commodity in the world is human attention”
2. Seth of meebo.com talked about meebo and the challenges of monetising web 2.0 startups/ user traffic
3. Gerard Rego (MSC Software) spoke about the bottom of the pyramid markets
4. Gurudatt mentioned how the NetAlter.com might transform the current Internet architecture
I was on the panel that discussed Web 3.0.
I mentioned how:
1. Non-US users of internet (86% of total) growing at 30% vs. 3% growth of US
2. Epicentre decisively moving to Asia (driven primarily by large user base in India and China (e.g. Japan’s lead in mobile payments/ S Korea in broadband
and shared my thoughts on Web 3.0/ and how it is marked by three main features:
1. Internet Unplugged (i.e. going wireless and accessible not just through your PC/mobile but also through your game console, e-book, TV, fridge)
2. Internet 3.0 = Its all about the consumer (Consumers #1 users of semiconductors in the world (vs. IT + Government) AND Consumer IP traffic expected to surpass enterprise in 2008
(ARM has shipped more than 6bn microprocessors to date, mainly due to mobile and the microprocessor in consumer goods )
3. NOT just about the consumer BUT its all about *me* – personalised everything (search, contetnt incl news)
The Challenge is to “How to make it pay?”
I have long believed that it would become increasingly difficult to charge for content and there was only direction in which this was headed: all content (well, almost) becoming “officially” free.
Two recent developments look like nails being driven into the coffin of paid-for content:
1. Beta testing begins for Hulu and
…and at least some of you would find this interesting: Why Newspapers Are Screwed
Thoughts & comments welcome…as always.
P.S. The alert amongst you must have noticed that I have switched AdSense off – more on that later.