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.
Over the weekend read this interesting post by Robert Scoble, Microsoft’s star blogger: “The challenge for Europe: keeping tech there instead of the valley”
The interesting bit was the connection that Scoble made between geeks, smoking and how the “smoking culture” in
Europe turns off geeks. He suggested that if “anti-smoking laws” were to be implemented throughout Europe, it would be “a small step to keeping tech in Europe instead of letting it come to San Francisco.”
Predictably this sparked a series of comments – which I suspect was precisely what Robert was hoping for…makes for interesting reading
Matthew Aslett’s original report on Matt Asay’s comments at the Open Source Business Conference (which sparked Robert’s own post) had this interesting nugget of information:
“Where a company establishes its headquarters is becoming increasingly arbitrary because of the virtually connected nature of the open source development process.
For example, JBoss founder, Marc Fleury, has admitted that the company ended up being based in
Atlanta, Georgia because that’s where his wife’s family are based.
Apart from the fact that his wife was supporting Fleury while he tried to get the open source middleware company off the ground, there was no real reason why JBoss could not have been headquartered in Fleury’s native France.”