Change is upon us. The waves of digitization are marching further and further ashore, reducing what were castles to mounds of sand, and causing the old beach crowd to rethink its positioning moving forward. One sector where this is being particularly felt right now is banking, where people looking to open a bank account remotely and to use technology to overcome the old financial barriers that have walled businesses in, have turned to new alternatives. Modern business is no longer bound by the old space and time limitations that structured business in years past.
The ease of communication and data sharing that has come as a result of digital advancement has added a fluidity to modern business that was not there before. As a result, the old financial solutions employed by businesses have become outdated; companies need quicker and more flexible financial capabilities to match the properties that are required of them today.
Although the big banks have made attempts to adapt to the changing environment, perhaps due to a complacency bred from long years at the top, their slowness in doing so and uneasiness in the new field of play has opened things up for fresh blood. As a result, the online banking industry has experienced rapid growth in the past few years and emerged as a happy hunting ground for big investors.
With coffers getting filled by eager financiers and users flocking to this new territory, competition among rival service providers has exploded. We are now in something of a boom for e-banking companies, but, as you will see, the rapid rate of growth has produced challenges in its own right. In this article we are going to take a look at some of the most interesting online banking services that have emerged in this new space over the past few years and how they stack up with each other.
N26 is at the top of our list because of the attention they’ve been getting recently, mostly due to their service launch in America and some difficulties they’ve been having with German regulators. The company’s expansion to the US was obviously a big development, but, founded in 2013 and on the market since 2015, N26 had already made a name for itself prior.
N26 claims to be “building the first mobile bank the world loves to use,” and if the usage stats they provide are true, they may be onto something. In the European market alone, N26 claims to have over 3.5 million clients and €2 billion in monthly transactions. One of the company’s newest features is called “Shared Spaces” and it allows users to share money with others at the click of a button, without having to go through the hassle of a traditional joint account.
However, things haven’t been all roses for the company. Earlier this year, N26 was ordered to improve their fraud prevention practices which were found to be inadequate when it came to money laundering and terrorist financing. The order came from German banking regulator, BaFin, which was concerned with the way N26 was handling transactions flagged due to security reasons.
N26 complied with the bank, and, though this has been something of a source of contention in the industry, as we will see with other companies on this list, the rapid growth the industry has experienced has been both a blessing and a curse for N26, bringing profit and development but also security concerns and workloads that surpass handling capabilities.
Most people active in this sector have heard of Revolut, though perhaps not for the best of reasons. Revolut is one of the biggest online banking platforms on the market. Founded in Britain in 2015, Revolut has reported a customer base of over 4.5 million users — 1.6 million of them in Britain alone. The company is currently valued at about €1.7 billion.
As its price tag and user engagement suggest, Revolut has been wildly successful. People use the company to transfer money abroad, gain access to cryptocurrency and buy mobile phones and overseas travel insurance among other things.
However, Revolut has also found itself in the headlines for the regrettable. First there was a Valentine’s Day advertisement campaign that people found to be insulting and tone-deaf. Then a whistleblower claimed that Revolut’s compliance protocols were extremely lacking and that the conduct of the company’s chief executive merited looking into.
Revolut has denied the claims of the whistleblower and made efforts to mitigate the situation. Currently they remain among the biggest companies in the industry.
SatchelPay is one of the newer companies on our list, debuting just last year in 2018. However, in its short lifetime, the Lithuanian company has been able to rapidly expand its clientele to the point where it currently ranks among the top e-money services operating in Europe.
With multi-currency accounts to perform SWIFT and SEPA payments, and the possibility of issuing unique IBAN accounts, SatchelPay has catered most of all to large businesses that operate in Europe and globally. With SatchelPay, clients can convert funds from one local currency to over 31 others, in a fast and cost-efficient manner. Additionally, private individuals and corporate entities are able to apply for bank accounts online paperlessly and open their accounts in a short amount of time. The simplicity of the platform saw it grow exponentially in its first year of business.
But, as we’ve seen with the other big guns on the list, SatchelPay has experienced some growing pains. The Bank of Lithuania, unsatisfied with the way the company was conducting an obligatory self-audit, temporarily suspended services for the company until it fully complied with the bank’s demands.
SatchelPay, which has been open about the struggles they had in trying to keep pace with the growth they experienced, quickly accommodated the bank and restructured itself to prevent a similar situation from happening in the future. Now that the suspension has been lifted by the Bank of Lithuania, it will be interesting to see if they will continue the blistering pace they started out with.
Sticking around in Lithuania, which has recently become one of the main European Fintech hubs, we come to Paysera. The company, which claims to have a history dating back to 2004, first received its license as a payment institution in 2011, when it became the first of its kind in Lithuania.
Although quite large, Paysera has lost some of its sheen as newer faces in the market like SatchelPay and ConnectPay have emerged in the past couple of years. Compounding this was the unsuccessful STO the company tried to launch back in the spring of this year. However, with yearly revenues jumping to upwards of €10 million, Paysera has a spot at the table with the elite of the industry.
ConnectPay envisions itself as “the digital bank for rapidly growing online-focused businesses.” Also from Lithuania, ConnectPay competes with the bigger SatchelPay, offering clients from the European Union similar services.
Popular among clients dealing in cryptocurrency, ConnectPay also works with people looking to open accounts with IBAN and order prepaid credit cards. Thanks to a partnership with CreditCo, ConnectPay is able to issue cards for €50 with 0.5% transaction fees and 2.5% ATM withdrawal fees.
As you can see with the above-mentioned companies, this industry is taking in a great deal of profit and expanding rapidly, but many are paying the price for that with growing pains and regulatory hiccups. In the coming year, we expect the dust to settle more as the picture of how these companies intend to stake out territory for long term settlement comes into better focus.