If you ever thought that every aspect of life and the economy is changing so rapidly and felt like the banking industry is somehow not contributing that much, your waiting is over. In recent years Mobile Banking or Digital Banking which refers to the new wave of branchless, online-only or even smartphone-only banks that are providing an alternative to the traditional banking institutions is getting more and more attention. Revolut, Monese and N26 are one the modern, app-led businesses that provide various financial, money transfer and banking services through your smartphone.
It always felt that banking is a little more complicated than it has to be. Modern consumers don’t want to visit a branch in the city center because it’s time consuming and not comfortable. They wanna manage their money during non-working hours, whenever they feel like it. And when they didn’t get this possibility from traditional banks, new players on the market emerged.
Those companies are start-ups built to make the banking easier and cheaper. They offer complex mobile app with customer support over the chat or video and that’s the only contact with customer. You can do anything online, everywhere in the world and at any time of a day. And all of them offer some kind of free version for which you do not have to pay a dime if used correctly.
How Do They Therefore Make Money?
The main thing I’m trying to do in each of my reviews is always to understand the business model, assess its sustainability and explain how does the way the company is making money affect you as a consumer. Revenue sources of digital banking companies are usually threefold.
First of all, they provide you with a debit card and whenever you pay with their card at the merchant, the merchant has to pay a few % as a fee to the bank which issued the card. Secondly, there are premium accounts which usually cost a few euros per month and other additional services such as withdrawal fees (usually only few hundreds of free withdrawals are free) or FX transaction fees (e.g. Revolut fee charged outside of market hours) or insurance products cross-sold in cooperation with insurance companies. Additionally, they can also offer other type of accounts for businesses.
There is an important difference between Revolut and Monese on the one side and N26 on the other side. First two aren’t using customer deposits and allocate them to loans (as per their current regulation of e-money institutions). As N26 is fully regulated bank, it’s allowed to use customer money in such way. That means that Revolut and Monese can’t currently benefit from interest-free “loan” from customer deposit (Revolut will be able to do so in near future as it was granted the bank licence as well).
To be honest, even fees above monthly allowance are usually lower than traditional bank fees so pricing is definitely fair. As a consumer, you can have a bank account with services for free if you know all the rules and conditions involved.
Regarding financial performance, there are few signs all of those companies have in common. They aren’t profitable nor they plan to be in upcoming years. They’re considered as innovators in the field and are backed by institutions which are sacrificing current profitability for a chance of being part of a future market leader. All of them have some common revenue streams, but expenses are much higher due to development costs and customer acquisition expenses. It isn’t expected that companies will be profitable in near future also by the general public. However, if you want to read through financials for year ended 31.12.2018, those are available online. I wasn’t able to find any public annual report for N26 which is unexpected. I read through some estimates which shows that N26 should be slightly above Revolut in terms of revenue of 58 million pounds.
What Do You Usually Get For Free
All three companies have some common perks which are offered for free. So you can quickly compare how much would you save if your current bank charge you for such services.
- Issuance of debit card
- IOS or Android app with spending analytics and budgeting features
- Interbank foreign exchange rates (rate at which banks swap currencies between one another) which are more favorable than the rates provided by traditional banks to their clients
- Free ATM withdrawals
- No transfer fees
- Features to secure your card by instant freezing of funds through the mobile app
And those perks are exactly the reason why those banks are used by travelers that much. The most significant benefits are the ability to convert currency at the best possible rates, transfer money internationally for free, and spend money across the globe without any additional fees.
Is My Money Safe
In case in N26 which is fully regulated banking institutions, all deposits are insured under the common compensation scheme of EU up to EUR 100,000. Revolut and Monese are currently not under this compensation scheme, however their current regulation dictates that all customer deposits have to be segregated from their own funds in separate accounts. Therefore, in their internal policies they specify where exactly are those funds held (usually some other traditional UK banks). Moreover, under their currently valid regulation, they aren’t able to use customers funds to any other purpose (e.g. to lend them to their clients). Therefore, all the funds deposited to Revolut and Monese account are actually transferred to another banking institution and are held there until the client decides to use them.
|Country of Origin||UK||UK||Germany|
|Users||7 million||1 million||3.5 million|
|Regulation||FCA (UK Financial Conduct Authority) E-Money License since 2016|
European Banking License from Bank of Lithuania from 2018 (not fully operational yet)
|FCA E-Money License from 2011||BaFin ( Federal Financial Supervisory Authority) European Banking License from 2016|
|Deposit Protection||Segregation of customer deposits in other bank’s accounts as per FCA requirements||Segregation of customer deposits in other bank’s accounts as per FCA requirements||All deposits insured up to EUR 100,000|
|Account types and monthly fee||Standard £ 0.|
Premium £ 6.99
Metal £ 12.99
|Simple £ 0|
Classic £ 4.95
Premium £ 14.95
|N26 Account € 0|
N26 You € 9.90
N26 Metal € 14.90
|Debit Card||First card for delivery fee of £4.99 only (not charged when registered via referral link).|
Replacement card for £5 + delivery fee of £4.99.
|Only delivery fee of £4.95 charged||Free except when card was stolen, lost or misapropriated. Then fee of €6 applies.|
|Card Payments||Free||Free except of payments in foreign currency, which are free up to £ 2,000 / £ 8,000 monthly for Simple and Classic plan. No limit for Premium plan||Free|
|ATM Withdrawals||Free up to £200 / 400 / 600 (depends on the account type). After that 2% fee||Free up to £200 / 800 for Simple and Classic plan with 2% fee after that. Free withdrawals with Premium plan||5 withdrawals in € per months free. Fee of € 2 per withdrawal after that|
For withdrawals in other currency fee of 1.7% is charged.
|Foreign currency transfers||Free||Free to other Monese accounts. Fee of 2% (minimum £ 2) charged for transfers in foreign currencies to non-monese accounts||Free|
|FX Rate Used||Interbank Exchange Rate. Most of the time there is no additional fee, but it can apply outside of market hours or for illiquid currencies (up to 1.5%)||Interbank Exchange Rate. Fee included in foreign currency transfers||Real Exchange Rate provided by Mastercard. No additional fee is charged|
|Other services within most basic plan||Spending Analytics|
Revolut Stock Trading
|Spending Analytics||N26 Savings|
|Sign-up bonus||None. Only free debit card without a delivery fee after registration through referral link||€20 for first debit card payment and another €20 after spending €500 in card payments after registration through referral link||€15 for debit card payments above 15 after registration through referral link|
All of platforms mentioned above give consumers commonly used services for very low prices. For people who don’t need full-service banking, don’t need complicated bundles of financial products or are looking for a savings during their travels due to better exchange rate and free withdrawals, it is probably worth trying.
The main weakness for all three platforms is short period for which they operate. The security of their internal systems may not have been tested yet since they didn’t need to face any major data incidents in their history. Moreover, they did not experience any market fluctuations due to potential financial crisis. We will only see how they will overcome such situations when they occur.
I personally signed-up in all three banks and never had any problems. Sometimes, when I’m on the vacation I’m also combining all of them to get the best exchange rate as the pricing is slightly different. And I can’t remember when was the last time I paid for an ATM withdrawal. Moreover, I’m always looking forward and want to be first in line when it comes to some other innovative features such as Revolut Trading.