Berlin’s Number26: More Than FinTech’s Pretty Face

Number26

The office of fintech upstart Number26, tucked into a corner of central Berlin between the meander of the River Spree and the city’s surviving, 800-year-old kernel, is unlike most bank headquarters.

It was once the home of the communication arm of the Stasi, East Germany’s feared secret police: now it is adorned with all the decorative must-haves of a ‘Silicon Allee’ startup: angular strip lights hang from the ceiling and casually-dressed 20-somethings sit on brightly-colored chairs in glass-walled conference rooms, brainstorming ideas with post-its and marker pens.

This is Fintech, but with the ‘tech’ very much before the ‘fin’. And Maximilian Tayenthal, Number26’s speed-talking, wide-eyed CEO, is keen to impress it. This is no ordinary finance/technology crossover, he tells Red Herring. This is the future of banking.

Fintech, at least, is soaring: according to Statista, an analyst, global spending in the industry will increase from $3 billion in 2013 to $8 billion in 2018. Brands like Number26, which focuses on a slick, online customer interface, have appeared in the United States. BankMobile and Simple are two of the largest.

But few have tried to cross borders so quickly as CTO Tayenthal, a former legal adviser, and co-founder and CEO Valentin Stalf, who used to work in payments at Rocket Internet, just a ten-minute cycle away. The firm is already operating in Germany; Spain; Italy; France; Ireland; Slovakia and Greece. More will be added soon.

“Atom Bank (of London) is probably the closest competitor on the market,” says Tayenthal. “But they burned more money, went with licenses first, and Number26 wants to be this first pan-European bank. We don’t consider ourselves German: we consider ourselves European.”

All of the countries Number26 currently works in have been through punishing eras of insecurity and austerity, in the wake of 2008’s financial meltdown. That has nurtured a younger generation of Europeans who do not view association with a legacy bank as a point of pride. “There’s a big mistrust in the system,” Tayenthal adds. “We wanted to give these people an alternative.”

Number26 started in early 2013, at the accelerator of Axel Springer, Germany’s largest media company. Back then it was armed with nothing but a small room and $25,000 funding. In April 2014 it moved to a 30sq m office on the German capital’s sprawling Unter Den Linden street, before renting from Rocket brand Zalando.

In April 2015 the company reaped €10 million ($11 million) in a series A round led by Peter Thiel’s Valar Ventures, allowing it to move to its current home on Klosterstraße. Since then it has enjoyed a raft of domestic and international publicity, most of which has noted its sleek interface and simple customer sign-up process.

In January, when this reporter requested an account, it took a few minutes to complete an online form and ten more to confirm security details with a Number26 employee via video call. Two days later, a debit card was delivered.

Compare this to the ordinary German account experience – it usually takes an advance appointment, an hour-and-a-half meeting and a week, or more, waiting for postage – and it’s easy to see why Number26 gained its one-hundred-thousandth customer in January, giving it one of every ten German accounts opened in 2015. German account holders must also pay a minimum €5 monthly fee. There is no charge at Number26.

“The interfaces of the bank, they look like the internet of the 90s,” says Tayenthal. “We believe it’s the area most ready for disruption. You have this massive shift in user behavior, and the incumbents are very weak – they don’t match the expectations of the customer. They still invest very heavily in the branch networks, even though increasing percentages of people are not going to the bank branches any more.”

That is not to say that starting a disruptive bank is easy. The incumbents are possibly stronger than in any other sector. And then there are banking’s myriad licensing and compliance hoops to jump through. Number26 does not have a banking license, instead partnering with Aschheim-based Wirecard Bank AG, which protects funds to the full extent of the German Deposit Fund.

Tayenthal adds, “Generally compliance is an effect of hygiene. Obviously if you screw up with data, privacy, if you lose customers’ money, you’re out of business. But generally we don’t feel that compliance should drive the market. While we want to be 100% compliant, we are focusing on the customer experience.”

One issue that has been raised in recent weeks, is that data including the currency of the account’s most recent transfers can be viewed on the Number26 app. A prominent German blogger suggested that this could pave the way for a security breach. But Tayenthal shrugs off the claim, stressing that it is the default setting of MasterCard, and thus applicable to hundreds of other banks.

“Then it’s a security measure that every card in Europe has, and this chip saves the history of the last stores (it was used in),” he says. “Now you have NFC and it’s easier to read out this data. I think the majority of NFC cards in Germany are storing this data.

“Right now I put myself in the position of the customer and I ask myself, would I really care if the last ten transactions are saved on the computer?” adds Tayenthal. “I haven’t even seen negative comments. One person called customer service, that’s all. I tried with my other bank account and they keep this data too.”

With serious growth and customers taking to its product-first approach (“We don’t define ourselves in terms of Deutsche Bank and Sparkasse, but Spotify, Apple, some of the brands people are really excited about,” says Tayenthal), Number26 is rebundling its offerings, to provide a more holistic service.

This week it announced a partnership with London-based money transfer firm TransferWise, allowing customers to make cheap international transfers in eight currencies, with more to be added. And with “more news soon to come,” Tayenthal wants Number26 to be much more than European fintech’s pretty face.

“We will extend our product range, and what we want to become at Number26 is the primary financial partner of the customer,” he says. “So if you want to save some money for your pension you think of Number26; if you need credit for your car, you think of Number26.”