According to N26 CEO Valentin Stalf, “N26 Black” and “N26 Metal” are important for the monetization of the fintech bank. All the more important is our guest author Daniel Schulte-Hillen Apple’s market entry in the credit card market. The introduction of the Apple Card is a threat to the N26 core business by a very capable company – and perhaps also a reason to change N26’s core business model.
“Finanz-Szene.de” asked on Friday: What are the implications of the Apple Card for N26? Since I often discuss with Apple about Apple’s Apple Pay strategy and, moreover, have worked on N26 for a while – full disclaimer – I’d like to contribute to the discussions.
N26 Black & N26 Metal: Lifestyle Products
If you look at the premium products of N26, you quickly get the impression that N26 Black (9.90 € / month) and N26 Metal (16.90 € / month) are at heart lifestyle products. Taryn Niesana and Greer Chapman, two of the designers who worked on the Premium products, recently confirmed this in two blog posts:
“I would like to guide you through the process of transforming a bank card into a lifestyle product and what we learned from it.” (Taryn Niesana, Product Designer at N26)
“With ‘Metal’, the N26 design team has been trying to create a brand that not only reflects the premium nature of a metal card, but also provides the ability to embed the product in the user’s lifestyle.” (Greer Chapman, Brand Designer at N26)
It therefore seems that the success of these premium products is more attributable to the physical characteristics of the card than to the additional features such as free worldwide withdrawals or integrated travel insurance. This is important to next compare the Apple Card with N26 Metal – and then point out a strategic opportunity that results for the premium products of N26 and N26 itself.
Apple Card: Created by Apple, not a bank
At its event last week, Apple made a number of announcements centering around what Wall Street has been calling “Apple as a Service” for a while.
The Apple Card is a credit card. (“N26 Black” and “N26 Metal” are debit cards, at least in Europe). The privacy and security features are great and match Apple’s strategic positioning.
Apple Card is designed to take advantage of the iPhone and integrates Apple Pay (which in turn means Apple continues to expand its platform). Apple Card includes the expense analysis and categorization and also a cashback system called Apple Cash (which sounds good, but is unlikely to be implemented in Europe, at least not with the 1-3% cashback in the US). Apple also stands for transparency in the credit section of the offer: “A credit card that encourages you to pay less interest? Imagine that! ”
This is Apple’s smart move to build confidence, the most important fintech currency. And something that distinguishes Apple from less credible banks. As Steffen Hageturm (pseudonym) already wrote on financial scene, the credit part of Apple is a rather traditional business model (Apple gets part of the 13.2 to 24.2 percent interest, which one pays to Goldman Sachs, if the due credit card bill not paid in one fell swoop).
A comparison: The similarities force N26 to differentiate its premium products more
Apple’s physical map is very similar to the N26 Metal map. Maybe it even has a bigger “bling factor” because it’s about “Titanium” and, well, it was designed by Apple and released by Goldman Sachs.
In addition, beyond the physical map, Apple’s value proposition is superior to that of N26. The Apple Card is easy to apply for, it’s more transparent, easier to use, more secure and more private. Apple has basically perfected the value proposition of N26. In addition, Apple has the ultimate sales power, which in turn leads to low customer acquisition costs. Or, as Oprah Winfrey puts it, “Hey guys, they’re in a billion pockets.”
However, there are also good chances that N26 will not have to worry about its premium products, at least not in Europe. The biggest difference between N26 Metal and the Apple Card is in the business model. While N26 charges a monthly fee of € 16.90, Apple monetizes the model on the interest on the loan, which is paid together with Goldman Sachs. It remains to be seen whether Apple will need to adapt its business model in Europe, as young Europeans are not really keen on credit cards and capped interchange fees in Europe do not allow the same cashback levels as in the US. But let’s just assume that Apple introduces its Apple Card model in Europe with the current business model. What would be the implications for N26 and its product strategy?
The Future of N26: Well positioned to translate fintech features into its premium product offering
This part is a bit tricky, as it is always easy to sound like giving clever advice without having to take responsibility and implement it. Nevertheless, to summarize the above thoughts, it seems clear: With the Apple Card you get a lot of the premium feeling without paying the € 16.90 fee per month. Assuming that the recurring fees are important to the business model, as N26 CEO Valentin Stalf points out, how can N26 then create enough value for customers to view the price as justified?
What N26 has done so far is to bundle features in its products that were traditionally included in premium cards: free withdrawals abroad, travel insurance, premium customer service, and affiliate deals. To me, these features do not sound tempting enough to get customers involved to choose the premium products.
So let’s be a bit nerdy in terms of strategy:
The resource-based view argues that it’s resources and capabilities that make for a sustainable competitive advantage. So while N26 is essentially a vertically integrated bank, Apple only cares about the design and tech front-end that a bank like Goldman Sachs needs in the back end. What leads to the question: How can, given this distinction between Apple / Goldman Sachs and N26, the N26 premium products significantly better than the Apple Card and at the same time remain difficult to copy?
In my opinion, it would be best to develop good tech and banking features that go beyond “lifestyle” and bundle them with N26’s premium products. N26 has already taken a step in this direction with “Spaces” and customers love it: If you want to open more than two “Spaces”, you have to be N26 Black or N26 Metal customer. In the context of such a strategy, “more spaces” could become one of the strongest sales arguments for N26 premium products. Especially since N26 has now announced intelligent (ie: non-static) joint accounts (Side note: the network effects significantly increase the customer’s “lock-in effect”) and more: “We will add much more functionality to Spaces. We will add virtual cards that can be added per account. And we will add different account numbers. “(Valentin Stalf in TechCrunch, January 2019).
Summary
A future with “Freemium” as the N26 core business deviates from N26’s current product strategy (at least in the way it was featured in the TechCrunch interview): instead of focusing further on the fintech hub and rolling out new financial products (savings products, Investment products, credit products), in my view, it makes more sense to fully focus on a “freemium” model that goes beyond the “lifestyle” factor of a beautiful card and instead incorporates successful fintech features (for example, all that N26 has announced around “Spaces”). However, that would require a change in understanding: away from N26 premium products and its fees as just a sales driver to the idea that the core business of N26 is “Freemium”. Spotify and Netflix, two of N26’s role models, have shown how successful that can be.
The introduction of the Apple Card is a threat to the N26 core business by a very capable company. You should take them seriously. The new competition can be countered by the development of useful features and bundles, for which N26 is well positioned. But just selling nice cards will probably not be enough. There are now more beautiful cards on the market. And while N26 has succeeded in building a large fintech brand in Europe, Apple remains the ultimate technology / luxury brand. If you can not be better, you better be different.
Also published on Medium.