Dive Brief:

• German online-only bank N26 launched its app in the U.S. on Thursday to 100,000 customers on its U.S. waitlist, according to its press release. It’s the latest European fintech to cross the Atlantic, following the U.K.’s Monzo, which launched last month. Fellow British challenger bank Revolut launched in Australia in June ahead of a planned U.S. launch. Israel’s Pepper reportedly expects to launch in the U.S. in 2020.
• N26 is looking to attract customers with offers of real-time transactions, two free withdrawals at ATMs nationwide and a feature that lets users create sub-accounts for specific spending goals. U.S.-based challenger banks such as Chime and Varo offer similar services, such as a network of fee-free partner ATMs and a direct deposit feature that allows users to access their paycheck two days early.
• A big hurdle for challenger banks is navigating the local regulatory landscape in the U.S. Companies have to gain approval state by state. Monzo, for one, has enlisted the help of an Ohio-based community bank, Sutton Bank, as a partner.

Dive Insight:

The growth curve for challenger banks is steep. U.S.-based Chime has quadrupled its customer base in the past year to reach 4 million users, according to a June report from CNBC. N26 has amassed 3.5 million customers in 24 countries since its European launch in 2015.

Challenger banks are carefully parsing niches to drive their growth. While Chime focuses on millennials who make between $35,000 and $70,000 a year, European crossover Monzo has concentrated on building networks in specific local areas such as Los Angeles, New York and Las Vegas.

A big hurdle for European challenger banks is maintaining their growth while awaiting approval in the U.S. Since the 2008-09 recession, Europe has approached financial regulation with more flexibility than the U.S. Europe’s revised Payment Services Directive and the U.K.’s Open Banking initiative are boosting competition by requiring larger banks to grant third-party providers access to customers’ data. That lets challenger banks gain insights into big-bank customers’ habits, giving them a window in which to innovate.

Additionally, European banks like N26 have used the European Economic Area passport to spread throughout the continent. Through that regulation, firms that are licensed in one of the 27 EU member states can provide financial services in the remaining states without requiring additional authorization. 

But Colin Walsh, CEO of Varo Money, said European challenger banks will face a different and steeper set of barriers in the U.S.

“Everything from regulatory issues to infrastructure for payment systems to consumer preferences must be considered and done within the context of the individual markets,” he said. “There is no one-size-fits-all strategy and companies will have to make major adjustments as they expand into new global markets that have distinct regulatory and consumer characteristics.”

N26 has set for itself an aggressive growth goal of eventually reaching 50 million customers, according to its founder and CEO, Valentin Stalf. It’s launching a federally insured checking account and a Visa debit card through the fintech-friendly Axos Bank. N26 has also raised more than $500 million from investors such as Insight Venture Partners and Peter Thiel’s Valar Ventures.

Venture-backed tech firms have typically emphasized account openings as a measure of growth. That approach, according to Ciaran Chu, the payments cloud lead at ACI Worldwide, “has typically drawn consumers who’ve activated these accounts for temporary uses” — meaning customers may be using other platforms to do the majority of their banking. 

N26 and its digital cohorts, in that case, will have to use their real-time banking, fee-free and sub-account offerings to distinguish themselves from traditional banks, as well as payment services like Venmo and Zelle to find a foothold in the market.