A young Austrian is mixing up the traditional banking world - smart, aggressive and fast. Valentin Stalf, founder of the digital bank N26 - just voted "Manager of the Year 2019" by Europe's business press - about the Americans' visionary power, convincing investors and what it's like to be on the brink of disaster.
Not much would have been missing, and the name Valentin Stalf would have been another dot on the map of failed entrepreneurs. But from a two-man show, which virtually had its first appearance on a couch in Vienna, together with his co-founder Maximilian Tayenthal he formed the most valuable start-up in Germany with over 1400 employees. With distinctive advertising slogans such as "Banking. But without bullshit", the duo succeeded in winning more than 3.5 million customers in 26 countries for the Internet bank N26. According to their own figures, an average of 10,000 new customers are added daily. In the coming years, 50 million people worldwide are expected to have an account with the bank based in Berlin. For Stalf, 33, the traditional bank world is above all one: cumbersome and from yesterday - and hardly another Fintech enterprise mixes it up as aggressively as N26. The bank rebel is well received by investors. Since Thursday last week, Stalf has also been an award-winning man. The European Business Press (EBP) named him "Manager of the Year 2019" in Sofia, Bulgaria. EBP is the umbrella organisation, to which 40 publications from 27 countries belong, including "Handelsblatt", "Wall Street Journal Europe", "Dagens Industri" and profil.
Since last Thursday, Christian Rainer, editor of profil, has succeeded Hans-Jacob Bonnier as president of EBP.
The award, which has been presented since 1991, has already gone to Ingvar Kamprad (Ikea), Luca di Montezemolo (Ferrari) and Håkan Samuelsson (Volvo), among others. After Herbert Stepic (then Raiffeisen International), Attila Dogudan (Do & Co) and Wolfgang Mayrhuber (Lufthansa), Stalf is now the fourth Austrian to receive the award.
The image of bankers has suffered enormously since the financial crisis. In rankings on the image of occupational groups, bank employees are regularly found in the lower third. Why, of all things, did you want to set up a bank?
I studied at a very classical business school in Switzerland. Most of my classmates went into consulting or investment banking, the very classic professions. I, on the other hand, always wanted to work in an industry that was growing strongly and where I could have an impact early on. So I went into the Internet sector and then had the opportunity at Rocket Internet in Berlin to work in some start-ups in the payment and banking sector by chance.
However, there is still a long way to go before you reach your own bank.
It wasn't that I had a strategy or a battle plan for it from the start. When Maximilian Tayenthal and I founded N26 together in 2013, the basic idea was quite different. In Vienna, we developed a prepaid card for children. It was a rechargeable pocket money card plus app that parents could use to control their children's expenses. With the card you could withdraw money and pay without cash. During the test phase, many customers approached us and said: "Your app is much more modern than my traditional bank's, can do more and offers more transparency. That's where we saw potential: Millions of customers are dissatisfied with the banks' existing offerings. There is a huge opportunity to change retail banking for millions of customers.
The banking business is under attack from many sides. Today, banks can hardly make a profit with traditional services.
Many companies and above all banks are struggling with digitisation. In addition, the needs of consumers have changed considerably over the last 20 years. In the past, you went to the bank branch and did all your business there. Today, everything is done without visiting a branch. These two topics - the problems of banks with digitization and the changed requirements of customers - result in an exciting market.
What can you do better than established banks?
We are focused on three major topics. For one thing: We offer the best user experience, especially on smartphones. When you use N26, it feels more like you're using Spotify. The second topic: There are no hidden fees and we are the much cheaper alternative.
How does it work?
Because we built a bank from scratch. We are not burdened by old IT technology, we use completely new systems. Nor do we have the overhead, like a traditional bank and no towers in Frankfurt or anywhere else. We are very lean.
And the third point?
The brand issue and how we deal with design. Here we position ourselves quite differently from traditional banks. This also enables us to address a different target group.
You founded the company in 2013 and received your banking licence in 2016. This makes N26 one of the few Fintechs with a full banking licence.
There is such a myth about the whole banking business. Of course it's complicated to set up a bank. But you just have to take it step by step: set up a project, write an application, submit it. The process of how to get a banking license is relatively detailed in the law and of course you can bring talent and knowledge into the team. We are lucky that many very good people want to work with us. The regulator also understands that with a digital business model you are doing something that points towards the future. It took about twelve months from the submission of the application to the granting of the banking licence, which is actually very fast.
The rise of your Internet bank was spectacular. Recently, N26 has become Germany's most valuable start-up. Not afraid you'll grow too fast?
It's not about being the first or second per se. Today, with a valuation of 3.5 billion dollars, we are the most valuable start-up in Germany and are among the top 3 Fintech companies in Europe and among the top 10 worldwide. It's cool to see that you can also bring innovation into the world from Europe and not everything has to come from Silicon Valley.
The expectations on N26 seem to be very high. Most recently, you were able to raise $470 million in investor money.
In total, we raised more than $670 million in equity financing. However, this is not a linear development. In the first round of financing we had Angel investors - private individuals from the banking and start-up environment, each investing a few tens of thousands of euros. In the end, we had collected half a million euros in this way. We made our first institutional round with a German and a Swiss fund. In other words, seed investors who provide venture capital. We were able to raise two million. Then we raised ten million from Valar Ventures. This is an American fund from Peter Thiel, the Paypal founder. That was a good signal and also very important for us as the founding team. Attracting American investors with decades of experience in Internet businesses and some of the most successful start-ups in the world has allowed us to learn a lot and think bigger. And as a result, we have repeatedly succeeded in attracting international investors.
How do two young, still relatively inexperienced Austrians get their hands on such renowned donors?
The global start-up environment is relatively familiar. We quickly became the global market leader in mobile banking and attracted a lot of attention because we are turning an old industry upside down and significantly changing banking for many customers. This put us on the list of many renowned investors who would like to invest money in start-ups. But such decisions are not made overnight. Over the years, we have got to know our investors and built up trust. Nevertheless, we speak for every new financing with countless possible financiers. Often it quickly becomes clear that we will not get together. In the end, you agree with three or four financiers on possible investments. We have always worked very intensively on our financing rounds, but were also very lucky to find the right partners. We are very proud of that. For example, the Chinese company Tencent, together with Allianz, led our Series C, in which 160 million dollars were invested. Allianz is one of the most traditional European financial companies and Tencent is probably one of the most fascinating and successful in the world in the last ten years. A unique combination that opens up many new opportunities for us founders. Today we have a great supervisory board with a lot of know-how, which is always at our side.
The 470 million round you mentioned earlier was led by Insight Ventures, one of New York's largest venture capital funds. Winning this fund was exactly the right move, because a few weeks ago we also launched our product in the USA.
All in all, a lot of money you can burn there.
It's not about burning money, it's about building a sustainable business. We are making retail banking easier and cheaper for millions of people. As long as we see that too many customers worldwide still suffer from poor banking products and pay high fees, we will continue to expand. The strong financing gives us the opportunity to do this. We have now established locations in Berlin, Barcelona, Vienna, New York and Sao Paolo and see opportunities to invest in various locations in Europe and the USA in the future. It is not an end in itself to collect as much money as possible. At the moment, we also put a lot into our brand because we see that 60 percent of our growth is organic.
Beyond the success stories, if you think back to the past years, what was the most difficult moment?
There are very different phases in a company. On the one hand, there is the founding period. Maximilian and I quit our jobs. He was a lawyer in Vienna and I worked at Rocket Internet. This first decision, which every founder has to make - to leave a stable employment relationship and instead of continuing to earn money, you take the first few thousand euros, invest them in the company and then have no income - is not easy. Then you try to attract investors. But you can still do that relatively relaxed, because you don't have a big team at this point. If it hadn't worked, we would certainly have had the opportunity to do something different again. We were able to convince investors of our original idea, the children's credit card, relatively quickly and collected around 500,000 euros in capital. We developed it and put it through a test phase with our first customers. After their feedback, we decided to think the idea further and develop a bank account. At that time, however, we had already spent almost all the capital. Such a switch is not easy. First you have to persuade yourself of it, then the employees, who have already put a lot of work into it, and finally the investors.
The admission of failure?
Not necessarily failure, but finding the right balance between pursuing one's own idea and still taking customer feedback seriously is difficult. We were convinced of the children's card and made it appealing to 100 investors. You have to be convinced, because you'll always hear from everyone else that it won't work. But at the same time you have to be able to recognize an opportunity when it opens up - and change your mind if necessary. Once you have convinced yourself and your employees, you come to the investors who are not involved in day-to-day business. When you arrive there after six months and declare that you have spent almost all your capital and want new financing - but the idea for which you originally won it no longer exists - you need a lot of persuasion. That was a tough time for us as a founding team. Maximilian and I knew we were only financed for three weeks. But we already had 15 employees. It was clear that if the investors didn't go along, we would have to shut down the business. A stressful situation. In retrospect, however, it was one of the best decisions we made because it opened up a much larger market. But at the same time it was one of the most difficult phases in the company's history. We were on the brink of collapse.
You recently encountered noticeable headwind: On the one hand, the German banking supervisory authority has dealt more intensively with N26, and on the other your company has become the target of fraudsters. Doesn't sound like an easy phase either.
You have to differentiate. There is not a single hacked account at N26. Nevertheless, our customers unfortunately also become victims of clever fraudsters who ask for passwords or spy on credit card numbers. This is an industry problem and we all have to work together on more education. But the fact that with N26 a real-time notification is sent to the mobile phone with every transaction and is also immediately visible in the app means that our customers can react faster than those of many other banks.
And what about regulatory issues?
Like any regulated institution, we are in very close contact with the banking supervisory authorities. Our company is developing very quickly, therefore an intense exchange is very important. Especially because we have massively increased our staff in the last 18 months. From 300 to over 1400 employees.
Does this massive increase also result from the realisation that a sexy Internet bank without branches cant’t do without employees because customers want to interact with real humans instead of robots?
It was clear to us right from the start that contact with the customer is very important. Many people think that if they are at an online bank, this bank can no longer be reached. But meanwhile every bank is online. Today N26 can process customer enquiries within ten to 30 seconds. This is the standard we offer in four languages in Europe. We have over 400 internal and 400 external customer service staff. Recently, we have also added a chatbot, which answers 20 to 30 percent of all inquiries independently, and our customers are very satisfied with this. But they can also ask for a "real" employee at any time, if necessary. They can then concentrate on customers who may have more complicated problems. Because even an online company lives from its employees. These are decisive for the success of our company.
Interview: Christina Hiptmayr