The most successful neobank is French, but it is (still) mostly unknown in the rest of Europe
15 June 2016 · 4 min read
Let’s keep it rolling. Now it’s time to talk about the Fintech sector labelled as ‘neobanks’. The buzz around them has increased in the last year, especially in the UK and Germany. But there’s one success story that has not been covered by the media (beyond its home country) and deserves to be highlighted. I’m speaking about Compte Nickel, the French neobank that is leading the way for this Fintech segment.
Well, the usual problem associated with definitions of ever-evolving innovative businesses is that very different firms (with different business models and infrastructure) fall under the same umbrella. That’s also the case of neobanks, which are often loosely defined as online banks built from scratch.
Such a general label comprises firms providing current account servicespackaged with “Mobile First” or “Best User Experience” slogans. But many of them are just user interfaces on top of an existing banking player or partner, i.e. they do not own a banking licence and therefore they still need to rely on other banks’ accounts. Many of these firms do not have a very disruptive positioning (it is more a marketing ploy) and although they are trying to improve the user experience and reduce friction, they are not reinventing anything (at least for now).
However, we also find other kinds of neobanks that have completed the arduous process of obtaining a banking licence, which could in turn be divided into two categories: those that aim to actually compete with banks in retail deposit-taking (banks’ core business activity) and those banks that position themselves as payment institutions working through self-issued bank accounts. An example of the latter is the France-based Compte Nickel, perhaps the most successful (and least known) neobank in Europe.
They started as the bank for ‘unbanked’ people…
Compte Nickel has chosen a very interesting positioning by gearing itself towardsunbanked people. Although this term is usually linked to developing countries’ financial inclusion initiatives for the poor, we also find such a customer segment in Europe. So yes, there are many unbanked people in France, people that are not accepted by banks and so are unable to have a bank account, to have their salary paid by direct deposit, to set up direct debits or to get debit cards.
But more interestingly, Compte Nickel has built a defensible business with a really high barrier to entry, by allowing customers to physically deposit cash into accounts (the unbanked cannot do bank transfers). The model is based on partnerships with more than 1,600 French newsagent shops (2,300 next december, +100 every month), which have to set up a Compte Nickel desktop that registers the cash deposited by customers and updates their account balance. No branches needed. They are also the ones issuing the debit card to the customer. Replicating this distribution model is complex and they have created a barrier to entry in the newsagent shops industry, leveraging their huge capillarity.
…but a more interesting service is about to come
So, although providing services to the unbanked has proved to be a very successful idea, they are definitely more ambitious. The next step is targeting the self-employed. However, their success will still rely on simplicity. In the words of CEO Hugues Le Bret: “We are not a full-fledged bank. People pay for a service that allows them to deposit money and make payments without any extra bells and whistles.”
Recently, a friend of mine working in private banking explained to me that he opened a Compte Nickel for each of his three kids. As you may imagine, he is not the typical unbanked client Compte Nickel was targeting, but their offering really meets his need. So their customer base is expanding fast to new segments. They started at the bottom and they are now going up.
Compte Nickel’s amazing metrics
Astonishingly, after 300,000 accounts opened in 27 months, they forecast reaching 500,000 by the end of 2016. This means they are opening 20,000 accounts a month. But the numbers do not end here:
- They have done more than 40 million transactions already, representing a total of almost €4 billion.
- Their revenue amounted to €8.8M in 2015, with more than 100% growth expected for 2016.
- All these achievements have been built with the €34M they managed to raise.
So, after 27 months they have generated revenues which represent more than 25% of the amount of money raised and they are spending almost no money on marketing because they meet real customer needs, which works amazingly well through word of mouth. In other words, they are not “buying” growth by spending crazy money on marketing.
And I guess this is the main outcome that I would like to convey through this post. Of course, there are other neobanks that have raised much more money, but we are also seeing cases of quick customer acquisitions by charging no fee. What this means is that no money is made. We can debate about the meaning of success, but in the end it is always a matter of clients, revenues, profitability and barriers to entry. It is therefore amazing to see that the most successful neobank in Europe is a Fintech that is practically totally unknown beyond France’s borders (while all the buzz is in the UK).
What amazes me most about Compte Nickel is the traction they have gained due to their value proposition without having raised a huge amount of money. In the end, this shows that when you focus on what really matters, “bullshitting” becomes superfluous. Well done!
This post was originally published at Philippe Gelis’ Linkedin Pulse