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German neobank unicorn N26 adds an extra $170 million to its Series D funding round

Business Insider | Jul 19, 2019, 07.42PM IST
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N26 has extended its Series D funding round with an additional $170 million investment, bringing the round to a total of $470 million, according to TechCrunch. This gives N26 a valuation of $3.5 billion - up from the $2.7 billion valuation it received in January when closing the first part of its Series D funding round - marking Germany's highest-valued startup, per the company.

Global VC Backed Challenger Banks' Deals and Financing

All investors that participated in the first part of the funding round extended their investment in the startup, including Insight Venture Partners, GIC, Allianz X, and Tencent. N26 has now raised over $670 million and currently has 3.5 million users.

Here's what it means: N26 plans to use the funding to expand its business in the US and Europe and launch in Brazil, and we expect it'll charge these moves with a marketing push.

  • The new funding will help N26 fuel its expansion into the US - where it launchedearlier this month. The neobank previously only operated in European markets, so moving across the pond likely comes with a large cultural difference. As such, having fresh funding will help N26 ensure that its app and debit card are up to speed with what consumers in different markets want in their banking apps. After the US, N26 has plans to expand to Brazil, another move that will require plenty of resources, including for staff.
  • We think N26 might use some of the funds to launch strong marketing campaigns to raise awareness for its products in both its new and established markets. The neobank only rolled out its services in the UK in October last year, and has recently launched a widespread marketing campaign in London, likely as it looks to raise awareness of its services. Brand recognition remains a big issue for neobanks generally: Only 19% of consumers were aware of Atom, the most well-known neobank in the UK, as of February 2018, for instance. So, although launching big marketing campaigns in both newer markets, like the US and UK, and established markets across Europe will likely come with hefty price tags, doing so will help N26 make consumers more aware of its services, likely boosting its customer base.

The bigger picture: While its expansion plans could make the neobank a global player in the future, N26 shouldn't underestimate the regulatory challenge that comes with onboarding more users.

Big funding rounds and growth strategies have been prominent in the neobank space, but N26 shouldn't forget to put the right security measures in place. In Q1 2019 alone, challenger banks globally secured a total of $705 million in funding, and many of them announced plans to expand to new markets recently.

However, this year has also been marked by negative headlines in the neobank space: Revolut got into regulatory hot water in March, when concerns about some of its security measures were voiced, while N26 itself was questioned about its customer service capabilities one month later.

To avoid such headlines in the future, N26 would be wise to use a considerable amount of this fresh capital to boost and support its existing operations and ensure that it's not spreading itself too thin when it comes to new markets in the future.

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