By Eric Auchard
FRANKFURT (Reuters) - Number26 is looking to succeed where traditional lenders have struggled, by relying on mobile phones to build a true pan-European bank. The German financial services start-up is expanding into six European markets, making it the first mobile phone bank to straddle the region's borders, it said on Thursday.
Number26 is entering France, Italy, Spain, Slovakia, Greece and Ireland, the latter being a test for moving into Britain, and eventually plans to develop a continent-wide bank.
Founded by two Austrians and based in Berlin, the company revealed plans to offer a MasterCard (N:MA) and basic current accounts via a licence from its partner Wirecard Bank of Germany, which guarantees funds using the German Deposit Protection Fund. Its parent, Wirecard (DE:WDIG), also supplies Number26 with core banking software and transaction processing.
Without branches, legacy computer infrastructure and by relying on selective outsourcing, mobile-first banks can compete with little up-front capital against big banks, all while promising lower lending rates and higher rates on savings.
Number26 also has a jump on rival mobile-first banks including Atom Bank which took a UK bank licence in June and Tandem, which received a licence this week. Both plan to start operating in Britain next year. BBVA (MC:BBVA), Spain's No. 2 bank, has taken a 29.5 percent stake in Atom.
"The model for these mobile start-ups is to compete on fees," said Andrew Copeman, an analyst with financial research firm Aite Group in Edinburgh. "Banks can't afford to go after those rates because they are saddled with big overhead from branch networks and old systems."
Taken by surprise, banks have responded by ploughing more money into fixing creaky systems, rolling out mobile apps of their own and shuttering many branches. Worldwide, banks could cut half their jobs in 10 years as they fight to stay relevant, the former head of Barclays (L:BARC) has said.
"I don't see banks at all as my competitors. They just can't move fast enough," Number26 Chief Executive Valentin Stalf, 30, said in an interview.
CLEAN SLATE
The company, which launched early this year in Germany and Austria, provides more than 80,000 customers with accounts for cash withdrawals, deposits and overdraft services up to 2,000 euros via a slick smartphone app.
"We see the current account as just a starting point," said Maximilian Tayenthal, 35, Number26's co-founder and chief financial officer. Credit, savings and insurance products will follow, he said.
It recently began offering a retail checkout-based alternative to bank ATM machines for cash withdrawals and deposits in Germany. It now counts 6,000 cash outlets including supermarket chain REWE, or more ATMs than Deutsche Bank (DE:DBKGn) and Commerzbank (DE:CBKG) combined.
The Number26 name refers to the optimal number of quarter turns it takes to solve a Rubik's Cube puzzle and is a play on the most efficient route it can find to reinvent banking.
Mobile phone-based banks aim to tear up the rule-book of an earlier generation of direct banks, which used online sites and telephone call centres to woo millions of customers away from bank branches starting in the 1990s.
ING's DiBa and others are now some of Europe's biggest retail banks after being spun out of parent banks to offer a wide array of services created within those banks.
By contrast, Number26 is looking to evolve rapidly into a full-service banking hub, providing not just services of its own but those from third parties. It is in talks to offer money transfers from TransferWise, loans from LendingClub and deposit comparison site SavingGlobal on its platform.
The 75-employee company has raised 12.5 million euros in venture funding. Backers include Peter Thiel, founder of PayPal (O:PYPL) and one of Silicon Valley's top investors, Earlybird Venture Capital and Axel Springer Plug & Play, both of Germany, and Swiss-based Redalpine Venture Partners.