In a competitive digital market, neobank N26 wants to get Brazilians out of debt

A sought-after digital market, Brazil has become an attractive spot for financial technology companies in pursuit of high-growth strategies. Several domestic fintechs have already established their brands in the ecosystem, but that is no detriment to foreign players looking to set foot in Latin America’s largest economy.

But in a burgeoning sector, with huge customer growth in the years of the pandemic, one question arises for newcomers. How will you differentiate yourself from the rest?

N26, a German neobank with over 7 million clients worldwide, thinks it can make a difference. At the core of its strategy is a focus on financial planning and money management, which adds on top of regular digital banking services such as virtual accounts or cards. 

The digital bank has a word for it: “fincare”, or financial care.

Brazilians have been waiting for N26 to offer its services ever since 2019 when the company first announced its intention to set up shop in the country. The move was part of an international expansion strategy that saw in Brazil an opportunity to seize growth rates much harder to find elsewhere in Europe.

Eduardo Prota of N26 Brazil
Eduardo Prota

But the project took longer than expected and was delayed during the Covid 19 pandemic. More than three years after its announcement, Berlin-based N26 is in the “final stages” of its testing phase and moving closer to officially launching, the country CEO Eduardo Prota told Fintech Nexus. The bank obtained a license from the regulator last year and has opened a waiting list for customers through the remainder of 2022. 

Brazil represents a favorable growth opportunity for N26 -which seeks to conquer 100 million clients worldwide- but it won’t be an easy feat. Local players such as Nubank, C6, or Banco Inter have massively grown in size, while other foreign competitors such as U.K.-based Revolut are also aiming at the market. 

Prota thinks financial planning features in the product could stand out in the current environment. “In Brazil, there is too much indebtedness, too little control over expenditures, and a lack of financial planning,” he said. 

N26 opening in Brazil in 2022

According to a recent survey by the National Confederation of Commerce, Goods, Services and Tourism (CNC), this has gotten worse. Seven out of ten Brazilian families are in debt, an increase in the index of almost ten percentage points in one year. The study showed that debt weighted on average on 30% of the families’ budgets as of May, of which credit card loans make the greatest impact. 

Why is Latin America and Brazil in particular a good fit for N26’s international expansion?

Latin America is a fertile ground for financial innovations because its citizens face very specific problems and pain points related to money. Brazil is obviously a special country in this context because it lacks financial health. There is too much indebtedness, too little control, and a lack of financial planning. Many people already have digital accounts and many are willing to embrace new financial services. But there is a lack of precaution in financial habits. What can we do with these facts? We want to help people learn how to take better care of their savings. This includes both those who earn less than they need as well as those who earn a lot. At the end of the day, everyone has to balance spending with income wisely to have more financial health, which is exactly what we want to promote. 

How is the N26 product expected to work in Brazil?

It is focused on bringing in one place both money management capabilities and transfers. One of our main tools is Spaces. Within the virtual account, [clients will be able] to organize the budget in different boxes, each of them generating a return. Today, we manage money mostly in our minds and memory. This creates anxiety and stress. Organizing in [the app] is almost like writing an idea on paper. It is possible to create those “spaces” for fixed expenditures, such as rent or school fees. Also for projects, such as travel, and for organizing day-to-day expenses like food delivery. To transfer money, the user just needs to hold and drag his or her finger between one space and another within the app. We will also offer credit cards with the possibility of virtual cards for different expenditures and a unified statement to facilitate card management.

How is the Brazilian client different when it comes to designing the product?

We are not bringing anything pre-made from abroad. Our proposal has always been to build the entire product from scratch, 100% in Brazil. We have created a local team to promote financial health. This means that everything is being developed and tested here. So we want to go through each step without rushing anything to be able to collect the results, analyze and learn to deliver the best specific product for local problems. That’s why we thought of a co-creation model called N26 Insiders, in which people with access to the beta version of our app test and generate feedback that is used in development. We have 2,000 people, on the way to opening 10,000 more places.

You are planning to launch in a highly competitive market, with many digital players who have already made inroads in acquiring customers. How would you like to differentiate yourselves from other neobanks?

We really don’t even see them as competition but as something different to us. Local fintechs (and traditional banks later) promoted an improvement in the relationship between people and banks in Brazil. Today, thankfully, it is easier for you to open a free digital account and move your cards there and make transfers. Everyone already gives out these very same services. But what’s the point of having multiple cards if you continue to stay in debt? People’s relationship with money hasn’t improved. We think there is a problem in Brazil that has not yet been addressed: people being financially unhealthy. So we want to bring another layer to this offer. Hence the idea of ??fincare, day-to-day practices that help to spend and save according to what the person wants and needs. Being very relevant for Brazilians is a bigger goal than being better or worse than a given fintech.

How would you describe the evolution of the Brazilian financial market so far?

The scenario that fintechs face today in Brazil is similar to that of N26 itself when it launched in 2013 in Europe: people need to improve their relationship with banks. Many people would rather go to the dentist than go to the bank. Facilitating this relationship obviously paves the way for acquiring more people who actually need financial services such as credit. This is undeniable and we are very grateful for this evolution. What we need now is to improve people’s relationship with money itself. Hence our proposal to be a new generation of fintechs focused on financial care. I hope that in the future we can look at several Fincares in the market and say “ok, now our relationship with money is better. What’s the next step?” Right now, you have to talk more about money and understand how to take care of it daily. Brazilians are still in debt.

  • David Feliba is a Latin American business journalist with expertise in capital markets, banking, and financial technology. His work includes interviews with top executives and policymakers in the region and coverage of banking and fintech trends. He has reported from multiple countries across the Americas and has covered conferences both locally and abroad. Over the past years, his features have been frequently published in leading local and international news outlets. Some of it can be read at his personal site. He lives in Buenos Aires.

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