Challenger bank N26 just raised $100 million from investors like Tencent and Peter Thiel's Valar Ventures. Now, it's rolling out features like contactless payments to cater to users' evolving needs.

• N26, a Germany-based digital-only bank, just added $100 million in an extension to its Series D fundraise.
• The challenger bank has raised $770 million to date, and is valued at $3.5 billion.
• "We will be using the money to continuously invest in our core markets across Europe and the United States, as well as product and feature development," Nic Kopp, US CEO of N26, told Business Insider. 
• N26 has rolled out products like digital wallet-linked contactless payments, catering toward customers' current needs amid the coronavirus pandemic.
• It's also reduced its marketing spend, and has instead invested time in putting together resources for its customers on how to navigate the financial impacts of the pandemic. 
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Digital-only banking has been on the rise across Europe and the US, and Germany's N26 just nabbed another $100 million in funding to ride that wave.
And with stay-at-home orders in place, consumers are getting used to the idea of banking online.
"The change from the offline, or retail brick-and-mortar industry, to the fully online and mobile industry is being accelerated with the current situation," Nic Kopp, US CEO of N26, told Business Insider. 
The fundraise comes from existing investors and is the second extension to its Series D, which now totals $570 million. N26 raised $300 million in January of 2019 (making it a unicorn), then extended an additional $170 million in July, which took its valuation up to $3.5 billion.
"We will be using the money to continuously invest in our core markets across Europe and the United States, as well as product and feature development," Kopp said.
N26 has raised $770 million to date from investors including Insight Partners, Tencent, and Peter Thiel's Valar Ventures.
N26 was founded in Germany in 2013, and entered the US market in 2019. Globally, the bank has 5 million customers, 250,000 of which are in the US.

Building timely products

In addition to growth in core markets like Europe and the US, N26 will use the funding to continue product development, with a focus on features that customers are looking for now, in light of the coronavirus pandemic.
"We reprioritized some of the work so that we could deliver features to customers that they need now to bank safer with N26," said Kopp.
In April, the bank added a mobile wallet integration so its customers can link their N26 debit cards and pay with Apple Pay. Contactless payments are growing in popularity in the US, a market that has lagged places like the UK and Europe in adopting tap-to-pay.
N26 has also been working on a freemium membership model for its US business, Business Insider has reported. It's already live in European markets, where customers can choose between three membership options. Monthly membership fees become another source of revenue for the bank, in addition to interchange fees it earns each time a customer uses their card to pay.
N26 didn't disclose a timeline for membership options in the US, but Kopp said the product is still in the works.

Cutting back on marketing spend

Like many fintechs and startups, customer acquisition is always a challenge, involving costly advertising campaigns both online and offline, or 'out of home.'
Toward the end of last year, N26 launched an out-of-home ad campaign in an effort to build brand awareness. New York City was one target area, where N26 ads covered subway cars and stations
"We had a fairly large push around New York," said Kopp, "which was very helpful from a brand awareness perspective."
But with New York subway ridership down over 90%, N26 has cut spending on these campaigns.
"We've cut back on some of the marketing spending and notably in this very area where you currently won't see us anywhere outside," said Kopp.
Instead, N26 has focused on publishing content for its existing users.
Many fintechs are doing the same, providing guides and resources to help customers navigate the impact of COVID-19 on their financial situations.

Competition in digital-only banking

Digital-only banking is a crowded space. In addition to N26, players like the UK's Monzo and Revolut have entered the US market, where they'll compete with San Francisco-based Chime.
Chime, which is seeing record sign ups amid the pandemic, is valued at $5.8 billion and has 5 million open accounts in the US. And Monzo, valued at $2 billion, has 3.8 million customers.
These banks don't lend to their customers, so they don't make money on interest. Instead, they rely on interchange fees from card transactions and referrals to other products — Chime, for example, makes a small amount of revenue from referring its customers to insurtechs like Lemonade and Root.
So growing a customer base of active users is key to growing revenue.
And in addition to these venture-backed startups, there are also larger players like Goldman's Marcus and Ally Financial competing in the branchless banking space.
SEE ALSO: Digital-only banks like Chime are seeing record signups amid the coronavirus pandemic. Here's how they drive revenue without lending or charging overdraft fees.
SEE ALSO: German neobank N26 is thinking about a subscription service for US users after topping 250,000 customers in the market
SEE ALSO: 2 investors at legendary VC firm Andreessen Horowitz predict the new ways we'll shop and pay, from livestreaming e-commerce to contactless transactions
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