The European Union and the UK economies are projected to contract sharply, by 7.5% and 6.5%, respectively, in 2020, according to the IMF's World Economic Outlook in April.
Yet, the grim economic environment caused by the COVID-19 health crisis has not deterred Berlin-based financial technology company insha from pushing growth in Germany with a new app scheduled for July, and going ahead with its European expansion plans.
“Dealing with crises is in our nature. We’re a start-up after all,” founder and managing director Yakup Sezer told Salaam Gateway.
Launched in Germany in 2018, the Albaraka Türk Participation Bank spin-off operates as a digital-only bank that is compliant with Shariah.
Sezer, an Industrial engineer who also serves as Albaraka Türk’s Head of Business Excellence and Innovation, grew the user numbers 45.5% above target to 31,500 in April 2020, delivering a 29 million euros ($32.9 million) transaction volume.
DIGITAL BANKING ADOPTION
The rise of neo banks will drive the global total number of digital banking users to exceed 3.6 billion by 2024, up by 54% from 2.4 billion in 2020, suggests the latest Juniper Research Digital Banking: Banking-as-a-Service, Open Banking & Digital Transformation 2020-2024.
According to EY’s index, the global fintech adoption rate has moved steadily upward, from 16% in 2015 to 33% in 2017, and 64% in 2019.
Awareness of fintech, even among non-adopters, is now high. For example, worldwide, 96% of consumers know of at least one fintech service available to help them transfer money and make payments.
In Germany, around 28% of adults – an estimated 19.7 million – say they have a digital-only bank account, according to Finder.com’s latest survey, and that number is set to grow.
Finder is a company that compares financial products, including credit cards, savings accounts, loans, and insurance products.
Over the next year, a further 8% of respondents say they plan to open a digital-only or 100% online bank account, and an additional 4% intend to start over the next five years.
That means more than 27.7 million German adults are expected to hold online-only bank accounts within five years.
However, the pressing question at insha remains if, in Germany, the product’s target group is big and interested enough to make the company a profitable operation. Islamic banking remains a niche, even in countries with sizeable Muslim populations, such as Turkey and Indonesia.
“Nearly 3.5 million Turks are living in Germany,” Sezer said. “We’ll need to pass 100,000 customers in this market,” he added, reflecting on insha’s ambitions in Europe’s largest economy.
This is a trifle compared to the one million clients across Europe insha aims to acquire by 2023, and a tough task compared to the scale and reach of local mobile bank competitor N26.
Founded in 2013, N26 offers its services throughout Europe. Valued at $3.58 billion, the fintech unicorn recently entered the U.S. market after crossing the 5-million user mark in January.
In May, the firm added a $100 million funding cushion, according to Crunchbase.com. With total funding of over $780 million, N26 is well-placed to face the economic downturn.
Just like N26 and the other leading challenger banks, insha must continuously update its offering and build an attractive brand for its target group.
It does not only want to appeal to Muslim users, even though around five million Muslims live in Germany.
“Ethical business is better for our society,” said the insha founder. This strategy echoes that of Islamic fintechs in the UK such as Yielders.
NEW APP AND PRODUCT DEVELOPMENT
“In July, insha will release a new app allowing customers to transfer money to over 80 countries and featuring new products, including a revenue-generating premium version,” said Sezer.
Right now, insha offers customer transfers from and to any of the 28 countries in the Single Euro Payments Area (SEPA). After ten fee-free transactions per month, a transfer costs 0.25 euros ($0.28).
“Right now, we’re working on finalizing the partner integration,” Sezer commented.
In collaboration with Albaraka Türk, insha will launch a special participation account that offers a return rate twice as high as a regular time-deposit account.
Its customers will also be able to buy and sell gold and other precious metals, and participate in a loyalty program that provides cashback and retail discounts.
“An open banking marketplace will offer insurance, tax, and investment and lifestyle products,” Sezer said. “We’ll present these in collaboration with other fintech companies.”
Shariah-compliant insha seeks no monthly or annual maintenance fee paid on a regular account.
The app furnishes Muslim clients with functions like a zakat calculator and the nearest mosque, and a qibla finder, and customer support is offered in German, Turkish, and English.
Insha customers are also covered by the same national deposit protection scheme extended to banks, that guarantees up to 100,000 euros ($113,000) of a client's money.
Once the new app is launched, insha wants to grow through rapid expansion into France, Belgium, Netherlands, Austria, and the United Kingdom.
“We’re still working out the UK market entry as we’ll be compared to Revolut,” Sezer said, referring to the British fintech headquartered in London. The well-known challenger bank offers services to over 10 million clients and boasts a private market evaluation of $5.5 billion, according to Euromoney.
In a second expansion wave, insha plans to enter the Spanish, Italian, and Eastern European markets.
“We’re tackling it one by one as we need to align with local culture,” Sezer said.
As financing expansion is costly, Sezer alluded to the insha board, making company shares available to investors, venture capitalists, and other financial players.
Injecting 5 million Euros, Albaraka Türk Participation Bank financed the start-up’s first year of operation.
In an economic climate where funding has become more of a challenge, and the competition for cash intensifies, the fintech wants to raise 10 million euros. Over 50% are supposed to come from the parent company, and Sezer is looking for strategic partners for the remaining 4 million.
“We expect seed investments from a UK company and an investment bank,” Sezer said without divulging further details.
As VCs and investors liquidate their assets, start-ups, including fintechs, will need to tighten their finances and cut costs to survive.
CBInsights State of FinTech Q1’20 Report reveals VC-backed fintech investment activity dropped from $7.1 billion across 538 deals in the first quarter of 2019 to $6.1 billion across 404 deals in the same period this year — the worst first quarter since 2016.
Although insha’s main competitors are better-positioned in terms of secured funding and the economic downturn’s arduousness, Sezer believes that insha can redefine the industry.
“Our biggest mission is to disrupt the [banking] industry and to refine what Islamic banking is to others.”
(Reporting by Petra Loho; Editing by Emmy Abdul Alim [email protected])
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