Finovation Friday | Europe ahead of US in banking regulations

Happy Friday!

Europe continues to pull ahead of the US in terms of progressive banking regulations. In the past week, two new digital banks have been awarded banking licenses.

Starling Bank received its UK banking license and will launch in January 2017. It has taken 18 months for the bank to complete the licensing process, but it now joins the ranks of others in the UK such as Atom Bank and Tandem Bank. Starling raised $70MM earlier this year.

Number26 has also received its banking license 18 months after its initial launch, and 9 months after submitting its application. Based in Germany, Number26 (now rebranding as N26) operates in 8 countries in the EU. Since launching in January 2015, N26 has acquired over 200,000 customers through banking services offered via a partnership with Wirecard. N26 closed a $40MM Series B round last month, after raising $13MM previously.

Five other banks are also going through the approval process with the Bank of England, and over a dozen more are in active talks with the regulator. We could see a dozen fully-licensed, digital challenger banks in Europe by the end of next year.

Notably, the US has not seen any “challenger banks” receive, or get close to receiving, a full banking charter. I spoke with the founder of a digital-only bank startup who was in discussion with regulators for months. Days before submitting an application, he was told that regulators were stepping back and it would be a waste of time to submit the application.

While change in the US has been slower, there are signs of activity, such as BankMobile, Simple, and Varo Money, but they are being built in partnership with other banks. In addition, Simple was acquired by BBVA, and Varo has yet to launch.

BankMobile has seen success, attracting over 100,000 customers in its first year, and it’s impressive that this was pulled off as a division of $9 Billion Customers Bank. However, this did not require any special support or help to create a regulatory environment which fosters innovative new approaches to building a new banking model.

As long as US regulators continue to delay, talent, capital, and innovation will eventually be exported to other, more accommodating countries. Even worse, consumers will be denied the opportunity to explore new banking business models and experiences.

Commonbond raised a $30MM Series C round, as well as a $300MM in debt to fund loans. They also announced the acquisition of Gradible, a student loan evaluation platform to help you analyze your current loan and compare options such as refinancing, loan forgiveness, and more.

Chatbots are proliferating, with an estimated 18,000 already in use on the Facebook Messenger platform. Trim, a personal finance bot, has raised $2.2MM to help users save money on their unused subscriptions. Dyme helps banks engage with their customers and encourage savings through SMS and Facebook Messenger.

Capital One has announced five finalists for its startup accelerator program. The companies will spend two months developing their products in partnership with Capital One’s engineering teams, and then pitch their final products and hopefully score an equity investment and partnership with Capital One.