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As British digital bank teams with Amazon and the German start-up expands its premium services. Incumbent banks are emulating the challengers – a risky stance.

The news feeds jitters at traditional banks, that digital upstarts are coming to steal their clients: London-based Revolut is teaming with Amazon, tying in its payment services to the U.S. giant's «Black Friday» shopping.

The move confirms the digital bank's desire to work on e-commerce platforms. Amazon is mum on the terms, but 2020's boom in online shopping represents a lucrative opportunity for Revolut to snag a sliver of transaction fees.

«Myth Debunked»

Meanwhile, Germany's N26 is launching  an offering aiming to fill the gap between free and fee-based accounts. At 4.90 euros ($5.80) per month, the new product, «Smart,» is about half the price of N26's current least expensive offering. Users get access to N26's most popular features, but not extras like travel insurance. 

N26 is expanding its fee-based offering in the hopes of winning new clients, northern European boss Georg Hauer told German trade outlet«IT-Finanzmagazin» (in German): «The myth that clients only seek out a digital bank for a free account has been debunked – traditional bankers are the only ones who still believe that.» 

Vicious Circle

Hauer is tacitly taking aim at banking projects which seek to emulate challenger banks and offer their clients free digital services. For example, Credit Suisse's CSX banking app – while the Swiss bank plans to reduce its branch network at home.

The move is full of potential pitfalls for the incumbents. «It's a vicious circle for traditional banks. By cutting branches and ATMs, they are really chiseling at the last reason had for clients to stay with them,» Hauer warned in the interview. 

Bridging Client Divide

If a client is genuinely dissatisfied with their bank, they will move to a digital bank even if the services aren't free, the German native argues. «There are a lot of clients who are accustomed to paying monthly fees for an account, but aren't happy with the digital offering.»

N26 is seeking to bridge a divide between free and fee that Revolut botched this year. The British challenger angered some clients by raising fees on all accounts and lowering the upper limit for free exchange orders.

By contrast, N26 is leaving the terms of its free accounts unchanged but rolling out a new category to entice clients who view its existing offering as too pricey.

Remodeling Branches