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German online bank N26 said Thursday that it raised a huge $170 million in additional funding, valuing the six-year-old fintech start-up at $3.5 billion.
Based in Berlin, N26 has made waves in Europe with its app-based checking account and debit card. The firm doesn't operate any brick-and-mortar branches, and yet has managed to lure in over 3.5 million customers across 24 countries in the continent.
The latest capital injection is a top-up to the firm's $300 million fundraising, announced back in January, which saw it valued at $2.7 billion. N26 said existing investors, including Peter Thiel's Valar Ventures, Chinese tech giant Tencent and Singaporean sovereign wealth fund GIC, backed this latest round.
"I think investors around the world see the disappointment customers face in retail banking," N26 CEO Valentin Stalf told CNBC in an interview. "At the same time they see it's a huge market."
He added that the firm's eye-watering valuation is "decent and actually low" for a company of its kind. "I think the company has the opportunity to be worth much more in the future," Stalf said. For comparison, British competitor Monzo was recently valued by investors at $2.5 billion in its latest round of funding.
The fresh cash will help N26 ramp up hiring and fuel its global expansion strategy. The company currently has 1,300 employees globally. Having recently launched in the U.S., the German fintech firm now has its sights set on Brazil, and is due to launch their next year.
Stalf described Brazil as "one of the most attractive" and "most confusing" retail banking markets. It will find a direct competitor there in the Latin American mobile lender Nubank.
The investment will also fund N26's product development, as the company looks to redesign its app and bring in new features to drive engagement and win more customers over from the established banks. One feature in the pipeline is a tool called "shared spaces," which will let users create sub-accounts that can be shared with friends.
Think of it as "sharing an account with friends like a WhatsApp group, " Stalf said, letting them split bills or arrange vacations. N26 will also introduce a timeline for spending history, add the ability to connect multiple cards to the app and employ artificial intelligence to highlight irregular and potentially fraudulent transactions, the company's boss said.
The fresh investment brings N26's total funding up to more than $670 million. It follows a series of high-profile deals this year in Europe's fast-growing financial technology sector. According to CB Insights, venture capitalists pumped $1.7 billion into the continent's fintech industry in the first quarter of 2019 alone.
But while so-called neobanks like N26 have attracted millions of customers and plenty of investment, they've struggled to translate their wild growth into profits. Though it's not a profitable company yet, N26 claims it's seeing improving margins on a per-customer basis.
"Most neobanks are not profitable yet because they are growing rapidly and are new companies," Andrew McCormack, partner at Valar Ventures, told CNBC. "N26 has very strong contribution margins on each customer, which are rapidly getting even better — that's why investors are so eager to invest."
WATCH: What is fintech?