Make Banking Simple Again a Multiple Case-Study About the Internationalization of the Largest Online Retail Banks in Europe

Bachelor Thesis

Make Banking Simple Again A multiple case-study about the internationalization of the largest online retail banks in Europe

Authors: Anna Nilsson [email protected] Sandro Lehmann [email protected] Supervisor: Pär Vasko Examiner: Susanne Sandberg Term: VT20 Course Code: 2FE51E Subject: International Business

Acknowledgments Firstly, we would like to take this opportunity to show our gratitude to all of our interview partners from Revolut, N26, Monzo, and Monese. Even though they are currently under much pressure, due to the ongoing crisis and the tensions in the economy, they found time to respond to our questions. With these insights into business practices, the study benefits remarkably and can make valuable observations. Secondly, we would like to thank our supervisor, Pär Vasko, who supported us during the whole research process. He guided us to create an interesting study by motivating and providing us with helpful feedback. We would also want to thank our examiner, Susanne Sandberg, as she helped us with setting clear guidelines for this study and conveniently communicated the necessary information. Last but not least, we would also like to extend our gratitude to our fellow students, as they regularly opposed our thesis, which profoundly improved the quality of our study.

Kalmar, May 27th, 2020

...... Anna Nilsson Sandro Lehmann

Abstract

Digitalization is increasing in our society and continues to move in that direction. The shift from traditional banks to online banks is becoming more popular, and with an online bank, the international markets open. Although previous research about internationalization exists, there is no in-depth research on the specific topic of online banks. This study aims to provide information regarding how online banks internationalize, to understand the underlying factors for the process better as well as provide recommendations for both online banks but also traditional banks. Factors such as motivators, the entrepreneur, and resources are investigated to find an answer to the given research question. The way of internationalization is connected to the already pre-existing strategies of global or regional markets. The third theoretical concept that is applied to understand the internationalization process is which path of internationalization is used, either Born Global or Born Regional. This thesis is a qualitative study with a deductive approach. The empirical findings are derived from case studies through semi-structured interviews, and the sampling selection is online retail banks operating in Europe, with more than one million customers. The selected cases are Revolut, N26, Monzo, and Monese, where one interview per bank is conducted. The interviewee’s understanding of the subject is gathered in the empirical findings, through summarizing the transcription of the actual interviews. The researchers are analyzing the internationalization process and present both similarities and differences between the cases and connect it to the prevalent theories. In conclusion, some statements are drawn that highlight the importance of traditional banks to follow the new shift towards more simplified banking with understandable products that aim to help the people. This study, therefore, contributes not only to the theoretical understanding of the subject, but it also offers practical implications both for traditional and online retail banks.

Keywords Online Bank, Retail Banking, Fintech, Internationalization, Financial Inclusion

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Table of contents

1 Introduction 1 1.1 Background 1 1.2 Problem Discussion 4 1.3 Research Question 5 1.4 Research Purpose 5 1.5 Delimitations 6 1.6 Outline 6 2 Literature Review 7 2.1 Internationalization 7 2.2 Factors 7 2.2.1 Motivators 8 2.2.2 Entrepreneur 8 2.2.3 Resources 9 2.3 Global / Regional Strategy 10 2.4 Path of Internationalization 10 2.4.1 Born Global 11 2.4.2 Born Regional 12 2.4.3 Born Global / Regional in the Service Sector 13 2.5 Conceptual Framework 14 3 Methodology 15 3.1 Deductive Approach 15 3.2 Qualitative Research 16 3.3 Research Design 17 3.3.1 Purpose in Research 17 3.3.2 Research Strategy 18 3.4 Case-Study Research Design 18 3.4.1 Sampling Selection 19 3.4.2 Cases 20 3.4.3 Semi-Structured Interview 20 3.4.4 Operationalization 21 3.4.5 Conducting Interviews 22 3.5 Material Collection Techniques 22 3.5.1 Primary Material Collection 23 3.5.2 Secondary Material Collection 23 3.6 Method of Material Analysis 24 3.7 Research Quality 24 3.7.1 Validity 24 3.7.2 Reliability 25

3.7.3 Dependability 25 3.8 Research Ethics 25 3.9 Author Contribution 26 4 Empirical Findings 27 4.1 European Banking Environment 27 4.2 Revolut 28 4.2.1 Factors 28 4.2.2 Global / Regional Strategy 29 4.2.3 Path of Internationalization 30 4.3 N26 30 4.3.1 Factors 31 4.3.2 Global / Regional Strategy 32 4.3.3 Path of Internationalization 32 4.4 Monzo 33 4.4.1 Factors 34 4.4.2 Global / Regional Strategy 35 4.4.3 Path of Internationalization 35 4.5 Monese 36 4.5.1 Factors 37 4.5.2 Global / Regional Strategy 38 4.5.3 Path of Internationalization 38 4.6 Summary of Empirical Findings 39 5 Analysis 40 5.1 Factors 40 5.1.1 Motivators 40 5.1.2 Entrepreneur 41 5.1.3 Resources 42 5.2 Global / Regional Strategy 43 5.3 Path of Internationalization 44 6 Conclusion 47 6.1 Answering Research Question 47 6.2 Theoretical Implications 48 6.3 Practical Implications 48 6.4 Limitations 49 6.5 Future Research 50 7 References 51 7.1 Interview Sources 51 7.2 Published Sources 51 7.3 Electronic Sources 55

Appendices Appendix A: Theoretical Concepts I Appendix B: Interview Guide II Appendix C: Summary of Empirical Findings III

Figure and Table Index Figure 1: Outline (own design, 2020) 6 Figure 2: Conceptual Framework (own design, 2020) 14 Figure 3: Deductive Process (own design, 2020) 16 Figure 4: Estimated number of Customers (Statista, 2020) 19

Table 1: Selection Criteria (own design, 2020) 20 Table 2: Interviews (own design, 2020) 20 Table 3: Operationalization (own design, 2020) 22 Table 4: Author Contribution (own design, 2020) 26 Table 5: Theoretical Concepts (own design, 2020) I Table 6: Summary of Empirical Findings (own design, 2020) III

Abbreviations BG Born Global COVID-19 Coronavirus Disease 2019 EFTA European Free Trade Agreement EU European Union GS Global Startups IBAN International Bank Account Number INV International New Venture IPO Initial Public Offering M&A Merger and Acquisition MNC Multinational Corporation NAFTA North American Free Trade Agreement SME Small and Medium-sized Enterprise USMCA United States Mexico Canada Agreement

1 Introduction There is a current shift in the banking industry that generates a vast research area to study. With increased digitalization in every aspect, the banking sector is proceeding in that direction as well. This study aims to investigate how online banks in Europe chose to internationalize since they seem to do it rather quickly and successfully. In the first chapter, a background about the financial sector and the expected future for the industry is explained as well as retail banking and online banks as they are keywords throughout this study. The following paragraphs contain the problem discussion followed by the presentation and explanation of the research question. The relevance of the subject is, in this chapter, motivated as well as explained.

1.1 Background Banks play a significant function in society by enabling economic growth. Banking companies are financial institutions that save and lend money to individuals as well as to businesses (Pettinger, 2020). In Europe, most residents are conversant with the concept, and according to Statista (2018), of Germany’s 83.5 million people, 69.45 million of them had a bank account at a financial institution in 2018, which is evidential for how large this sector is. However, in a survey done by the Millennial Disruption Index, it shows that 71% of the millennials would rather visit a dentist than a bank (Conway, 2017). As they do not trust the financial advisors, they do not want to visit them. Though, as they will become a crucial target segment, it is important to understand how the millennials work. This observation takes the matter to the rapid growth of online banks that operate entirely without any physical branches. There are three main sectors in banking; corporate banking, wholesale banking, and retail banking. Corporate banking is focusing on corporate consumers; in other words, they are offering banking services to businesses. Wholesale banking, on the other hand, provides services for both private consumers as well as corporate consumers but is mainly focusing on large-scale consumers and offers an all-encompassing solution such as brokerage. In this study, the focus is on retail banking, which provides services and products for retail consumers such as accounts, cards, and loans. Retail consumers are individuals in society that mainly use their product to manage their daily finances (Blanchard & Galloway, 1994). In this study, retail banking is chosen because the subject has great potential for possible future research as it is currently undergoing a shift. The extant literature in this field either covers retail banking before the beginning of this shift or focuses on highly innovative Fintech. The primary service of retail banking is, therefore, understudied, and more interest should be drawn to it. In a world where digital services are becoming more popular among consumers, it is not astounding that the banking sector also proceeds in the same direction (Ignat, 2017). The banking industry has existed since humans got into civilizations even if, at that time, it

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was not the same way of banking as known today (World Bank, 2020). Banks became the current form of institutions that lend money to whole nations and offer retail banking to private consumers in the 20th-century. Considering how banking has changed over the past, it is natural that it keeps developing. In recent years, the shift in banking delivery channels has gone from mostly physical to progressively more digital (Dallerup et al., 2017). Online banks are offering the same services and products as a physical bank but are operating without any physical infrastructure such as bank branches. Even though the financial sector at the moment is controlled by traditional banks, online banks are becoming more common. Although online banks are offering the same services to their consumers as traditional banks do, they create more value to the consumer by lowering fees and streamlining the processes. It only takes a few minutes when creating an account at an online bank, whereas at a physical bank, there is usually a more complicated process behind it (Martino et al., 2017). The shift towards a more digitalized world of banking is relevant in the present and will continue to be relevant in the future. When a transaction is being made, there is no use of any physical components. This shift might lead to a new mindset about banking and make traditional banks obsolete as they could be considered as an old way of managing liquid assets, and within the near future, online banks could be dominating. The only time a physical interaction is somewhat necessary is when having an advice section (Puschmann, 2017). As society already is well familiar with, there are substitutes for a physical meeting such as Skype and Zoom (Allan, 2020). Since the trend of digitalization is rapidly increasing (European Commission, 2020a), also affecting the banking sector, this study focuses on online banks. Fintech is a designation that combines financial and technology into one term. Information technology’s recent evolution has led to an increased automatization of procedures as well as a new different idea of the value chain within the financial sector (Puschmann, 2017). This created new business models for companies as well as attracted new actors that entered the market. The application of information technology and Fintech solutions for companies such as banks is promoting the term and is moving the financial sector into a more digitized state (Puschmann, 2017). The relevance of Fintech for this study is that it enables online banks to operate without any physical contact. It also overcomes any limitations due to the geographic position of the consumer in relation to the bank. The consumers can execute all activities through their devices such as a smartphone or the computer with the help of technological inventions within the banking industry. To get a better understanding of the idea of Fintech, it is essential to understand the origins. Arner et al. (2015) looked at it in more detail and found that it is not a new idea but rather a new term to explain the influence of technology on the financial sector. They imply that the current Fintech movement has been preceded by two earlier technological advancements in the financial sector. The first is the establishment of technological

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infrastructure, through which communication was already expedited. The second is argued to be the digitizing process of banks. During this period, the internal operations in the banks, as well as external processes, including the customers, were digitized by applying new technologies like mobile phones, computers, and the internet. Starting from the global financial crisis in 2008, the current movement in Fintech has gained in importance (Arner et al., 2005), on which this study focuses. Contrarily to the earlier Fintech movements, in this wave, new players emerged on the market and started to compete with the large, long-lasting banks. The newly created online banks competed by better applying technological advancements. Digitalization in the banking sector has not only been a trend in recent years but has become even more critical during the current COVID-19 crisis. As several countries had to quarantine their population completely (BBC News, 2020) or at least infringe their daily lives in some way by making them stay at home, the access to banking services through online channels became even more critical. For a national economy to work, a functioning banking system is indispensable (Demirguc-Kunt et al., 2011). This means that traditional banks that do not yet offer all of their services digitally will have a hard time keeping those services up during the crisis. At the same time, this can also be an opportunity for online banks, as their key distinguishing factor is that their services are all online and accessible from everywhere. With the help of digital banks, people can stay in their homes as most governments are asking or even requiring them to do. An aspect that continues to draw academic interest to online banks is the way of operations compared to the traditional banks. Traditional banks are having a hard time pulling in international consumers and expanding to new markets even within Europe because of the many laws that surround the bank (Petralia et al., 2019). Online banks, on the other hand, are marketing themselves as international banks where it is easy to become a customer irrespective of where they originate. They also offer a simple way of executing transactions in many different countries without overpriced exchange rates or hidden fees (Revolut, 2020a). They do not seem to worry about the different types of financial inspections, like, for example, regulations to prevent money laundering or the financing of terrorism, to the same extent as traditional banks. This makes the internationalization process of online banks an interesting and relevant topic to observe. Therefore, in this study, the internationalization process of different online banks operating in Europe is investigated and compared to find out how, when, and where the online banks choose to expand to new markets abroad. To put this apparently seamless internationalization of online retail banks into perspective, an observation of the internationalization process of traditional banks is made. When those old businesses wanted to internationalize, they posed themselves the same questions as today’s businesses would do; through what mode to internationalize, how significant the commitment should be, and how long-lasting the operation in the specific region will be (Slager, 2004). By conducting a case study of 44 large banks from different countries from 1980 - 2000, Slager (2004) identified several patterns in internationalization. For retail banks in the European context, he saw that they did not

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expand their business in Europe but internationalized mostly to the USA. When moving abroad, the companies typically chose financial hubs to either follow their consumers or to follow their competitors that already established a new presence there. He could also observe, that for Swiss banks, the retail banking was not internationalized at all, even though it nowadays is an essential financial hub in Europe. As Sist and Weis (2018) explain, large banks commonly used entry modes with more substantial commitment, while mostly cooperating with local businesses. Local financial institutions can supply knowledge about local policies and can also ease the process of entering a market for a foreign bank. This includes investments through Mergers and Acquisitions (M&A), which were described as equity entry modes, and processes of collaboration like joint ventures or cooperation with local banks, which were titled non- equity entry modes. Due to the strict regulations in the financial markets of some regions, those were the only options.

1.2 Problem Discussion Although there is existing research on the internationalization process of companies working in the financial sector, the specific field this study is looking at is not yet explored. Extant literature has previously focused on the internationalization process of traditional banks, that have physical facilities (e.g. Engwall & Wallenstål, 1988; Focarelli & Pozzolo, 2005). These studies focused on large companies that already had a long history and had, therefore, a completely different starting point compared to online banks. Depending on the focus of their research, they found different results, although in connection to the topic at hand, they, in general, found that the traditional banks follow other banks when internationalizing to large financial hubs. The banks preferably expanded through M&As (Sist & Weis, 2018) with other established financial institutions in the region. This also indicates that traditional banks follow a rather incremental process of internationalization as they start with well-established markets and expand from there. Furthermore, they keep their risks low by cooperating with locally established enterprises. Recent research that focuses on Fintech companies aims its attention on innovations in this sector and looks at their development from a comprehensive perspective (e.g. Arner et al., 2015; Schueffel, 2016). Existing research, in general, agrees that the financial sector has not yet wholly undergone the digital revolution, and, therefore, provides many opportunities. The researchers in this field ascribe the sector to a bright future with many possibilities to create and seize demand from consumers. Recently the internationalization of those Fintech startups has been studied by Mesaros and Turunen Forsbäck (2019), but research on this matter is still scarce. In their study, they focused on Fintech companies in general with case studies of companies that offer new products to the market, which increases the uncertainty about the demand for it from inception. This might be different when observing a saturated and old market like retail banking. In this market, it is not about reinventing the wheel but instead increasing the efficiency and therefore augmenting customer value. The underlying service that is offered is, therefore, already well developed and comes with less uncertainty.

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Compared to the already extant research, this study, aims to look at the internationalization process of a digital bank that is offering the core banking service of retail banking. This specific field has been understudied (Knight & Liesch, 2016) but shows promising opportunities for further development, as it may not seem as relevant since it is not a novelty but rather a basic need. Though, as already explained, during the ongoing crisis, those essential services that the society is taking for granted are becoming more evident as they are getting harder to deliver to the consumers. The aim of this paper is, therefore, to go back to the basics and to investigate those in more detail, as they lay the groundwork for many future companies trying to compete in the financial sector. The problem at hand is, therefore, essential to be researched for a clear groundwork in academic research but also interesting for affected businesses to adapt accordingly. Only when correctly understanding what the other companies have done and how they progressed through their internationalization, can a new Fintech company learn and evolve. Traditional banks, as well as online banks, can make use of this study’s results in the future when they want to derive an effective internationalization strategy.

1.3 Research Question

The process of handling international affairs of a traditional bank and an online bank differs in many ways. When broadly observing the different approaches to the internationalization of online banks, it seems as if they tackle the issue more successfully than their traditional counterparts. The marketing of online retail banks towards an international consumer who operates in an global environment transcends how the traditional banks see that type of consumer. To be able to observe this phenomenon, a better understanding of the internationalization process of online banks is needed, and the question of this research is, therefore, as follows:

How do online retail banks internationalize?

The research question is deliberately posed as an open question to exploit the possibilities of an exploratory study entirely. Through this, the focus is kept broad to not fall into the trap of fixating on a single topic. The guidance for answering the question is based on the theory. By observing the factors, the strategy, and the path of internationalization, an ultimate answer is proposed in the conclusion.

1.4 Research Purpose The purpose of this research is to gather profound knowledge about the internationalization process of online retail banks and to understand its underlying factors better. This thesis explores and describes how online retail banks internationalize. By analyzing different cases and connecting the findings with the prevalent theories, it contributes to the expansion of the understanding of the digitalized retail banking industry, that presumably is undergoing a shift. The aim is to display the internationalization approach in this reframed industry to either provide an aid for future

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retail banks that are trying to internationalize or to make suggestions to traditional banks on how to adapt their internationalization process to the new circumstances.

1.5 Delimitations This study does not compare the performance of Fintech companies in the retail banking sector based on key performance indicators and their financial statements but is focusing on their development in comparison to the internationalization actions that they take. It is limited to financial institutions and investigates only companies that have their home market in Europe, even though they might be acting in other markets as well.

1.6 Outline

• To begin with, the current economic background as well as the circumstances in the banking sector are described. Through this, the Introduction relevancy of the subject and the problem at hand becomes obvious.

• In the literature review the existing theories around the problem are discussed. To put the findings into an academic context, a thorough Literature research of the existing groundwork is necessary. Review

• In this chapter, the research methodology is explained. Furthermore, the reasoning behind the chosen methods is displayed. Methodology

• After conducting the research according to the methodology chapter, Empirical the findings are listed and summarized in this chapter. Findings

• This chapter integrates the findings of the empirical research with the theoretical framework. It is then combined with the voice of the authors of this study to display possible shortcomings or discrepancies Analysis to extant literature.

• In the conclusion an answer to the previosly stated research question is given. Furthermore, possible impacts of the findings on the current Conclusion economy or the existing academic research are presented.

Figure 1: Outline (own design, 2020)

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2 Literature Review In this chapter, the prevalent literature on the chosen topic is displayed and discussed. Firstly, the underlying topic of internationalization and its origins are described. After that, the focus is shifted to the factors, namely the motivators, the entrepreneur, and the resources, that influence the internationalization decisions. Lastly, the field of strategic decision on global or regional business is introduced to conclude in the respective streams of Born Global and Born Regional.

2.1 Internationalization Although there is not one specific definition of internationalization, many different researchers have tried to capture this phenomenon. The most influential theory in this field is the Uppsala Model of Internationalization, which was first introduced by Johanson and Vahlne (1977). This model is based on the theoretical framework that a company chooses to internationalize to other regions that bear incremental uncertainty. The uncertainty is based on the psychic distance of a region, which means how different the geographic, cultural, and social factors are to their circumstances. In this model, a company chooses to not only first internationalize to countries with less psychic distance, but they also start with the least possible commitment and gradually increase from that. The basic model was later revised to consider the newer ideas of the network effects (Johanson & Vahlne, 2009). In this revised model, the theory is that the business environment consists of networks and relationships. If the company is not part of those networks or does not have access to them, then it can be left out from possible opportunities, and, therefore, the business might fail. Internationalization was in earlier years thought to be only relevant for large scale enterprises that could use their economies of scale, although this myth has been debunked (Naisbitt, 1994). With the analysis of small and medium-sized enterprises (SMEs) and start-ups, the original models were revised, and new ones were proposed. When studying this kind of companies, the researchers found a different approach to internationalization than the prevalent theory depicted at that time. Theories of Global Startups (GS) (Oviatt & McDougall, 1994), International New Ventures (INV) (McDougall et al., 1994; Oviatt & McDougall, 2005) and Born Global (BG) (Rennie 1993; Knight & Cavusgil, 1996; Madsen & Servais, 1997) were created based on the observation of the internationalization process of SMEs. For the ease of reading, those different terms of a similar phenomenon are combined into one definition, and the term Born Global is being used throughout the study.

2.2 Factors

To understand the influences on the internationalization process, the study first examines existing theories about the factors that initiate and enable it.

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2.2.1 Motivators As this study inquires about the internationalization process of SMEs, it is essential to have a framework of what motives a business could have to go global. Dunning (1993) distinguished four different motives.

Market-seeking: Companies go abroad to find new customers to increase their sales.

Efficiency-seeking: Companies go abroad to lower their costs.

Resource-seeking: Companies go abroad to gain access to resources.

Strategic asset-seeking: Companies go abroad to get strategic assets.

According to this approach, all motivators to go abroad can be ascribed to one of those groups. Several other studies go more in-depth into the different stimuli that inspire a company or a founder to go abroad (e.g. Leonidou et al., 2007; Stouraitis et al., 2017), though most of the factors can be clustered into these four basic motives. Due to the scope and the focus of this study, the four basic groups are applied, rather than the more complicated ones. When observing the banking sector under these prepositions, some similarities can be found. In a study about commercial banks in the USA, Berger et al. (2017) found that the banks moved abroad mostly to find new consumers but also to lower their operational risks by diversifying into different markets. Their research shows that in this process of internationalization, the risks accompanied by moving to a new market outweigh the benefits of diversifying. Therefore, the often-mentioned motive of moving abroad to minimize risks by diversifying could not have been the driving forces behind the bank’s decision. This decision may have been made out of a managerial urge of someone wanting to build up an empire, even though it might not be beneficial to the company. This relates to the studies about the internationalization of SMEs, as in these enterprises, the manager is thought to be much more influential than in large multinational corporations (MNCs) (Knight & Cavusgil, 2005).

2.2.2 Entrepreneur When observing BGs, the importance of the founder, or the founders, as many SMEs nowadays consist of a group of founders, becomes obvious. In a smaller company, the influence of the top-level managers on the whole company and the course of action is vastly greater than that of their counterparts in MNCs. Knight and Cavusgil (2005) observed how important the manager in this equation is as they are the driving force behind the internationalization process. Not only their motivation is important for the acceleration of this process but also their knowledge about the internationalization. This means that a more experienced board positively influences the expansion strategy of a company (Gleason et al., 2006). This relates to older concepts of internationalization like the one from Johanson and Vahlne (1977), in which the increased experiential knowledge

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about a region leads to greater commitment. In this newer theory, the knowledge does not necessarily come with the whole company but is rather ascribed to the founder. It also possible that this knowledge has already been gathered in earlier occupations of the manager or through personal experiences (Weerawardena et al., 2007). It does not have to be generated within the context of a specific company but can be translated from one context to the other. The capabilities that are required by an entrepreneur are divided by Karra et al. (2008) into three different fields. An entrepreneur should be able to identify an opportunity for economic action effectively. Only if these opportunities are recognized, they can be acted upon. Secondly, the entrepreneur must manage to bridge between different institutions. This institutional bridging enables the company and the founder of it to work in different contexts. When applying processes from the home-country to a host-country, these might need to be adapted or changed to fit into the new environment. Lastly, an entrepreneur should have the capacity and the preference to work cross-culturally. If this skill is missing, the entrepreneur would be isolated from the surroundings and cannot effectively collaborate with locals of the host country.

2.2.3 Resources As Oviatt and McDougall (1994) already account for in their early definition of the phenomenon, the companies use resources in an international context. Although, as the BGs normally consist of SMEs, the resources available to them are limited and not as abundant as with MNCs. It becomes, therefore, more important to act in different governance strategies, where resources do not have to be internalized into the company but must be usable by the company (Oviatt & McDougall, 2005). As an early internationalization for a small company can be riskier, it gets even more difficult for those companies to gather the required resources by traditional means, like, for example, bank loans. The enterprises must, therefore, find other financing options, which, according to Gleason et al. (2006), they found in venture capitalists. They observed in their study that BGs were able to attract venture capitalists more easily. Due to the inability to ask for regular loans, the debt-leverage is lowered, and the possible returns for the shareholders are increased. As BGs are comprised mostly of SMEs that are newly founded, the typical characteristics of those apply to the BGs as well. This means that this type of company rarely possesses many tangible resources like a plant, equipment, and financial resources (Knight & Cavusgil, 2004; Freeman et al., 2006). These resources allow large MNCs to set up a base of operations in another country if they feel the need. This way, they show a strong presence in the new market. However, BGs are equipped with intangible resources, which are generally more knowledge-based (Rialp et al., 2005). Their products or processes usually offer a higher degree of innovation. This might be another reason for their way of internationalization, as they do not commit enormous resources to one region and are, therefore, more flexible to move around.

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These knowledge-based resources are also where one would find the competitive advantages of a BG. By knowing how to apply new technology in a pre-existing context or a newly created one, the firm can meet the demand of the consumer. Often this specialized knowledge leads to a driver of early internationalization (Knight & Liesch, 2016). Other influential preconditions consist of knowledge about the market by, for example, having an extensive network (Freeman et al., 2006). This does not only enable the founder to gather information about how to run a business but can also offer the company access to distribution and sales channels (Coviello, 2006). The network of the founder can furthermore expedite the learning process and especially help them to gather information about internationalization (Varela et al., 2015).

2.3 Global / Regional Strategy When a company decides to go international, influenced by the beforementioned factors, a strategic decision of the market perception must be made. Rugman (2005) observed in internationally acting companies a trend to a regional internationalization, rather than a fully global approach. This means that even though the companies might be acting on a global scale, they are predominantly acting in a specific region. The discussion of this differing approach further elaborated in Chapter 2.4. From Rugman’s (2005) observations, he, therefore, implicates a strategic change in the internationalization process. Companies should no longer focus on a global strategy but rather on a regional one. This idea is being contradicted by Yip (2001), who proposes to companies to first set up a global strategy to then derive from that into regional and national strategies. Having a global strategy enables the company to better use economies of scale by applying success factors to the new environment and ramping-up the domestic production to fulfill the international demand. Yip also points out, that a too general strategy on a global level can be hurtful to the company, as over-standardized products or services might maximize economies of scale effect, but might not meet the consumer’s needs and therefore not generate enough demand. The effectiveness and applicability of those respective approaches have yet to be analyzed. Delios and Beamish (2005) found through the observation of Japanese firms that strategic orientation correlates with the performance of companies. They came to the conclusion, that firms that had a home-region oriented strategy reach a limit at some point, because of the size of the market, and are not able to move to other regions easily. They, therefore, proposed regional strategies that are not merely focused on the home-region but rather on several regions.

2.4 Path of Internationalization As previously mentioned, different approaches to the topic of BG are applied in academia. The path of internationalization is commonly used in academia to describe the way a company expands to other markets (e.g. Hutzschenreuter et al., 2007; Kahiya, 2013). Depending on the strategic perception of the international markets, this path of internationalization might differ.

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2.4.1 Born Global Rennie (1993) discovered in his study, that the change in electronic process technology and the simplification of communication across borders made it easier for companies to expand to other regions even without a lot of resources (Oviatt & McDougall, 2005). The competitive forces did no longer solely lie in economies of scale of large MNCs. They rather existed in developing niche markets, or as Knight and Cavusgil (2005) described it, the technological or cost leadership in these specific areas. This is also due to the fast- changing and more diverse interests of consumers, which can be better served by SMEs as they can adapt easier than the large corporations. This phenomenon showed that the traditional models of internationalization, which rarely included SMEs as they were thought to be incapable of going international, must be revised and adapted. Consequently, theories of BGs were created. The theory of a BG encompasses a company that operates in an international context right from the foundation or shortly after that (Rennie, 1993; Knight & Cavusgil, 2005). Shortly after inception, in this context, is described as three years after the foundation (Rennie, 1993). The definition of an INV by Oviatt and McDougall, which is widely applied in academia, defined this phenomenon as “a business organization that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries” (Oviatt & McDougall, 1994, p.49). This definition focuses on any actions in the value-chain that is internationalized, rather than more specific definitions where solely the output side and its degree of internationalization are being observed. Although it is difficult to define when the inception of the business happens clearly and that the internationalization rarely starts right at that moment but more often shortly after, is this definition a good explanation of the subject at hand. The different definitions of the same phenomenon of fast internationalization are comprised of several defining factors. Madsen (2013) found the three factors in which a BG can differ to be:

Speed: The length of time until a company chooses to act internationally.

Scope: The number of countries a company chooses to act in.

Extent: The percentage of sales from different countries.

Depending on the levels of these three factors, a company can be more or less internationalized and can be categorized by that (Madsen, 2013). As the researchers in this field have yet to find a consensus about at which levels of these three factors a company can be called international, it is difficult to define a company as such. For this study, a fundamental understanding of international is applied. A company can be called BG if it internationalized in the first three years after the foundation and is generating sales across borders in at least two countries other than the home country. For this study, the extent of internationalization is less relevant and is, therefore, not the focus.

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2.4.2 Born Regional Based on the beforementioned theories, new streams emerged. While studying firms in the USA and Denmark, Knight et al. (2004) recognized that the companies in Denmark internationalized mostly to other European countries. Similar discoveries were made by Lopez et al. (2009) in a Costa Rican context, where the companies seemed to internationalize more gradually than first expected. These companies chose to first move to other countries in the same region and still have the largest proportion of their transactions in the region. Therefore, it was questioned if these companies are working in a global context or rather in a more regional context, although still operating in multiple countries. This theory of a regional focus was further manifested in the study of Rugman and Verbeke (2004) in which the 500 largest companies in the world were examined. In this, the three regional clusters of operations could be identified as the North American Free Trade Agreement (NAFTA), which was replaced by the United States Mexico Canada Agreement (USMCA) but still encompasses the same region, Europe and Asia. Although this triad of regions is very broad, most of the companies acted foremost in their home region. Only very few of the observed companies were acting in a global context, that exceeded the regional boundaries. Behind this regional internationalization process, it was argued that the liability of foreignness was the main factor that influenced this development (Rugman, 2005). The liability of foreignness encompasses the risks that are accompanied by entering a foreign market in terms of differing languages, cultures, regulations, and knowledge about the market. Those factors are claimed to be less important or not as different when acting in the beforementioned regions. This can be exemplified by showing the set-up of the regions, as they consist of countries with strong economic treaties, like the European Union (EU) and the European Free Trade Agreement (EFTA) or the USMCA (formerly NAFTA). These treaties act as a strong barrier for the manufacturing sector to act inter- regionally, as the business is intra-regional less affected by tariffs and taxations. For the service sector, on the other hand, trade barriers and the corresponding treaties are less important. For this sector, the other factors of liability of foreignness are essential. For the banking sector, the local government regulations are crucial, as the industry is highly regulated due to the systemic importance to the economy. Rugman (2005) further argues that the regulations in the financial sector are generally made on a national or regional basis. This theory of regional internationalization stands in contrast to extant literature about global internationalization theories (e.g. Gupta et al., 2008; Jeannet, 2000; Yip, 2001). In these, it is argued that MNCs should act with a global strategy in mind to exploit the potentials of global business fully. Only by having a global mindset, which acts as a cornerstone to derive more detailed regional strategies, can those drivers like economies of scale, cost minimization, and increased competitive leverage be used. Though it is still an open discussion about the effectiveness of the two different approaches of a regional or global market. As those are macroeconomic theories, it might not apply to every sector similarly. It might, therefore, depend on the researched sector which approach is more

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effective. A global strategy that then goes more into detail or starting with regional clusters and build several strategies on the respective contexts. When talking about regions, it is also important to show that they are developing and evolving (Rugman & Verbeke, 2004). The regionalization is open-ended and always changing. By opening the domestic market to other states or joining economic unions, a country can approach or even enter one of those regions. The term is, therefore, not strictly bound to geographic interpretations but is rather overarching.

2.4.3 Born Global / Regional in the Service Sector Although the study of Rugman and Verbeke (2004) focused on sales, which represent downstream value-chain activities and did not consider the upstream activities, it can be applied to the service sector. In the service industry, it is difficult to disconnect upstream from downstream activities, as they are interlinked in creating value for the consumer. This observation motivated Stabell and Fjeldstad (1998) to adapt the original value-chain model first introduced by Porter (1985) to a more cyclical model in which no real up- or downstream activities exist. In their model, the service would continuously progress and improve to generate more value for the consumer. The originally so-called downstream activities would directly influence and be followed by a further upstream activity, which consequently changes the downstream activities again. Therefore, the sales in the service industry can be considered as a good indication of the internationalization for a service providing company like a bank. Contractor et al. (2003) differentiate the service industry and the respective internationalization even further. They divided the sector into a knowledge-based and capital-based subsector. Knowledge-based firms mostly rely on their human capital, like, for example, advertising, market research, and financial services, whereas capital-based firms have a high initial investment into basic means to deliver the service, like as example aviation, construction, and hotels. When observing the internationalization process, they discovered that knowledge-based services are generally more internationalized. This means that even though the service industry is generally less internationalized as the manufacturing sector, banks could still profit from their knowledge-based business model that makes it easier to internationalize compared to capital-based businesses. When further venturing into the details of the study of Born Regional (Rugman, 2005), a clear pattern for the observed banks becomes obvious. Almost all of them are, according to Rugman’s definition, home-oriented. Although this does not mean that banks are not international, the extent to which they internationalize across their regional borders is rather low. Banks can be internationalized to a large extent, some banks have the majority of their sales international, but not originating from other regions as their home region. Especially in Europe, this trend becomes evident, since the European banks are more internationalized than the large banks in Asia and the USMCA region (Schoenmaker & van Laecke, 2007). The observation of European banks is, therefore, beneficial.

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2.5 Conceptual Framework The following Figure 2 summarizes the literature review in a graphical representation. In the figure, the main concept of the internationalization of online retail banks stands in the center as it is the focus of this study. The three surrounding bubbles are the identified influences that contribute to the actual internationalization process, namely the underlying factors, the strategy, and the path of internationalization. This contribution is being displayed by the intersection of the bubbles. As this study is of qualitative nature, no implication about the correlation or the degree of influence can be made. The intersections are merely a visual aid to display the interdependencies between the two respective topics. The same applies to the connections between the surrounding topics. Those topics have an influence and are dependent on each other, though, as previously mentioned, the degree or the direction of influence is not a focus of this study. The aim of the study is to explore these different topics rather than explaining their relationships.

Figure 2: Conceptual Framework (own design, 2020)

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3 Methodology This study is set up as qualitative research with a deductive approach. The empirical findings are gathered by semi-structured interviews trough a case-study research design. In the following chapter, the research approach, method, and design are presented, followed by empirical material collection techniques and case-study research design. After that method of material analysis, quality of research, and research ethics are explained. Lastly, the author’s contribution is listed.

3.1 Deductive Approach When implementing a business study, two different traditional approaches can be used depending on how the study should be conducted. The chosen approach describes the relationship between the empirical findings and the theory. The different approaches are inductive and deductive. The inductive approach starts with empirical findings and wants to create new theories, that help to understand a phenomenon. This approach can be used when knowledge in the specific field is insufficient, and a hypothesis cannot be stated until the empirical findings are completed (Bryman & Bell, 2015). The deductive approach is used when the empirical findings should be collected from the guidance of the theoretical part and is the most commonly used approach, not least for the reason that it holds fewer risks. In a study with a deductive approach, the researchers have an assumption, either from earlier research or from their knowledge, that the study aims to confirm. In this case, the theory is used as a starting point for the empirical findings (Ghauri & Grønhaug, 2010). Another approach that exists is the abductive approach that can be described as a combination of both the deductive and the inductive approach (Alvesson & Sköldberg, 2009). Bryman and Bell (2015) argue that when implementing a qualitative study, an inductive approach should be used. However, this study applies a deductive approach, which means that the conceptual framework is crafted first with the help of relevant theories. Through this, the operationalization, as well as the interview guide, can be derived from the stated theory to gather the empirical material. Even though this study does not have a clear hypothesis beforehand, the aim of what the researchers want to investigate is already predicted. Furthermore, extant literature revolves around the phenomenon and is used to gather empirical findings. The researchers in this study, therefore, argue, despite some scholars’ opinion, that a deductive approach is suitable for this type of qualitative study where the theories are untested but predicted. This means that this study does not go back and forth between theory and empirical findings since the theory is already settled before the start of the empirical material gathering. The methodological process throughout the study is displayed in Figure 3.

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Theory

Empirical Collection

Analysis & Conclusion

Figure 3: Deductive Process (own design, 2020)

3.2 Qualitative Research When engaging a thesis, the aim is to answer a given research question, and the research method explains how the answer is found (Kumar, 2014). There are mainly two different methods to choose when implementing business research. The choice depends on the strategy for the study and how the answers to the research question should be found. The different methods are either a quantitative approach or a qualitative approach. The quantitative approach is used to test and build theory through identifying, explicating, and anticipating a particular topic. The qualitative approach is used when the researchers aim to reach a more profound collecting and understanding of the empirical findings (Cooper & Schindler, 2006). The main differences are how the varying methods gather their empirical findings. A quantitative approach focuses on gathering empirical findings from measurements in numbers, while the qualitative approach instead focuses on collecting the empirical findings from words. Besides the beforementioned differences, there is more that distinguishes the methods, such as the analysis of the collected empirical findings. In a quantitative study, the data tends to be analyzed after it is collected, and the approach is often used in large-scale studies. Qualitative studies, on the other hand, tend to analyze the empirical findings while collecting it and are often small-scale studies (Denscombe, 2016). In this study, a qualitative distinction is used, which excludes measurement in the investigation, and the absence of quantification is, therefore, a fact. The lack of measurements does not affect the study since it can be emphasized semantically. This provides the researches with the ability to collect not only the mere responses of the respondent but also a chance to interpret the individual’s social world. The main focus of a qualitative research method is to generate theory rather than testing theories. It is common to apply an iterative process between the theory and the empirical findings to generate the best result possible (Bryman & Bell, 2015). The qualitative method is applied by gathering empirical findings from interviews, secondary data, and observations. The empirical findings are mostly in spoken words but also written form (Denscombe, 2016).

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The choice of method in this study is based on the fact that it is a small-scale study where the empirical findings are gathered through interviews with chosen case companies. The primary material is collected through oral interviews and is transcribed to minimize the risk of interpreting the responses and therefore changing the empirical findings (Cohen et al., 2011). The empirical findings are collected and written down before the analysis begins (Denscombe, 2016). In this thesis, the interviews are carried out in English, or if required by the respondent in German, and also transcribed in their original language, which decreases the chance of accidental misunderstanding by the researchers. This improves the quality of the study since it diminishes potential biases. The qualitative method can be criticized since the empirical findings are collected through a smaller amount of cases than in a quantitative method but give the opportunity for academia to widen the understanding of a topic, rather than just explaining it (Denscombe, 2016). In this study, multiple cases are studied, which provides several views on the same phenomenon that creates value for the outcome.

3.3 Research Design The research design in a qualitative study changes depending on what the aim of the investigation is. The options are, for example, a survey, history, archival analysis, or a case study (Yin, 2014). This study aims to investigate and find answers to how online banks in Europe chose to internationalize their business. Due to the existing “how” and “why” questions, a case study is most suitable for this type of qualitative research to collect in-depth empirical findings necessary to answer the research question and create high value for the thesis. By implementing a case study, the researchers get a chance to identify and compare patterns to theories and concepts as well as get a deeper understanding of the subject, in correspondence with Yin (2014). The chosen design is also suitable since it gives the researchers a chance to explore and understand a particular phenomenon or specific event (Creswell, 2014). It is essential to understand that the possible outcomes are dependent on the choices made during the creation of the research design. Also, the possibility that the empirical findings differ from the truth must be taken into consideration. The current COVID-19 situation could affect the study and, mostly, the empirical findings for the study. The selected cases could be distracted with more meaningful work and are, therefore, not able to provide the researchers with the required empirical findings.

3.3.1 Purpose in Research A research study can serve three different purposes in research but is not limited to use only a single one. The research can instead include several, and during the development of the study, these choices can still change. The three different categories are exploratory, descriptive, and explanatory (Saunders et al., 2009). The exploratory study is used when the nature of the phenomena studied is not known by the researchers. It focuses on evaluating a specific topic from a new angle. It consists of flexibility, broadness, and can change during the process (Saunders et al., 2009). For this study, the exploratory purpose

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is the most suitable because this is a yet understudied phenomenon since earlier studies have been focusing on Fintech, and fewer studies nowadays seem to be about traditional banks, which are shifting towards a new direction where online banks play a significant role.

3.3.2 Research Strategy As previously mentioned, a qualitative research method is applied in this study to find out how online banks in Europe internationalize. This method is chosen because the researchers want to explore a given phenomenon in a qualitative manner rather than testing individual variables in terms of causality and correlation. This is because it allows the researcher to apply a subjective angle of the subject. Since this study does not primarily focus on data, this method provides words and non-numerical material. Through this, information is gathered based on the interviewees surrounding environment that is further explored and described (Bryman & Bell, 2015). A multiple case study is applied that examines different cases to get a deeper understanding of their internationalization process to find an answer to the research question. The cases are four online banks that operate in Europe, offer retail banking, and have more than one million customers. In semi-structured interviews, one interviewee from each of the four cases is chosen to answer questions. Their responses generate an answer to the research question; how their company handles the internationalization process. The interviewees hold the job title as a manager who is somehow involved in the internationalization process of the company. The interview guide itself is derived from the theoretical framework, and the answers are recorded and transcribed word for word. The resulting empirical material can be explored through a discourse analysis by investigating the contextual meaning of the spoken word in relation to relevant theories and the circumstances of the specific cases. Through this process, patterns are ascribed to different parts of the interview and compared to the differentiating approaches of the interviewed firms.

3.4 Case-Study Research Design A case study can be conducted by observing a single case or multiple cases (two or more). When choosing a multiple-case study, the study creates more valuable empirical findings as they are supported by several different cases (Yin, 2014). The choice of multiple cases in this study is made since that creates more value to the conclusion as the information is based on four different cases. By doing this, the reliability of the study increases, and the outcome can be based on the four different companies combined, which generate a more consistent result. Since each company’s circumstances and internationalization process are unique and differ from the others, the outcome is closer to the truth, the more cases that are examined. If only one case would have been studied, there could not be any conclusions drawn since it would not provide the information on how online banks internationalize but rather how that specific chosen case internationalized.

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3.4.1 Sampling Selection In Europe, many different sizes of online banks are operating across the borders. In this study, the need to narrow it down to only a few banks is necessary to be able to investigate the banks carefully and, in that way, generate the best possible result on how the different banks chose to internationalize. First, the goal is to select which type of banking the chosen banks should offer. In this selection, retail banking is what this study focuses on. Therefore all other types of banking are excluded from the study. Secondly, the aim is to select a market that the banks are operating in. This selection is Europe since it is a large banking market, and some essential financial hubs can be found in Europe. The chosen region has the right size, and Europe consists of many different countries that can be used by companies to internationalize. With these limitations, many potential online banks are left, and need to be even further narrowed down to find the proper banks to investigate. The study needs well-established banks that have been through an internationalization process or are in the middle of it. To find these well-established banks, the selection criterion of the number of customers, is considered. The online banks should have more than one million customers by 2020 to fit into the selection. This makes it possible to narrow it down to only a few banks. According to Statista (2020), seven leading online banks are operating in Europe, and the following Figure 4 presents those with their customer base by 2020 estimated in millions.

Estimated number of Customers by 2020 in Millions 12

0 Revolut N26 Monzo Monese Starling Bank Tandem Atom Bank

Figure 4: Estimated number of Customers (Statista, 2020)

Four main criteria are applied to narrow down the selection of cases in this study. The banks selected should be (a) an entirely online bank without any physical branches, (b) a bank that operates in the European market, (c) a bank offering retail banking to their customers, and (d) a bank with more than one million existing customers. These criteria are being displayed in Table 1.

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Criteria Selection

(a) Type Online bank

(b) Geography Europe

(d) Size > 1 million customers

Table 1: Selection Criteria (own design, 2020)

Applying these selection criteria leaves the study with four banks that fulfill the specifications. The remaining banks that are studied are Revolut, N26, Monzo, and Monese.

3.4.2 Cases The following Table 2 consists of the chosen cases, the job title of the respective person, and details of the actual interview, like the application that was used, on what date it was conducted, and the duration of it. As this study keeps its interviewees anonymous, the names of them are not listed. Company Interviewee Interview

Revolut Global Operations Manager Google Hangouts 2020-05-08 37 minutes N26 Customer Support Outsourcing Zoom Manager 2020-05-17 55 minutes Monzo US Expansion Manager Zoom 2020-05-12 51 minutes Monese Head of Localization Zoom 2020-05-06 43 minutes Table 2: Interviews (own design, 2020)

3.4.3 Semi-Structured Interview Interviews tend to take place at a pre-booked meeting where the interviewee is asked questions that help the researchers to find an answer to their research question. Three types of interviews are commonly used. The different types of the interview generate different types of answers that distinguish, for example, how broad of a discussion the question results in. The three different interviews are classified; structured, semi- structured, and unstructured (Denscombe, 2016). Structured interviews tend to be a form

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of survey where the questions are pre-made, and the answers do not leave much space for discussion. Unstructured interviews, on the other hand, contain as the name reveals not much structure. This type is often used when the researcher is not as familiar with the subject and wants to have a broad discussion. There are no pre-made questions, and the interviewee can talk very freely in an informal manner (Merriam & Tisdell, 2016). In this study, the interviews are semi-structured, which provides a somehow open discussion while the questions are still structured. This type of interview is flexible in its nature (Merriam & Tisdell, 2016). The choice of structure in the interviews gives the interviewees more time to explain and develop their answers. It also provides the researchers with a chance to change the order of the questions during the interview if necessary. It is also possible for the researcher to develop follow up questions if they feel like they are needed due to a lack of information in the interviewee’s answer (Denscombe, 2016). The choice of semi-structured interviews is found to be suitable for this study since it provides the thesis with well-explained thoughts and facts from the interviewees that can generate developed answers to the research question. With a structured interview, there would be no room for follow up questions if they are needed. That could result in the possibility to not get the type of answer that this study is looking for depending on the interviewee’s interpretation of the question. The unstructured interviews are not a suitable option in this study because the researchers are familiar with the subject and need to lead the interview to find an answer to the research question. Most commonly, interviews are conducted in a face to face meeting since that provides a more natural way of comprehending feelings and expressions from the interviewees than it would over the phone. The quality is valued higher in a face to face meeting due to this (Denscombe, 2016). Due to the long distance between the researchers and the chosen interviewees, a real face to face meeting is excluded. Instead, the interviews are conducted in a virtual meeting through Skype, Zoom, or Google Hangouts. The second option is through telephone interviews if the interviewee prefers this method. The interviews are personal, which means that there is only one interviewee at a meeting. This provides a more structured interview where the interviewee can talk without interruptions. The downside of personal interviews is that it only provides one person’s opinion (Denscombe, 2016). The choice of personal interviews is suitable since it provides more focus on the interviewee, and comparisons can be made between the different interviewees in the different interviews. A personal interview also allows the interviewee to talk more open about a topic and does not feel pressured by the other interviewees.

3.4.4 Operationalization The theoretical framework is operationalized to create a meaningful interview guide for the study that has its roots in the chosen literature. When operationalizing, the researcher defines the theoretical framework and, from that, creates a connection to reality through abstract terms (Patel & Davidson, 2011).

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The theoretical concepts can be seen in Appendix A and the final interview guide in Appendix B. Below, Table 3 shows the simplified operationalization from which the interview guide is derived.

Concepts Questions Reasoning

Factors These questions lead to answers about the • Motivators 1–5 company’s factors that contributed to the • Entrepreneur internationalization process. • Resources These questions lead to answers about how Global / Regional Strategy 6-7 their strategy is set-up in relation to their market perception. Path of Internationalization These questions lead to answers about how the • Born Global 8-10 company is acting on the international market. • Born Regional Table 3: Operationalization (own design, 2020)

3.4.5 Conducting Interviews The interviewees are found and contacted by the researchers through LinkedIn. This is the most suitable way to reach out to the case-companies since the interviewee’s title is mentioned on their respective LinkedIn page and also since other channels have proven to deliver insufficient results. The interviewees are given some general information on the topic in advance. However, they do not receive the full interview guide before the actual interview. This can be negative since they do not get an opportunity to prepare their answers beforehand, but for this study, the researchers deliberately choose this method as it leads to genuine answers, and the researchers can stir the interview as they want. Three interviews were conducted through Zoom, and one interview was conducted through Google Hangouts. This worked as well as face to face interviews, and the researchers got a chance to connect to the interviewees as well as study their body language. All interviews where recorded, and one of the researchers led the interview while the other one was taking notes. The audio from the recording, as well as the notes, were used as a tool when transcribing the interviews. One of the transcriptions was sent to the interviewee for approval upon request. All four interviews were held with similar circumstances, and therefore, they all are equally credible for the study.

3.5 Material Collection Techniques The material collection is implemented to collect empirical findings for the study that help answer the research question. In a qualitative study, the researchers should focus on two main things when gathering the material. Firstly, what kind of material should be gathered and secondly, how the material should be gathered. It is necessary to design a

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suitable sampling strategy, gather material from the interviews in both audio and text, and finally, protect and manage the material in an appropriate way with consideration of ethical aspects (Creswell, 2014). The research question affects the choice of technique that is applied in the study (Yin, 2014). There are two different options to choose from, namely measurable and intangible data. The first-mentioned technique consists of quantifiable numbers, while the intangible choice is more abstract and can be measured by feelings. The empirical findings should be relevant for the study, and with the help of the findings, the researchers should be able to state a conclusion. In the following paragraphs, two of the different types of procedures, established by Ghauri and Grønhaug (2010) are explained: primary material collection and secondary material collection.

3.5.1 Primary Material Collection The primary material is collected by the researchers themselves in the empirical part, where the information that is found is transferred into relevant empirical findings. This material is considered to be more relevant to the specific study since the gathering reason is the study itself (Ghauri & Grønhaug, 2010). The collected material is considered as new material (Saunder et al., 2009). With qualitative research, the empirical findings are often gathered through interviews, and when conducting them, a flexible guide is favored since that generates a deeper understanding of behaviors and impressions (Yin, 2014). In this study, the primary material collection is conducted through semi-structured interviews that, as earlier mentioned, provide the researchers with a better understanding of the chosen subject. This leads to empirical findings that help to answer the research question and fulfill the purpose of this study. The primary material is presented in Chapter 4.

3.5.2 Secondary Material Collection The secondary material, on the other hand, is material that has been collected through others and by that also for another purpose (Saunder et al., 2009). Examples of secondary material are online data banks, books, articles, or journals. When using a combination of both primary material and secondary material, it provides enough knowledge to conduct a study in a successful manner (Kumar, 2014). The secondary material in this thesis is collected to support the primary material, which is valued the most since those findings were gathered with this specific study in mind. The secondary material comes from webpages, articles, journals, and books. Even though the chapter of empirical findings consists mostly of primary material, some secondary material is presented to provide a deeper understanding of the subject.

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3.6 Method of Material Analysis The empirical findings from a qualitative study are often bulky and difficult to manage. The researchers need to analyze the material carefully to generate a deeper understanding and insight into the findings that the study produces (Ghauri & Grønhaug, 2010). Therefore, it is necessary to create a precise method when doing this, and the following paragraph consists of how this study analyzes the empirical findings. The gathered empirical findings are first reviewed and divided into different sectors following the theoretical framework to understand better and structure the gathered material. The different parts are the factors, the global/regional strategy, and the path of internationalization. The different banks are presented individually to create a good structure and clarity for the reader as well as for the researchers. By dividing the empirical material into different cases, it eases the future comparison of the different cases and their respective approaches to the topic.

3.7 Research Quality It is crucial for a study that the quality of the research reaches an acceptable standard and that the empirical findings are accurate. It is argued that it is difficult to measure the quality of a qualitative study due to the flexibility of the research strategy. For this study to keep a high quality of the empirical findings, validity, reliability, and dependability are used as criteria to define the quality. The concept of validity is whether or not the researchers are measuring what they think that they are measuring, and the concept of reliability is used to understand if the applied research tool is consistent and stable. The findings of empirical material include several different steps, which all need to be included in the analysis of quality (Kumar, 2014). Dependability is used as a parallel in this qualitative research to reach the required level of quality and trustworthiness. In the following chapters, the three different aspects are further explained.

3.7.1 Validity Bryman and Bell (2015) declare validity to be the essential criterion of research. Validity focuses on the accurate and appropriate introduction of the empirical findings (Denscombe, 2016). When using interviews to collect the empirical findings, the validity should be considered as well as how it could contribute to the outcome. The focus should not be whether the research is valid or invalid but rather to which degree validity is reached. In an interview, the degree of validity can be measured in the following two different ways (Arthur et al., 2012).

Establish to which degree that experience is typical for its place and time.

Establish to which degree the interview provides reliable findings.

For this study to ensure high quality on the criterion of validity, the interviewees are selected carefully. They need to be in a position at the bank where they have a good

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insight into their internationalization history. All interviewees are operating in the same working environment under similar circumstances, even though they have different roles within their firm. Therefore, their experience can be considered as representative of the specific surroundings that are prevalent in the respective case-company.

3.7.2 Reliability Reliability is used to find out if the result of the study is repeatable (Bryman & Bell, 2015). When an interview is used to collect the empirical findings, the human factor needs to be taken into consideration. Different aspects such as preciseness of the presented observations and how well it corresponds with the interviewee’s intentions and meaning need to be included to reach a high degree of reliability in the study (Arthur et al., 2012). To strengthen the reliability of a qualitative study, the chosen method used for the research should be presented (Denscombe, 2016). For this study to reach a high level of reliability, the interviews are recorded and transcribed one by one. The empirical raw material is collected both in audio and in written words to manage the findings carefully and thoroughly. The transparency can also be provided through the attached interview guide. Through the detailed illustration of the methodological approach used, the reader gets the necessary information about this process.

3.7.3 Dependability Dependability concerns the matter for the researchers to ensure the complete records of the different stages in the research process in an accessible manner. Dependability includes that researchers’ peers examine the study, especially in the end, to establish that proper procedures are followed, which endorses the capability to determine to which degree the logical outcome is justified. There is some criticism to use peers as auditing, for one, it is exceptionally demanding to examine a whole study since it consists of a lot of gathered information and large text (Bryman & Bell, 2015). In this study, as mentioned earlier, the researchers aim to reach a high level of trustworthiness and, therefore, dependability is included. Two, for the study, unattached peers act as auditors and examine the different stages of content at the end of the study.

3.8 Research Ethics In research, it is essential to acknowledge the importance of ethical considerations when collecting and interpreting the empirical findings. When collecting material through interviews, a risk could be that the interviewee reveals something they do not have the intention to reveal, which can make them feel uncomfortable. To handle the whole process professionally, the researcher should keep excellent ethical standards both during and also after the interview (Merriam & Tisdell, 2016). In this study, several different actions are taken to keep excellent ethical standards. Even though the interviews are recorded, they are not handed out to anyone. The purpose of

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the material is solely for this study. The relationship between the researchers and the interviewees is purely professional, and only a brief introduction of the researchers is included as small talk to gain trust with the interviewee. The empirical findings are handed out to the interviewee upon request to offer full transparency. The integrity of the interviewee is also ensured. Even though the company is revealed, the individual’s name remains hidden to the reader to offer the required anonymity. Bryman and Bell (2015) argue how a study can promise anonymity to their participants even though factors such as their employer, title, and age could easily connect them to the findings. However, in this study, the researchers want to protect the identity of the interviewees as much as possible. Therefore, information about them that is not relevant for the study, such as age, is not revealed. Complete anonymity is, however, hard to promise, and all participants have agreed that their title within the company can be listed. Furthermore, the empirical findings in this study are not made available to any third party if it is not accepted by the interviewee. The interview takes place after the interviewee’s approbation and can, at any time, be terminated by the interviewee.

3.9 Author Contribution In this thesis, the authors divide the work between each other as it was conducted in a pair of two. Although the whole thesis is created by the authors together, some differing focuses are set. Table 4 shows which author focuses on what chapter of the study. Chapter Author

1. Introduction Anna Nilsson & Sandro Lehmann

2. Literature Review Sandro Lehmann

3. Methodology Anna Nilsson

4. Empirical Findings Anna Nilsson & Sandro Lehmann

5. Analysis Sandro Lehmann

6. Conclusion Anna Nilsson

Table 4: Author Contribution (own design, 2020)

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4 Empirical Findings The following chapter is comprised of the information that is gathered through the methods which are displayed in the preceding chapter. Firstly, the context of European banking is explained to gain a shared understanding of the circumstances. Afterward, the four different banks are displayed with their respective information.

4.1 European Banking Environment The European banking sector has been in a shift in the last decades. The financial crisis in 2008 acts as a crucial moment in this movement. Before this crisis, the market was deregulated to offer a liberal market with fundamental market forces of demand and supply in play (Goddard et al., 2007). The marketplaces up to the financial crisis were highly integrated, whereas international operations in retail banking were held back. Due to the lack of trust in a foreign bank, that might originate in cultural differences, private customers would rarely apply for an account at a foreign bank. With the financial crisis of 2008, a shift in the customer’s trust happened. As local banks were struggling, the customers lost the trust and became more open-minded about going to a foreign bank. After the financial crisis of 2008, the necessity of a central banking union for the Euro countries became obvious. This need was filled by the EU roadmap to set up a banking union to supervise the actions of commercial banks within this region (European Commission, 2020b). Joining the union will be mandatory for the states that use the Euro as their currency, whereas other countries can voluntarily join. This brings the banking sector closer together, which might enable future internationalization of companies. Although, with the UK and Switzerland, two major financial hubs in Europe did not yet show any intention in joining this union, as it is not a requirement for them. Therefore, the effectiveness of this union can be questioned as it is only acting in part of Europe. While the Eurozone is taking a step back and tries to regulate large players in the banking sector, new smaller companies emerge in the Fintech industry. Those companies are argued not yet to be regulated in a way in which their large, traditional counterparts are (Magnuson, 2018). During the financial crisis, some banks were identified as too big to fail. Therefore, a particular focus on those businesses was laid and regulations that concern those banks were introduced. This, on the other hand, means an almost free playing field for those small-scale companies that are applying innovations in the context of finance. One of the more recent implementations in Europe is the Single Euro Payments Area (SEPA). SEPA is a standardized format for money transfers in Europe, which is not only faster than its predecessor but also more streamlined (ECB, 2014). It can be adopted by participating banks, even if the home-currency is not the Euro. This new payment method accelerated cross-border transactions and influenced the payment habits of corporations and private consumers.

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4.2 Revolut When founding the company in 2015 in the UK, Nikolay Storonsky and Vlad Yatsenko had the goal to revolutionize the conventional way on how currencies are exchanged at traditional banks (Revolut, 2020a). They identified high fees for retail customers when exchanging money, either in explicitly stated fees or in a high spread in comparison to the interbank rates. They, therefore, created a fully digital solution in which no fees occur when exchanging different currencies and the exchange rate is much closer to the actual interbank rate as compared to traditional banks. As this opportunity is prevalent in an international context, when working in several countries with different currencies, their international focus was a precondition to their development process. This is also exemplified in its mission to become a global bank (Revolut, 2020a). By correctly combining this price-advantage with current state technology, they rapidly grew in several countries. Shortly after their foundation in the UK, they offered their services to the whole of Europe (Revolut, 2018). From 2019 they intended to establish a presence in 24 new markets, including the USA, Canada, Singapore, Australia, New Zealand, and Japan. As of today (2020), Revolut is available in the European Economic Area (EEA), Australia, Canada, Singapore, Switzerland, and the USA and offers its services to retail and corporate customers (Revolut, 2020b). Through several funding rounds, they are currently (2020) valued at £5.5 billion and stated in 2018 a net loss of £10.1 million while creating revenue of £58.2 million (Craft, n.d.).

4.2.1 Factors Motivators According to the interviewee, there was one primary motivator that resulted in Revolut going international. This motivator was an identified gap that could be fulfilled with a traveling card. The owners found it difficult and expensive to travel abroad. During the time that Revolut was founded, many people were traveling, which had become a trend all around the world. The problem was that when people were handling cash in local currency exchanges, it was expensive, and so was the option to use the traveler’s banking cards of the traditional home bank. The founders of Revolut saw this as an opportunity, and the people traveling were easy targets for the company. By identifying the gap, they invented a payment card with the purpose to use it while traveling. The first target was urban cities since it is from there that most people are traveling. Entrepreneur The interviewee describes the founders as professional, open-minded, hard-worker, and very focused. Some personality traits that they possess that made the internationalization possible was that they know exactly what they want to achieve and are open and flexible to make mistakes. The company, as well as the founders, faced much criticism but faced them well and used the mistakes as lessons for the future. Instead of avoiding problems, they are always eager to try and find solutions to them. One example that the interviewee describes was when the company faced criticism about their workplace condition. What

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the founders did was to create a so-called “team workplace experience” that consists of a team that works to improve the conditions. Furthermore, the founders grew up in eastern European countries, and that is something that affects how they are operating. For example, they hire people where there is talent instead of where Revolut is based. The interviewee mentions the massive market in Russia for great staff, which the founders are using to find the right people with the right knowledge that could work for Revolut. They are not hiring staff only to fill positions but rather hire the best people for the job. Resources The resources that Revolut possesses to internationalize mentioned by the interviewee are values, the drive as a start-up, open communication, and the structure of the company. Tangible resources are IT-teams making sure that the apps are running everywhere, that there are enough resources and no bugs for the customers, which is vital since the company treats the customer’s money. The missing resource, on the other hand, is customer trust. This needs to be improved to continue in the right direction to be able to gain more customers around the world as well as retain the existing ones. The interviewee mentions that in the past, the focus has instead been on the products than the customers. The focus has to shift to a more customer-centric one.

4.2.2 Global / Regional Strategy When Revolut is internationalizing, they are choosing their market based on the attractiveness of the market and how difficult it would be to implement their products and services there. They first divide the world into three regions, the US, Europe, and Asia. Afterward, they examine the respective region and countries more closely based on whether the consumers are open to using Revolut’s products. Additionally, the environment in the specific country is analyzed, and based on that, Revolut decides how attractive the market is. This process of strategy development is promoted by their way of doing business. Revolut is operating in a way where they are effectively utilizing the boundaries of the regulators, while still not breaking any laws.

Not that we break regulatory rules, but we go around the regulatory way so that we are able to settle in that country with what we can do. We don’t have a banking license, for example in Australia, but we’re still operating there. (Global Operations Manager, 2020) By applying this method and partnering up with local partners, they can legally offer their products in countries in which they do not have a banking license. This way, they can gather first-hand market knowledge through their products. Revolut first moves to a new country with its services to then develop and adapt them to the circumstances afterward.

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As their method of internationalization showed to be useful for Revolut, they still are not a bank in their home country, and the priority is not to be a full bank but instead being able to solve an issue for their customers.

The priority is not about being a bank; it’s about being usable for the customers. The users don’t care if we have a banking license in that local country, they just want us to be able to provide a service. (Global Operations Manager, 2020)

4.2.3 Path of Internationalization Revolut’s focus while internationalizing is in many countries at once because of its product offering for travelers. People that are traveling live in many different countries. Because of that, Revolut also wants to operate in different countries to reach as many consumers as possible. Revolut has expansion teams that scope out where to expand next. It is essential to understand that every region is different, and it becomes, therefore, crucial to act on these differences. Their headquarter is in Europe. However, this does not mean that their focus is strictly on Europe. They are planning on opening up a new headquarter in another country but are trying to develop and improve the already existing one in Europe first before stepping out. Some problems that had emerged when Revolut was first going international is their pace. It all happens very quickly, and with that, they also add more risks. The interviewee mentions that if a company expands at the pace that Revolut did, it almost gets impossible to find out the customer needs to address them correctly. They deliberately try to offer their products in as many countries as fast as possible. They feel that with increased coverage of different countries, their services improve. Brexit has also affected the company since the money transfers between the UK and European countries are going to change. Another aspect is that the country that Revolut is expanding to is not always comfortable with them operating there. This can lead to customers not wanting to use their products, as they do not want to give their savings to a foreign company.

4.3 N26

Valentin Stalf and Maximilian Tayenthal decided in 2013 that they want to disrupt the financial sector by offering banking services that follow you around wherever you go. They created by their definition a simple, transparent, and mobile banking solution that was designed by the best minds across the globe (N26, 2020a). After 18 months of development, they introduced their first products in Germany and Austria in 2015. With the acquisition of a European banking license in 2016, they extended their business to several countries in the Eurozone. In 2018 they first stepped into markets with other currencies than the Euro, first to the UK and then to Scandinavia, Poland, and Liechtenstein (N26, 2018). In 2019 the two founders connected with a friend of them that had market knowledge of the USA. They entered this market after that (N26, 2020b). The USA was the first market outside Europe. Nowadays (2020), N26 is available in 25 countries, which are mostly from the EEA. Additionally, their services are available in

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the USA and Switzerland (N26, 2020c). Though N26 also decided to close their accounts in the UK in connection with the UK’s decision to leave the EU. With these actions, N26 became one of the most valued Fintech companies in Europe, with a valuation of £2.8 billion in 2019. In 2018 they generated revenues of £43.6 million, which lead to a net loss of £65.5 million (Schneider, 2020).

4.3.1 Factors Motivators At first, when talking about the motivations behind going international, the interviewee mentions the confidence of the company’s capability to go to any market. From inception, the founders were sure about their possibility to change something in a global context, and they could deliver their services across national borders. This is also reflected in their vision, which is to offer banking services that you love to use all around the world. The interviewee touches upon the difficulties and the approach of many people to banking, that it is a rather laborious process and that no one likes to do banking, but it is still a vital part of their everyday lives. That is where N26 steps in and wants to create a new spin on it that people start to like their banking services. This confidence in being able to deliver such a product is also conveyed throughout the company by correctly supporting it on an organizational level so that every employee pulls on the same string and has the same mindset. Entrepreneur When talking about the founders, the interviewee points out, that they fully support what they are creating.

Of course, every founder believes in the product or the service that they have created. If you don’t, you cannot grow. (Customer Support Outsourcing Manager, 2020) Not only do they believe that they can create a large company with the idea and the established service, but rather that they believe to be able to fill the gap that exists in the market. They believe in delivering a product that enables people and fulfills their demand. This is also supported by their trust that they put into their employees. They allow their employees to develop plans to act on the company’s vision, and they are also happy to take suggestions on how to do business. Resources The interviewee thinks that even if a company has the best strategy in the world if it does not possess the necessary financial resources, it is not going to work. Additionally, it does not only suffice to have enough financial resources, but it also needs the talent to create the right product. This means that a crucial intangible resource, for the interviewee, is to have enough knowledge in the workforce and to have capable employees. This can be further improved by clear communication to create this beforementioned collective mindset of the company’s vision. Even though the interviewee feels that the company had

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enough finances to start, the customer support outsourcing manager would have liked to be able to put more financial resources into the expansion to be able to grow faster than it did. For the interviewee, the growth of the bank is a bit slow.

4.3.2 Global / Regional Strategy As the vision for the company was always to create a solution that the world loves, it was always focusing on the whole world. Though, as they want to create something lovable, they must make it right the first time. It is not possible to love something that does not cover your basic needs, and that has significant flaws. Therefore, their strategy is to move to other markets a bit slower, as they first want to create a robust service before they offer it to their customers. This also relates to the strategy of N26 that they do not only want to create the minimum viable product but instead go beyond that. The main factor behind the decision on which countries or markets to act in first is developed by analyzing the cost capabilities in relation to the possibilities in another market. By also closely examining the real competition in a market, the strategy on how to act in the specific region is decided. If there is already an online bank prevalent in the market, N26 can use their previous work to make the customers being accustomed to such a product and try to take market shares of them by offering a more sophisticated service. While talking about internationalization strategies of traditional banks, the interviewee says that the founders specifically do not want to merge and therefore do not want to use a mode of internationalization that has been used by the well-established banks. Nowadays, the strategy of N26 is set-up in a rather regional way. Their markets are divided into Europe, North America, and Latin America. From that base view, they then break it down into specific countries and their respective roadmaps of internationalization. Even though the interviewee feels that a product that involves tech is always built for a global market, N26 does not explicitly look at the world as a single market. The interviewee feels that it is easy for a tech-product, with only minor adaptations in terms of language, to be offered in another country. It is even easier for the accompanying service to be shifted around. The interviewee also mentions that with the ongoing COVID-19 crisis, the demand might become global if it has not already been. This crisis disrupts everyday lives across the globe by minimizing social interactions, and this also affects banking. Through the enabler of digitalization, it became easier to perceive the world as a single global market.

4.3.3 Path of Internationalization Concerning their vision of a lovable product, they first established the home market before moving to geographically closer markets. N26 does not want to move too fast as this could end in an unfinished product that might not be liked by the customers. The problems when going international, as mentioned by the interviewee, are always small things. As a service company, they are working with people, and they, therefore, have to focus on minor differences in language or in a culture that improves their service from a viable service to a lovable one. Therefore, they decided to internationalize more

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incrementally, and, according to their internationalization strategy, they first went to larger markets in their near vicinity, like Austria, Italy, France, and Spain. Even though they moved to close-by markets, they did not choose to go to one after the other but decided to expand to several markets at once. Not only their sales are internationalized, but they also moved supporting activities like their customer support center to Greece, to minimize the costs. The interviewee also relates this approach to internationalization to traditional banks. Those usually set-up a large building to show how stable and secure their services are, and the people have to come to them.

I don’t think [traditional] banks are built to help people. I think banks are built to create wealth for themselves. (Customer Support Outsourcing Manager, 2020) As the interviewee describes it, it is an institution that the community is obliged to use rather than a service that is provided to them. On the other hand, online retail banks go to their customers and follow them around wherever they go by the help of applying new technologies. This might help their customers and make their lives easier. The path of internationalization of N26 is also highly influenced by local regulations. Firstly, regulations in their home market in Germany, that restrict them to move some parts of their business to countries outside the EU as Germany wants to secure the privacy of their citizens. About this, the interviewee also points out that Revolut, for a UK based example company, can act more freely. The second aspect to this is that not only in terms of their specific field of action in banking regulations are affecting them, but also for supporting services that their products need. The interviewee exemplifies this by explaining their ongoing expansion to Brazil, in which it is more viable to set-up customer service in the country, because of taxes and restrictions for the import of services. Additionally, this decision was influenced by the differences in culture between Portugal and Brazil. Even though they speak the same language, their accent is different, and therefore N26 would again only create a viable product, but not a lovable one.

4.4 Monzo

Monzo believes that through alternative banking, where they refer to the online parts, that they can make banking easier and change people’s lives. Their head office is based in London, UK, where they have over 800 employees even though they operate without any physical branches for the consumers (Monzo, 2020a). The bank was established in 2015 by Tom Blomfield, Paul Rippon, Jason Bates, Gary Dolman, and Jonas Huckestein and has since grown to become a well-known online bank. At the moment, Monzo is only offering its products to consumers who are residents in the UK, but they are planning on going international in the future. However, they are still in an international mindset where they focus a lot on their customers being able to travel and use their products everywhere (Monzo, 2020b). The bank is offering its customers services that want to feel modern and service-minded. One example is the service where a retail customer can get a salary one day early. Using that service, the customer has to transfer their salary into a Monzo

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account regularly and on that basis, Monzo gives a pre-payment of it one day earlier without any additional costs (Monzo, 2020c). All customer’s money is protected up to £85’000 by the Financial Services Compensation Scheme (FSCS, 2020). What is unique in the digital world about Monzo is that, even though they are operating entirely online, as a customer, the customers can at any time call them and speak to a real person (Monzo, 2020d). In their last annual report from 2019, they reported revenues of £40 million while ultimately generating a net loss of £47.2 million, which leads to an estimated valuation of £2.5 billion (Monzo, 2019).

4.4.1 Factors Motivators For the interviewed person, the official mission statement to make money work for everyone is the main driver for their internationalization. They also set themselves a goal to reach one billion customers, which as a UK based company, is only possible if they go abroad and reach customers in other regions.

There are 64 million people in the UK, obviously, to fulfill that mission of providing financial support for a billion people, we must go international. (US Expansion Manager, 2020) The specific goal of one billion customers was chosen to display the strive of the company to become a large corporation and show its aim to scale up its services. To reach this goal, Monzo decided to internationalize to the USA as a first move outside of the UK. The interviewee found another motivator for the company to go international in the desire to increase the valuation of the company, as many important actors in the company have equity stakes in it. This means that once the company decides to conduct an initial public offering (IPO), they want to achieve the highest possible valuation to receive the maximum monetary reimbursement for their stakes in the company. The interviewee also mentions that this can lead to a misalignment of incentives, as a rapid internationalization can attract many new customers and increases the valuation, even if those customers might not be sustainable. Entrepreneur This urge to go international is further promoted by the founders themselves. According to the interviewee, they are all very ambitious and want to create a new bank that disrupts the existing financial sector. Not only their technical capabilities to create a financial platform that works but also their experience in the world of start-ups move the company to venture outside its domestic market. The interviewee describes the founders as serial entrepreneurs, that want to take their career to the next level by creating an MNC in the financial sector.

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Resources When talking about the resources that the company possesses that are crucial for the internationalization, the interviewee brings up the platform that they created and the knowledge behind this technology. With this platform, they can quickly scale and connect to other partners all around the globe. Whereas traditional banks sometimes have trouble connecting their IT infrastructure to a third party, Monzo’s platform is home-made and focuses on these capabilities. Also, their knowledge about how to cope with the explosive growth that they are experiencing is beneficial and promotes their further growth internationally. Though the interviewee also mentions that some market knowledge is missing when expanding to the US. No one in the company has lived there and experienced these circumstances themselves. They, therefore, have to slowly learn the demands that the customers have in a new context.

4.4.2 Global / Regional Strategy The strategy to go international was set up globally from the get-go in a way in which an international expansion team was first created. From this first, inclusive perspective, the company started to look at different countries instead of different regions, as for them, the most critical factor that sets the boundaries of a region is the regulations connected to it. For example, the EU would be a viable region to act in, as collective regulations exist, and a banking license in one country can be applied in another member state. On the other hand, the interviewee mentions that this does not apply to a region like the USMCA. There are separate regulations for each of the member states, which means that if a bank can do business in the US, for example, this does not mean that it can do the same in Canada or Mexico. During the development of their strategy, they carefully analyze the different viable options based on market size, language, and opportunity to scale up immediately or to scale up in the long-term because of strong partnerships. After their first evaluation, they concluded that the US is the most suitable option for them, as it is a large market and uses the same business language as in their home-region. In this process, the language did not only relate to the problems in translating everything but also in the different cultures that may come with it. The interviewee points out that if they translated their services word- by-word to German, for example, it would not be suitable. They also must hit the tone of the region to be successful.

4.4.3 Path of Internationalization As the founders of the company made a strategic decision during the foundation in 2015 to become a “real” bank, rather than just an electronic payment provider, they also decided to go more in-depth in the markets they are acting in. This means that they want to get a banking license in each country they are operating, rather than just partnering up with local payment providers. As acquiring a banking license is a very capital-intensive process, they cannot apply in several countries at the same time but have to follow a rather

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incremental internationalization. They also want to focus more on customer needs and want to make sure that they fully understand them.

Talking about what’s really valuable in a banking market, which tends not to be customer lead, is taking product people from what you traditionally see as customer-centric organizations like Airbnb or Uber and asking them to bring those skills to banking. (US Expansion Manager, 2020) Building up this team took the company some time, but due to this, they now expect to penetrate the markets their acting in more extensively. This, in turn, leads to their observed pace of internationalization, which is in comparison to other competitors rather slow with a move to a second country five years after the inception. During the interview, the internationalization process of Monzo is being related to those of traditional banks. The interviewee mentions that it is challenging to acquire the necessary funds to become a retail bank in another country. For a publicly listed company, like most of the traditional banks are, it is even more difficult, as they have to raise this capital publicly and not like in Monzo’s case through private investors. The interviewee, therefore, thinks that Monzo is still internationalizing at a faster pace than traditional banks, even though some other Fintech companies internationalize even faster than Monzo does. Monzo’s internationalization process is also influenced by two significant events, as mentioned by the interviewee. Firstly, Brexit means for the UK based company that they are no longer able to use their banking license from the UK in another EU-country to become a full retail bank. Therefore, the EU got less attractive, as the barriers are increased. The second significant event is the current COVID-19 crisis. The uncertainty in the current economy and the decrease in revenue for retail banks leads to higher capital requirements and more difficulties in acquiring it. It became, therefore, especially tricky for Monzo to move abroad during this crisis.

4.5 Monese The idea of Monese started when the founder Norris Koppel moved to the UK and faced problems when he wanted to create a UK account. He experienced the whole banking process to be complicated and wanted to change that. He wanted to create a bank at which it is as easy for a consumer to open and use an account, as ordering an Uber, and in 2015 the first account was established. The bank has grown, and today, consumers from whole Europe can create an account, which only takes a few minutes. In 2016, the company won the European Fintech Award in the field “Best Challenger Bank”. The company has over 2’000 employees working in their offices located in London, Tallinn, Lisbon, and Berlin (Monese, 2020a). It offers its consumers three different types of packages where the first is called Simple, the second one is called Classic, and the more advanced one is called Premium, with an increasing amount of services that are included (Monese, 2020b). As well as retail banking, they are also offering some products for businesses (Monese,

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2020c). The accounts are based in the UK, and a consumer can open up an account from many different European countries. Monese was first available for customers in the UK and then moved to 19 additional countries that are all part of the EEA at once in 2017 after a successful round of funding (Monese, 2020d). Monese describes themselves as a cheap bank where having an account is five times cheaper than at a traditional bank, and sending money abroad is eight times cheaper (Monese, 2020e). Recently Financial Times (2020) estimated that their valuation surpassed the £1 billion mark with their last reported revenue of £5.5 million and the corresponding net loss of £12.7 million.

4.5.1 Factors Motivators The interviewee confirms during the discussion the mission statement of Monese once again. The head of localization explains that the primary motivation for the company is the need for their specific services. Most of the employees at the beginning were migrants that came to the UK, and all of them faced the issues of opening a traditional bank account in a foreign country. It is, therefore, at first the founder’s drive, who migrated from Estonia to the UK, to create a more inclusive banking experience and to create a more natural way to open a bank account. This is further amplified by the founder’s decision to mostly employ migrants, that went through the same rigid procedures of traditional banks at one point in their life. Many of their target consumers of migrants are not native English speakers and require, therefore, a translation, at least for such an essential service as banking. Only if they understand everything completely, they feel safe to use a service. The interviewee also mentions, taken from previous experience with international start- ups, that this becomes more relevant in the finance sector compared to, for example, entertainment, where the perception is that it is not as crucial to understanding every detail. Entrepreneur In this process, it also becomes obvious what role the founder has in creating a successful business. The founder himself was once the target user of Monese and can, therefore, entirely relate to their consumer’s needs. Although the interviewee points out that it is still a business and not a charity drive, the primary purpose of the company is to solve this issue and not only to create a large enterprise. This is all due to the founder’s intentions and his decisions on whom to bring on-board for this journey. Resources When talking about resources, the interviewee does point out that, of course, some sort of budget is required, though due to the nature of an online retail bank, no significant investments in physical factors are required. To begin with, setting up the company was not that pricey. On the other hand, the interviewee mentions several times that the people working for the company and their knowledge are critical resources in the start-up phase. The drive to solve the identified issue is prevalent with anyone working for the company, and the different experiences and networks that every new employee or new investor

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brings to the company are efficiently utilized. Though, the interviewee also mentions that this knowledge that has been built up through the years of experience was sometimes not tapped into. For example, when product development people were hired, they did not consult the customer support centers, which was where most of their employees were working in and also where most of the knowledge about the customer’s needs were stored. This led to product development to speculate about the specific needs of their consumers, which were not always correct.

4.5.2 Global / Regional Strategy In connection with the internationalization strategy, the interviewee immediately exclaims that there is no such thing as the strategy.

Whoever says that you can apply the same internationalization strategy to more than one company is lying or is just trying to sell their products in a way in which they don’t have to tweak them. (Head of Localization, 2020) A company must always adapt the strategy to the respective circumstances of the country or the region it is working in. For example, in Europe, companies are more internationalized than companies in the US, as their domestic markets are smaller than in the US, and they, therefore, have to grow outside of national borders. During the creation of such a strategy, it is crucial to center it around the consumers. The company needs to know whom it is focusing on and what their particular demands are. It is not only essential to understand what the company is offering and to whom it is selling this, but also what the consumers’ demands are. A big part of this is the language. Though when offering a service to consumers with different languages, it does not only suffice to have a word-by- word translation of everything. It is also essential to find the correct tone. Furthermore, when deriving a strategy, the interviewee feels that the company should first establish itself domestically and become established there before learning how to scale internationally. Nevertheless, once this point is reached, the strategy to internationalize is derived by looking at their user base and what needs they have. One of their needs is to be able to make transactions in the Eurozone, that is why the company expanded to this region. When taking this step, the company expanded to the region as a whole and not to one or several countries at first. The interviewee relates this to the perception that the British look at the Eurozone as a single market. The interviewee, on the other hand, would have internationalized more gradually.

4.5.3 Path of Internationalization Throughout the interview, the interviewee mentions on several occasions, different regions, or different countries that Monese is working in. To the question in what market the company is acting in, the head of localization first states that there are two regions, the UK and the Eurozone. This distinction is based on different currencies, which are an essential distinguishing factor for the financial market and used to be their approach to

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the regional markets. On a second note, the interviewee then goes more in-depth, that the company is primarily acting in several countries rather than regions, namely the UK, Germany, France, Italy, and Romania. Romania is the odd one out, as they do not have either Pounds Sterling or the Euro, but due to the popularity with Romanian workers in the UK, it evolved into an essential market for Monese. This more detailed version focusing around the countries has been developed from the earlier regional strategies. The interviewee also feels that this move to a more country-centric strategy rather than a regional-centric strategy is correct and benefits the company. When talking about the problems that occurred while internationalizing the interviewee mentions the languages. Top-level managers of companies sometimes feel as if a mere translation of all their services does suffice to then apply those in another country. Though, as the interviewee points out, in such a case, it would be better not to adapt. Coming from the localization department, the interviewee thinks that no localization when internationalizing is better than having a poor one. In this process of going abroad, managers often do not see the need and, therefore, do not commit strongly enough to tweaking their products to fit into the new context. This can lead to problems, as the tone in which something is presented does differ in other countries, and therefore it is always better to not only translate the services but instead write them from scratch for each country or language separately.

4.6 Summary of Empirical Findings

The empirical findings from the interviews and the secondary material are summarized in Table 6 in Appendix C. In this table, the critical information is clustered based on the structure of the interview guide, which represents the structure of the conceptual framework.

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5 Analysis This chapter combines the empirical findings with the covered theories and the conceptual framework. It is structured analogously to the conceptual framework. Firstly, the factors are discussed, after that the strategy, and lastly the internationalization process of the respective companies. By combining the theory with the empirical findings, the groundwork for answering the research question is laid.

5.1 Factors

The following chapters integrate the interviewees thoughts with the three different factors that enable the internationalization process as identified by Dunning (1993).

5.1.1 Motivators The different clusters of motivators to go international identified by Dunning (1993) are observable in the answers of the interviewees. All of the four banks show some sort of market-seeking activities that motivate them to go abroad. Either in the fact that they want to reach their target consumers, which are spread all over the world. An example of this is the case of Revolut with their original focus on travelers. Alternatively, to solve the identified global issue for as many consumers as possible, as is the case for the other three cases. This also relates to the theory by Berger et al. (2017) that banks internationalize to follow their customers. None of the interviewed persons mention anything about diversifying risks, which also confirms the part of the theory in the new context of online retail banks, that this aspect is not a central concern of start-ups. An interesting observation of the interview with Monese is that they internationalized to gather further resources in the form of additional funding. To get further investors, a start- up must show increasing growth, and therefore in the context of the limited market size of the European countries, the companies have to go international. Even though the internationalization does not directly generate additional resources in the sense in which Dunning (1993) intended this classification, the move to another country to expand was a necessity for the investors. Only by displaying this intention, the additional funds could be acquired. The purpose of internationalizing to drive efficiency by lowering costs does not come up in any of the interviews, though the researchers of this study think that this could relate to the fact, that internationalization of a company is usually understood as down-stream internationalization and not up-stream. Therefore, this aspect is not mentioned, although it can be seen in the actual internationalization that the banks underwent. Many of them moved part of their operations to other countries, which are generally connected to lower labor-costs.

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Taken from the information at hand, the researchers, therefore, conclude that the primary motivator for a start-up in the online retail banking is the managerial urge to deliver their solution to a problem across the world. Furthermore, the demand of the investors, supplying those small enterprises with the necessary funding to grow, acts as another motivator.

5.1.2 Entrepreneur Even though the case-companies are nowadays no longer considered to be SMEs under most definitions, they all started-off as small-scale enterprises a few years ago. Therefore, the conjecture of the importance of the founder (Knight & Cavusgil, 2005) is still applicable for these earlier years, if not still during the later stages. The founders of the case-companies all possess relevant knowledge from at least one aspect of their business. Either from banking, from technology, or like in the case of Revolut and N26 from both. This knowledge helps them to build-up their enterprises as is prevalent during the discussions with several interviewees. The researchers, therefore, find that it is essential for a founder to have a relevant background. An interesting finding is that Monzo, the least internationalized company of the observed cases, has the most experienced board in terms of founding and managing international start-ups. This stands in contradiction to the theory of Gleason et al. (2006) that says that a more experienced board positively influences the international expansion of a company. Possible reasons for this could lie in the fact that Monzo was set up by several founders together, whereas the other three companies only had a single or a duo of founders. This might lead to some overthinking during the strategy development or difficulties in communication and to a more complicated approval process. In the interview with an employee at N26, the interviewee specifically mentioned how comfortable the approval process with only two founders is. Looking at the three different kinds of required capabilities of an entrepreneur, according to Karra et al. (2008), the ability to identify opportunities comes up in every interview. All of the founders from the observed banks identified a gap in the market or customer pain, which stands at the bottom of their value proposition. For Monese and Revolut, this identifying of an opportunity came rather easy, wherein both cases the founders experienced the later addressed customer pain themselves. Both had trouble banking across borders and wanted to change this. However, this does not always have to be the case, as for the other two case-companies, the opportunity was identified more strategically, by deliberately observing the market. For Revolut, an essential capability of the founder connects to their origins. As they both grew up in an eastern European context with the respective cultures, they can use their cross-cultural capability to their advantage. As the interviewee from Revolut points out, they are hiring a diverse workforce to include the best minds from all around the world. By setting up an international workforce, they make sure not to be excluded from a new context, as is conjectured by Karra et al. (2008). Though also, the other observed companies face this issue and solve it by either employing people in the respective regions

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or by networking effectively. The researchers of this study, therefore, think that the cross- cultural capability is vital for a founder. Even if an entrepreneur does not have personal experience in this, it is crucial to get in touch with people that are capable of working in a different cultural context. Lastly, the identified capability of institutional bridging (Karra et al., 2008) is not reflected in the cases of the observed online retail banks. This can be traced back to the strict and rigid legal requirements of a bank that set out how to act in each country. Because of the vast amount of regulations that a bank is facing, some sort of legal or compliance department is required already at an early stage, and therefore the founders do not have to be capable of doing it themselves.

5.1.3 Resources In the discussions with the different interviewees, several core resources are named. One central tangible resource that is mentioned by every observed case is the finances. The interviewed persons agree that this is a necessary precondition for internationalization. On the topic of how they manage to gather this resource, the cases show a common approach of acquiring it through investors. This also relates to the theory by Gleason et al. (2006) that hypothesizes that BGs can more easily find investors to fund them compared to domestic companies or organizations that move abroad at a slow pace. Though the interview with Monese offers a different standpoint to this equation. It is not solely the gathering of funds through investors that then enables the company to expand internationally. A BG can also choose to propose a plan of internationalization to possible investors, to receive their funding. It is, therefore, rather an interdependence between the two of those than just a simple cause and effect of the action. Even though the finances are agreed to be a precondition to internationalization, the perceived importance of them is not necessarily high. The interviewees instead put their focuses on other resources like their own platform, as is the case for Monzo, or more intangible resources like the knowledge and the common understanding of the companies values. This confirms the theory of Rialp et al. (2005) of knowledge-based resources as a critical driver for internationalization in BGs to some degree. Though as the observed companies are acting in the well-developed sector of retail banking and they generally offer the same services but with the support of new technologies, they do not especially offer a service with a high degree of innovation. The researchers, therefore, argue that online retail banks can rather profit from technological negligence of the traditional banks. As the services of the traditional banks are not incorporating the currently available technologies, the online retail banks can fill this gap without the need for real invention. It is, therefore, not the conjectured application of new technology in an existing context (Knight & Liesch, 2016) but rather just the correct implementation of existing technology in the current economy. Contrarily, some resources that the case-companies are missing during their internationalization are mostly built-up around the market knowledge. When moving abroad, some of the observed banks faced difficulties as they were not correctly prepared

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for the new circumstances and therefore encountered significant problems. This precondition was theorized by Freeman et al. (2006) and seems to stand true. Even the proposition of acquiring this knowledge through a network can be observed by the example of N26, in which the founders tapped into the knowledge about the US market in their network to enter the market after that. This shows that even in the context of online retail banks, the theory about knowledge gathering through a network is still applicable (Varela et al., 2015). The researches of this study, therefore, imply that the founders themselves need to possess knowledge about the possible markets or should it be easily accessible to them through their network. Without this kind of information, an online retail bank could fail at internationalizing.

5.2 Global / Regional Strategy Considering the different strategic approaches that are discussed by Rugman (2005) and Yip (2001), some linkages to the interviewed case-companies can be observed. Almost all of the cases show a rather regional orientation that they then break down into a more detailed strategy of country-specific plans. This directly relates to the theory of Rugman (2005), even though the regions are not necessarily the same three regions that he describes. In the context of online retail banks, the regions are instead laid out in terms of different identifiers that are more relevant in banking. For example, for Revolut, the regions are broken down into different currencies, as they offer the same or similar services in countries in which the same currency is being used. For other companies, like N26, the regulations are the most crucial factor when defining the boundaries of a region. This means that they consider the EU to be a single region, as it is possible to bank across the EU with a banking license from one of the member states, though this does not apply for other economic regions. Another interesting observation is, furthermore, that apart from Revolut, none of the cases mention Asia as a viable region. Even Revolut, the company with the most progressed internationalization, is not yet active in Asia. Taken from the approach of a few of the case-companies that everything revolves around regulations, the Asian financial markets may be too inaccessible for a European based company. During the discussion with Monzo, the interviewee clearly states a global approach to the market. This way of strategizing relates to the theory of Yip (2001) that describes the world as a single market on which a company should focus on. Interesting with this observation is, that Monzo, the least internationalized company of the cases, has a rather global view. However, the argument of the interviewee still stands true when looking at their actual expansion. They did not choose to expand to any European country that would be geographically closer and would be in the same economic region as they are acting in. On the contrary, they choose to expand to the US directly. Another argument that supports a rather global approach to deriving a strategy is the idea of the interviewee from N26. The manager mentioned that tech-products are laid out for a global audience from the get- go as they only have to be translated, but otherwise, it can work across cultural and economic contexts.

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Taken from these observations, the researchers of this study conjecture that online retail banks act with a rather regional mindset when internationalizing. Though these regions are differing from the primary clustering that Rugman (2005) proposes, as they do not revolve around economic areas but more specifically around currencies and similarities in regulations around banking. The researchers can also observe a clear home-region orientation in which all of the case companies, as they are all based in Europe, first establish their European business before moving abroad. Though, as the case-companies are not yet mature enough to reach the limit of a home-region orientation, which is conjectured by Delios and Beamish (2005), no statement to this theory in the context of online retail banks can be made.

5.3 Path of Internationalization The theories about BGs depict companies going abroad early after their inception (Knight & Cavusgil, 2005). This can also be observed by most of the chosen case-companies. Apart from Monzo, which has chosen a different approach to first become more stable in the home-market before moving abroad, all other banks moved internationally in the first three years after the foundation, which fits the definition by Rennie (1993). A possible explanation for this difference in the pace of internationalization lies in the set-up of the founders. Monzo is the only studied bank that consists of entrepreneurs with experience in founding other start-ups. The interviewee from Monzo even describes them as serial entrepreneurs. They could, therefore, be a bit more careful about moving to another context due to possible problems that occurred during the foundation of other companies, whereas the founders from the other three cases did not yet have the same experiences. The researches of this study, therefore, theorize that even though the experience in founding a start-up might be helpful to the company, it hinders an early expansion to international markets. Another identified factor of the speed of international expansions, in terms of the definitions by Madsen (2013), seems to be the approach to the product offering. For Revolut, a company that runs the strategy of the minimum viable product, the expansion to other markets is swift. Even though the different banks started-off around the same time, Revolut is nowadays acting in the most regions and countries. This fast expansion strategy means that their services still contain minor issues, which do not infringe on the overall purpose but can influence the consumer’s happiness. N26, on the other hand, wants to create a lovable product and, therefore, does not follow the same strategy. They create a more stable offering, which satisfies their customers. On the other hand, this means that they do not expand as fast to other countries. The interviewee even specifically mentions this as a possible downside of their strategy. Concluding this argument, the researchers, therefore, think that the speed of internationalization is highly dependent on the strategic importance of customer satisfaction in a company. To create the right product in the online retail banking sector takes time and effort, which in turn is missing in the expansion of the company. The suggestion is, therefore, to find the right balance between those two different variables of international expansion and customer satisfaction.

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Another often mentioned infringing factor to internationalization is the liability of foreignness (Rugman, 2005). The theory is that due to this liability, a company moves instead to closer countries and acts in the home-region. This theory stands true in the context of online retail banks when examining the empirical findings. In this specific context, the banks mention the problems arising through different regulations in other countries and also differing consumer needs. As some of the observed companies started their businesses out of a consumer pain that the founders themselves experienced, they are aware of the consumer needs. When they want to offer their service in another country, the needs of the consumers there might be different, and the product might, therefore, not be as viable. The researchers, therefore, think, that for example, in the case of Revolut, a bank offering an easy way of converting currencies while traveling, it is more difficult to gain traction in the context of the USA. As the USA is a vast region with the same currency all around, it differs profoundly from Europe, their home-market. In Europe, travelers often find themselves in another country that has a different currency, whereas, in the USA, they can travel the same distance but still use the same currency. It, therefore, becomes vital for a company during expansion to correctly understand the local market needs and to then address them by adapting the products. This conjecture is also supported by some of the interviewees, that mention this as a problem during their expansions. A common topic during the discussion with the interviewees is the language. They feel as if languages are an essential factor when internationalizing. This factor is commonly perceived to be another liability of foreignness (Rugman, 2005) that can hinder the success of a company in a new market. The language is one of the reasons for Monzo to first move to the US, as they share the same language, and therefore little to no adaptation is needed. On the other hand, this becomes more evident in the context of N26, a bank that was founded in Germany. The possibilities for them to expand to regions with the same languages are limited as they can only expand to two other small markets in Austria and Switzerland. Their approach to this issue, therefore, is to invest in localization efforts by employing customer support people speaking different languages, and in turn, they can offer their services in many different linguistic regions in Europe. Not only the language itself is important, but the tone of voice does also have to relate to the culture. As the head of localization at Monese points out, it is not viable to simply translate everything word-by-word, but instead, an understanding about how a local would describe it has to be gathered. The interviewee also expresses the feeling, based on experience with other non-financial companies, that the importance of languages is even higher in the finance sector. People want to understand every detail when it comes to their money. This study, therefore, concludes that online retail banks must pay close attention to the linguistic differences of countries to not run into the risk of offering a service that no one wants. This observation stands in contrast with the approach of having a global market, as the different languages of each country or each region must be taken into account, and the product or service has to be adapted accordingly.

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Even though it might seem evident that technological advancement and the accompanying shift in society leads to the appearance of these online retail banks, the researchers suggest different reasoning. Taken from the empirical findings, the interviewees often mention a need in society or the consumer pain that people experience that does not fit into the traditional brackets. These are people that travel around often or that migrate to other countries and might not have the same nationality, the same linguistic level, or the same legal status that the vanilla citizen in a country has typically. Furthermore, the authors of this study also argue, based on their work-experience at traditional banks, that the banking services are getting more and more complicated. As the US expansion manager at Monzo states, banking is generally not customer led, and because of that, the services they are offering are also not intended to be fully understood by their customers, as it creates some leeway for additional earnings. These two factors of more people traveling, and complicated services offer a perfect opportunity for online retail banks. The observed banks set themselves the mission of offering simple and transparent products to create more inclusive retail banking. Besides, they support this main idea with digital innovations to also create a service that has no boundaries, as their primary target consumers are also not bound to a single country. The researchers of this study, therefore, argue that the main driver for online retail banks is trying to simplify the banking market. To do this, they effectively apply digitalization to enable their internationalization. Therefore, the internationalization of online retail banks is a requirement of their target consumers, and the process is enabled by digitalization.

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6 Conclusion In this chapter, the research question is answered based on the performed analysis in the previous chapter. Furthermore, the theoretical implications from the study are explained, followed by the practical implications. The limitations that need to be taken into consideration are also explained, and lastly, recommendations for future research are presented.

6.1 Answering Research Question

Online banks are becoming more fashionable along with the consumers, now if more than ever. Online banks seem to operate differently than traditional banks, and their attitude towards international markets as well as international consumers is more positive. The shift towards a more digital world is happening right now, and many studies have explored the field of Fintech. What is missing is the necessary research about retail banking with a focus on online banks. When talking about the internationalization process for online banks, different factors decide how and when the bank should expand into foreign markets. The online banks seem to have a different view on the international environment compared to traditional banks, and this study aims to investigate the process behind the internationalization, which results in the presented research question below:

How do online retail banks internationalize?

Online retail banks internationalize through effectively meeting the consumer needs that are neglected by traditional banks. By applying digital innovations in the financial sector, they offer a service that is irrespective of national borders and can, therefore, focus on a global audience. The finance sector today seems to be complicated and difficult for consumers to understand. The products are complex and cannot be explained by most consumers. However, consumers do not seem to have another option. That is where online banks come in and act on this opportunity. The main idea for online banks is to create better lives and make banking simple again. The consumers should be able to understand the products as well as use them for their everyday life that nowadays often consists of traveling and moving around. Once upon a time, banking was local, and the consumers had to come to the physical bank. This study identifies that since people tend to move more international in current times, the pain of opening a bank account in another country becomes more relevant. Not only in terms of the accompanying restrictions due to local regulations but also because of the linguistic differences hindering the understanding of the products. This study, therefore, concludes that since the people in the society are becoming more born global, retail banking has to follow this trend. This is also reflected in the fact that the founders of online banks do not work in the banking sector for what it is right now, but rather because of what it can become.

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The factors that drive online banks to go international are mainly to follow their consumers and deliver their solutions internationally. The founders of online banks possess relevant knowledge of either the banking sector or of the technology. An online bank tends to internationalize faster if the group of founders is not too large, and the possession of cross-cultural capabilities seems to be crucial for the internationalization process. The most important resources when going abroad are the finances, as well as their platform and the knowledge about the technology around it. Furthermore, the clear drive and the common motivation in the company enables every employee to perform to their full potential. The resource that would be valuable for expansion but often is missing is market knowledge. The reasoning for this can be found in the fast internationalization, as it does not allow enough time to accustom to a new market, and the consumer needs are therefore sometimes not sufficiently addressed. Even though all online banks want to be global, they are working with a regional perception of the markets. From this broad approach, the banks derive more detailed action plans for each of the countries due to factors such as language differences and local regulations. The banks also choose to move to close-by countries first since they have more market knowledge about those countries, which is beneficial in the expansion. Most online banks are expanding international within the first three years of operating, and the strategic decision on how well developed a product must be before rolling it out seems to affect the pace of the internationalization directly. The lower the minimum requirements for a product are, the faster the company expands to other countries.

6.2 Theoretical Implications Due to the lack of previous research within the specific field, this study contributes to the theory by providing information about the relatively new but fast-growing phenomena of online banks. It demonstrates the applicability of the theories in this new context and displays how basic internationalization concepts must be adapted for this part of the financial sector. Further, it provides valuable information about the different factors that drive online banks to internationalize, as well as how the process is executed. The study’s result also uncovers different areas in which further research is required to deepen the knowledge on a more sector-focused perception to fully understand the online banks and the current shift in retail banking. By further analyzing this topic, existing theories in the field of banking and finance might need to be also adapted to encompass online retail banks. It is, therefore, crucial for academia to further investigate this phenomenon as the practical world might otherwise diverge from the theories, and they would, therefore, no longer be applicable. The prevalent internationalization theories should also be revised in a way to include the specifics at play in the financial sector.

6.3 Practical Implications The study highlights the different approaches used by the selected cases and gives a clear insight for other banks, both online and traditional. The results of this study can inspire and teach important lessons. Both considering the factors that result in a felicitous process

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of internationalization as well as the factors that harm this process. The core idea of online banks is rather to make banking simple again than to be digital. The products need to be understood by consumers. They need to be adapted to the trend that people move around and travel in their everyday lives. It should, therefore, be possible to use the banking services without regard to location or borders. Furthermore, the study concludes that market knowledge is crucial when dealing with banking products since the product requires adaptation, depending on which market it should be offered. As personal finances are a sensitive topic for most of the consumers, it is important to create trust by offering them an understandable service. However, this trust cannot be established if a consumer must change the bank whenever moving to another country. Therefore, a bank should strive to become a global player that follows its customers and knows about their needs. Throughout this whole study, the researchers discuss the shift in the banking sector. The consumers are encountering numerous complicated finance solutions and require more inclusive banking. This is exemplified by all the four cases in this study as their main and common motivation is to simplify the banking sector, which represents this current shift. The results in this study imply that traditional banks will be forced to adapt to this new global world where people, as well as companies, are born global, and they demand understandable services. To define the urgency for a traditional bank to act on this development, more in-depth research into this topic is required. Though, the suggestion for a traditional bank is already to keep an eye on this shift in society and to act according to their observations.

6.4 Limitations Due to the nature of this study and the chosen methodological approach, some limitations for the applicability have to be made. Firstly, the study is observing the internationalization process of a limited number of different banks, and the generalization of the results is, therefore, problematic. Secondly, many laws and regulations influence the internationalization process of online retail banks, though the specific impact of the different regulations is not taken into consideration. Thirdly, the ability to apply the findings to other contexts is limited as the information is gathered from companies that are predominantly acting in Europe. Lastly, the chosen cases are still at an early stage of development. None of them turned a profit and they are still in the build-up phase. Therefore, the companies should be revisited at a later stage to observe their success.

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6.5 Future Research During the process of researching the topic of this study, the researchers found several discrepancies that can offer new approaches for further research. Additionally, the limitations of this study could also be used as a starting point for increased investigation of specific aspects of the shift in banking. In the following paragraphs, some relevant topics that could fill the research gap are presented. The researchers suggest investigating:

How the internationalization process differs from online banks to traditional banks. By studying the difference, the factors that drive banks to internationalize both positively but also negatively can be brought to light. This provides a deeper understanding of the internationalization process for banks.

How the specific regulations in European countries affect the internationalization process. This provides valuable insights for the internationalization process in relation to the legal framework. This information could be important for future policies revolving around the financial sector.

How online banks in other parts of the world, for example in the US, internationalize. This provides more research in the same area that could uncover regional differences, which could inherit additional factors, that have not yet been addressed.

The importance of traditional banks to adapt to the new global world. This could uncover the urgency for traditional banks to change their mindset. If this trend of financial inclusion in a global context continues, it could be crucial for a traditional bank to act on it.

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7 References

7.1 Interview Sources Customer Support Outsourcing Manager, 2020. N26, Zoom, 2020-05-17. Global Operations Manager, 2020. Revolut, Google Hangouts, 2020-05-08. Head of Localization, 2020. Monese, Zoom, 2020-05-06. US Expansion Manager, 2020. Monzo, Zoom, 2020-05-12.

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Appendix A: Theoretical Concepts Main Concept Sub Concept Definition Factors Motivators Market-seeking Finding new demand Efficiency-seeking Lowering costs Resource-seeking Gathering specific resources Strategic asset-seeking Collect crucial assets for the business Entrepreneur Identify opportunity Seeing and acting on opportunities in a market Institutional bridging Adapting the business to different circumstances / working in different contexts Cross-cultural Ability to work with people from differing cultures capability Resources Tangible Finances, plant, equipment Intangible Knowledge, technology, network, the experience of internationalization Global/Regional Strategy Strategy Global vs. regional Starting with a global strategy and then breaking it down or having separate strategies for different regions Path of Internationalization Born Global Speed The speed at which a company decided to internationalize Scope The number of countries the company decided to internationalize to Extent The percentage of foreign sales Born Regional Global vs. regional The world as one market or the world as several regions Liability of foreignness Problems while working in a new context/market Orientation Home-, host-, bi-regional, or global orientation Table 5: Theoretical Concepts (own design, 2020)

Appendix B: Interview Guide Questions regarding the Factors Motivators 1. What motivated you to go international?

Entrepreneur 2. What personality traits do you ascribe to the founder/founders of the company that helped the company to go international?

Resources 3. Which tangible resources did the company possess that benefited it to go international?

4. Which intangible resources did the company possess that benefited it to go international?

5. What valuable resources (tangible/intangible) did the company not have? Questions regarding the Global/Regional Strategy 6. How did you derive your strategy to internationalize?

7. Why did the company choose to go international at the pace that it did?

Questions regarding the Path of Internationalization 8. What regional market would you say that your company is acting in? a. Do you, therefore, feel that there are several national markets / regional markets / one global market?

9. Has the focus on markets your company is working in changed over the years?

10. What problems did you face while working in an international market?

Appendix C: Summary of Empirical Findings Concept Revolut N26 Monzo Monese Factors Reach global travelers Create a globally Reaching one billion Founders drive to solve - Motivators lovable product customers the issue

- Entrepreneur Found a problem Identified a pain in Entrepreneur’s drive to The entrepreneur is a hiring staff from banking disrupt the financial target consumer and around the world sector knows the needs - Resources IT-knowledge, Finances, Own platform, Finances, common motivation human capital management experience market knowledge Global/Regional Regional Regional Global Regional Strategy (US, Europe, Asia) (Europe, (Broken down into (UK, Eurozone, North America, different countries) Romania) Latin America) Path of Immediately move to First, establish the Slower First, establish home- Internationalization as many countries as home market, then internationalization market, then move rather possible, not only in expand to other because of striving to fast to the full home- Europe countries in the same get a banking license in region Risks because of region each country Difficulties due to insufficient market Problems adhering to Problems adhering to different languages knowledge different regulations different regulations Table 6: Summary of Empirical Findings (own design, 2020)

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