Fintech N26 says regulatory action has cost it “billions” in lost growth

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Years of regulatory action against German fintech N26 over its poor anti-money laundering controls may have cost the company billions of euros, co-founder Valentin Stalf told the Financial Times, as authorities finally removed a curb on its growth.

Financial regulator BaFin in 2021 ordered the online-only bank to limit new customer signups to 50,000 a month, up from the monthly average of 170,000 it was taking on at the time. The limit was increased to 60,000 last year and will be removed from June, according to N26. BaFin declined to comment.

The regulator revealed last week that it had fined the bank €9.2 million for persistently late filing of suspicious activity reports in 2022. This followed an earlier fine of €4.25 million in 2021 for similar issues in previous years. An independent monitor overseeing N26’s anti-money laundering checks on behalf of BaFin will remain in place, according to people familiar with the situation.

N26 said on Tuesday that the direct costs of the saga amounted to 100 million euros, including expenses for its control functions and monitoring systems, and fines. But Stalf said the indirect costs are much higher.

“The impact on N26 definitely amounts to billions of euros because it has lowered the valuation of the company as we have not been able to grow,” he said. In its last funding round in 2021 – before BaFin announced it was taking action – N26 was valued at 7.7 billion euros.

Valentin Stalf: “The impact on N26 definitely amounts to billions of euros because it lowered the company’s valuation because we were unable to grow” © Noam Galai/Getty Images for TechCrunch

Stalf said he was “satisfied with the confidence of our regulators” and stressed that the bank’s priorities have changed since 2021, meaning it will not return to its previous expansion frenzy.

“Our priority will not be growth but customer profitability and market attractiveness,” he told the FT, adding that N26 wanted to create “a sustainable portfolio of customers that is profitable in the long term”.

He stressed that the business will grow “obviously” starting in June, but declined to provide a specific expansion target.

The commercial dynamics are also in its favor, he said, saying N26 has “very strong demand” for it digital bank services and that “the market has not been shared by our competitors in the last two and a half years”.

N26 was on track to become profitable in the second half of this year, he said. Last year it halved its losses to 100 million euros and reported a 27% increase in revenues to more than 300 million euros. This year, it hopes to increase revenues by up to 35%, according to Stalf.

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The company was founded in 2013 and has 8 million customers in 24 European countries, but has pulled back from some of its international expansion plans in recent years, exiting the UK, US and Brazil.

It started by offering checking accounts, but recently moved into brokerage services and savings accounts.

Stalf said that N26 “has learned a lot over the last two and a half years from working closely with the regulator” and that this experience would be “useful for our next steps towards an IPO”.

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