N26 Co-Founder Reveals Regulatory Issues Cost Bank Billions, Shifts Focus to Profitability

FINTECH N26's FCC issues have likely cost the bank billions of euros, co-founder Valentin Stalf revealed today. Stalf disclosed that the direct costs associated with the saga amounted to €100M, which included expenditures on AML control functions, monitoring systems, and multi-million euro fines imposed by the German regulator, BaFin.

However, Stalf emphasized that the indirect costs were significantly higher when considering the company's valuation. "The impact on N26 surely amounts to billions of euros because it lowered the company’s valuation as we were unable to grow," he told the paper.

In the most recent funding round in 2021, prior to BaFin's announcement of its actions, N26 was valued at €7.7BN. In 2021, BaFin ordered N26 to cap its new client sign-ups to 50,000 per month, a significant reduction from the 170,000 per month the bank was averaging at the time. The cap was increased to 60,000 last year and is set to be lifted in June, according to the bank.

Last week, BaFin fined N26 €9.2M for the recurrent late filing of suspicious activity reports in 2022. This followed a €4.25M fine in 2021 for similar issues in previous years. An independent monitor was appointed to oversee N26’s AML controls on behalf of the regulator, and the monitor is likely to remain in place.

Stalf expressed satisfaction with the regulators' trust, emphasizing that the bank's priorities have shifted since 2021. "Our key priority won’t be growth but profitability of clients and attractiveness of market," he stated, adding that the bank aims to create "a sustainable portfolio of clients which is profitable in the long run."

While the business will "of course" grow from June, Stalf did not provide a specific expansion target. He mentioned that business dynamics were in N26’s favor, with "very strong demand" for its digital banking services, and noted that "the market has not been carved-up by our competitors over the past two and a half years."

Stalf also indicated that N26 is on track to become profitable in the second half of this year. Last year, the bank halved its losses to €100M and reported a 27 percent increase in revenues to over €300M. This year, N26 hopes to increase revenues by up to 35 percent, according to Stalf. The bank currently has 8 million customers across 24 European countries.

By fLEXI tEAM