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Years of regulatory action against German fintech N26 over its weak anti-money laundering controls may have cost the company billions of euros, co-founder Valentin Stalf told the Financial Times, as authorities finally remove a cap on its growth.
In 2021, financial regulator BaFin ordered the online bank to cap the number of new customers it takes on at 50,000 per month, down from a monthly average of 170,000 at the time. The cap was raised to 60,000 last year and will be lifted starting in June, according to N26. BaFin declined to comment.
Last week, the regulator revealed it had fined the bank €9.2 million for persistently late filing of suspicious activity reports in 2022. The fine follows a previous €4.25 million fine in 2021 for similar issues in previous years. An independent monitor who oversees N26’s anti-money laundering controls on behalf of BaFin will remain in place, according to people familiar with the situation.
N26 According to Stalf, the direct costs of the case amount to 100 million euros, including expenses for control functions and monitoring systems, as well as fines. But the indirect costs are much higher.
“The impact on N26 is probably billions of euros, because it has lowered the valuation of the company because 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.
Stalf said he was “pleased with the confidence of our regulators” and stressed that the bank’s priorities had changed since 2021, meaning it would not return to its previous expansion spree.
“Our main priority will not be growth but customer profitability and market attractiveness,” he told the FT, adding that N26 wanted to create “a sustainable and profitable customer portfolio in the long term”.
He stressed that the company would “of course” grow from June, but declined to give a specific expansion target.
The business dynamics were also in its favour, he said, saying N26 had “very strong demand” for its digital bank services and that “the market has not been cornered by our competitors over the last two and a half years.”
According to him, N26 is on track to become profitable in the second half of this year. Last year, it halved its losses to €100 million and recorded a 27% increase in turnover to more than €300 million. This year, it hopes to increase its turnover by up to 35%, according to Stalf.
The company was founded in 2013 and has 8 million customers in 24 European countries, but in recent years it has backed off some of its international expansion plans, leaving the UK, US and Brazil.
It initially offered checking accounts, but has recently expanded into brokerage services and savings accounts.
Stalf said that N26 “has learned a lot over the past two and a half years through close cooperation with the regulator” and that this experience would be “useful for our next steps towards an IPO”.