After the Wirecard scandal, Germany's financial regulator BaFin began to place greater scrutiny on emerging fintech startups looking to grow quickly. Better to be safe than sorry.
In particular, N26, the Berlin-based start-up bank that has raised hundreds of millions of euros and quickly become a unicorn, has had a complicated relationship with BaFin in recent years, after the regulator imposed a cap on new registrations as a sanction to force start-up banks to improve their anti-money laundering processes.
This week, N26 announced that BaFin will lift the growth limit from June 1, 2024. The cap was initially set at 50,000 new clients per month in 2021. It was then raised slightly to 60,000 clients per month at the end of 2023.
Last week, as part of the end of this monitoring period, BaFin fined N26 €9.2 million (approximately $10 million at today's exchange rates) for failing to report suspicious activity that occurred in 2022. N26 had expected the fine as it had included provisions in its financial statements for fiscal year 2022. The company said it is investing €100 million in improving its compliance team and processes beyond 2022.
“We are pleased with the regulator's confidence and look forward to continuing our close dialogue. In recent years, we have made great strides in preventing and combating money laundering and financial crime,” N26 co-founder and CEO Valentin Stahlf said in a statement.
The restrictions severely hampered N26's growth, so the company adjusted its strategy to focus on existing customers. In Spain and Germany, N26 offers savings accounts. In some markets, users can also take out loans of up to 25,000 euros through the app.
The company has also added cryptocurrency and stock trading, partnering with Bitpanda and Upvest, respectively. You can also sign up for insurance products through the app. All of these additional features are aimed at increasing average revenue per user.
N26 reported a €100 million loss for 2023, but rising interest rates, new revenue streams and the removal of the registration cap should improve things this year. The company said it expects to reach “monthly profitability” at some point in the second half of 2024.