Growth of N26 customers limited by the customer ceiling imposed by BaFin

The first German digital bank, N26 has been imposed a customer cap by the German banking regulator BaFin.

The measure, which will prevent N26 from increasing its customer base beyond 70,000 new customers per month, follows the latest fintech funding round, which allowed it to raise $ 900 million and announce a new valuation. of $ 9 billion.

According to reports, the investment has now placed Berlin-based N26 at the forefront of the German banking world. The valuation of the challenger has almost tripled since its last private financing campaign, which puts it ahead of Commerzbank, Germany’s second-listed lender. Commerzbank currently has a market capitalization of $ 8.8 billion.

A statement revealed that the cap would be officially announced by BaFin early next month after a one-month period, after which the appeal expired.

Regulatory checks on N26

The imposed customer limit, a rare regulatory intervention, was put in place to deliberately slow the growth of online banking. This will prevent N26 from scaling at will and would have been imposed by BaFin after the organization grew increasingly unhappy with the “organizational flaws” of the fast growing bank.

This decision means that N26 can only accept between 50,000 and 70,000 new customers per month until it has resolved the issues identified by BaFin.

Over the past year, N26 onboarded new customers at a rate of 170,000 per month, UK Financial Time reported.

In an official statement, the lender said existing customers would not be affected by the move, and the bank wants to “lay an even stronger foundation for sustainable future growth.” He added that new customers beyond the BaFin cap would be “temporarily redirected to a waiting list”.

N26 also indicated that its teams have “already implemented a number of measures to strengthen governance and compliance structures during this year”.

Although the cap has an impact on the lender’s short-term online growth strategy, N26 stressed that they “do not expect a significant impact from this temporary change on our business plan.”

BaFin and N26 emissions

This is not the first time that BaFin has raised questions about N26’s operations. Online banking has had feuds with the regulator for the past two years, with issues raised in 2019 when BaFin commissioned N26 to eliminate delays in IT monitoring, establish written descriptions of processes and flows of money. work and verify the identity of some of its existing clients. for a second time.

The bank was flagged again in May when BaFin sent supervisors to monitor N26’s anti-money laundering procedures. At that time the bank was fined

Six months ago, the regulator parachuted a special supervisor into the bank to monitor improvements in anti-money laundering controls ordered by BaFin. In September, N26 was fined $ 4.8 million for taking too long to identify suspicious customer transactions with the regulator.

Growth trajectory N26

However, the news has not affected investor interest in the challenger, which includes billionaires Peter Thiel and Li Ka-Shing as investors, US hedge funds Third Point and Coatue, as well as Dragoneer.

Speaking of the current situation, Valentine stall, the CEO and co-founder of N26 said the latest funding puts N26 “in pole position to become one of the largest retail banks in Europe, all without a single branch”.

Launched in 2013, N26 challenged incumbents with its app-based checking accounts and low to zero fees. Its competitors in the market include Monzo and Revolut, which was recently valued at $ 33 billion.

In a recent interview with CNBC, co-founder and co-CEO of N26 Maximilian Tayenthal, said the company plans to use its most recent funding to onboard 1,000 new staff around the world. The bank is also planning to launch new features such as cryptocurrency trading.

“We want to attract more people with a focus on products, technology and safety,” Tayenthal said.

Imminent N26 IPO

Reports suggest that N26 will announce its initial public offering shortly. The bank now has around seven million customers worldwide and data suggests it also processes $ 90 billion a year. A deployment is also planned in South America, following the license recently acquired by the bank for Brazil.

But executives are reluctant to announce a firm date. Tayenthal has revealed that he expects N26 to be “structurally IPO ready” within the next 12-18 months. However, he added: “We are in no rush to go public. With increasing profitability, the kind of money we’re raising right now, it really takes all of the time pressure off. “