Dive Brief:
- German neobank N26 is shutting down its U.S. operations to focus on expanding in Europe, the company said Thursday.
- Accounts for the challenger bank’s 500,000 U.S. customers will be closed Jan. 11. Affected users “already have been contacted with further instructions on how to withdraw [their] funds and ensure a smooth closure,” the company said in a statement on its website.
- The U.S. wouldn’t be the first market N26 has abandoned. The neobank discontinued its U.K. business in April 2020, saying the country’s withdrawal from the European Union would have made it impossible to operate with an EU banking license.
Dive Insight:
Thursday’s move brings to an end N26’s 2½-year stateside odyssey that began when it launched its app to a 100,000-customer U.S. waitlist in July 2019.
The strategic turnaround has taken shape over the past nine months. Alex Weber, N26’s chief growth officer, told Banking Dive in February the company had planned to grow its U.S. employee base by 75% in 2021 and boost its product and technology capabilities.
N26 may still do the latter — just elsewhere.
“We are sharpening our strategic focus on our core business in Europe for the time being,” Weber wrote Thursday in a statement to Bloomberg.
N26 said it wants to expand into more countries in eastern Europe and still plans to launch services in Brazil. The challenger bank also said it will aim to move U.S. staff to other areas of its business “where possible,” according to CNBC.
Warning signs consistently emerged, indicating the neobank hasn’t always been on the most solid footing. N26 paused signups for new U.S. customers in August and re-implemented a waitlist as its agreement with sponsor bank Axos was waning.
The neobank laid off 10% of its New York-based workforce in May 2020, citing challenges related to the COVID-19 pandemic. Nicolas Kopp, N26’s U.S. CEO, also left the company early in the pandemic.
N26 has faced regulatory issues abroad, too. German financial regulator BaFin in June ordered the challenger bank to pay €4.25 million ($5 million) because it submitted anti-money laundering-related suspicious activity reports late.
A month earlier, the regulator ordered N26 to fix deficiencies in its IT monitoring and customer due diligence and appointed a special commissioner to oversee its progress.
BaFin most recently imposed a cap on N26’s growth, limiting the challenger bank to no more than 70,000 new European customers per month. The company, however, announced the cap alongside news that it had closed out a funding round worth $900 million — giving N26 a total valuation of more than $9 billion, higher than the market cap of its home country’s second-largest bank.
N26 will use that $900 million in funding to develop new products from Belgrade, Serbia, Business Insider reported. Investment products are among the financial services N26 wants to add among its European user base, the company said.
N26’s fall in the U.S. illustrates, too, how tough it can be for a foreign challenger to break in to the American market. U.K. challenger bank Monzo, for example, withdrew its application for a banking charter with the Office of the Comptroller of the Currency (OCC) last month.
"In our industry, the level of synergy moving from Europe to the US is not like WhatsApp that you can internationalize easily," N26 co-CEO Max Tayenthal told Business Insider last week. "We had to build the bank from scratch with different licenses, agreements, and payment rails.”
N26 misses out on some revenue streams, such as net interest, that fully licensed retail banks here can take advantage of, Robert Le, a senior emerging technology analyst at PitchBook told the publication.
“If you asked me four years ago, I would have said we'd launch in a new market every year, but it's complex enough as it is, and you shouldn't underestimate that complexity,” Tayenthal said.
