BaFin, Germany’s financial regulator, on June 1 will lift a monthly growth cap it imposed on N26 more than two years ago, the fintech said Monday in a statement.
The move comes little more than a week after the regulator fined N26 €9.2 million ($10 million) over persistent late filing of suspicious activity reports in 2022. N26 said last week it had set aside enough to cover the penalty.
BaFin had ordered N26 to pay €4.25 million in September 2021 for similar delays filing SARs, then followed that up weeks later with the cap, which limited the fintech to signing up no more than 70,000 new European customers a month. The regulator later restricted that to 50,000, then loosened it to 60,000. (The company had been taking on 170,000 new customers per month at the time, according to the Financial Times.)
N26 said Monday it had invested more than €100 million in compliance, infrastructure and staffing to boost its anti-money laundering systems.
“It’s really about using machine learning systems to sharpen our transaction monitoring,” Maximilian Tayenthal, the fintech’s co-founder, co-CEO and chief operating officer, told Bloomberg on Tuesday.
But the true cost of the regulatory action is likely much higher, N26 CEO Valentin Stalf told the Financial Times on Tuesday.
“The impact on N26 surely amounts to billions of euros because it lowered the company’s valuation as we were unable to grow,” Stalf said.
Indeed, N26 shut down its U.S. operations less than three months after the cap was imposed. More recently, it decided to end a pilot program in Brazil.
But the Berlin-based fintech, once hardwired for expansion, has changed its priorities, Stalf said.
“Our key priority won’t be growth but profitability of clients and attractiveness of market,” he told the Financial Times, adding that N26 wanted to create “a sustainable portfolio of clients which is profitable in the long run.”
To that end, N26 is on pace to turn profitable by the latter half of this year, the company said in its statement. The fintech cut its losses in half last year, to €100 million, and reported a 27% increase in revenues. Stalf said the company wants to broaden that to a 35% increase in 2024.
BaFin and N26 will maintain a “period of close exchange” through the end of the year — during which time the regulator can re-impose the growth cap if it sees fit, Bloomberg reported.
An independent monitor that oversees N26’s AML controls on BaFin’s behalf will stay in place, people familiar with the situation told the Financial Times.
Stalf said N26 learned “a lot over the past two-and-a-half years from the close cooperation with the regulator,” including lessons that will be “helpful for our next steps toward an [initial public offering].”
The market for customers, meanwhile, “has not been carved up by our competitors” in that time, Stalf told the Financial Times.
Tayenthal said N26’s compliance systems are ready to handle double its customer load in the next 12 months, according to Bloomberg.
