Status: October 19, 2021 2:34 p.m.
While the traditional banks are cutting jobs and reducing their branch business, the signs for mobile phone banks are pointing to expansion – including N26. The start-up is ensnared by investors.
Despite the accusation of doing too little against money laundering, the smartphone bank N26 has raised more than $ 900 million from investors. That is ten percent more than expected a week ago. The valuation of the start-up is now more than nine billion dollars, the company said. This made the Berliners the most valuable fintech in Germany – and just as “expensive” as the 151-year-old Commerzbank, which has around eleven million private and business customers in Germany. N26 reported in January that it had a good seven million customers in 25 countries.
The success of this fifth round of financing since N26 was founded eight years ago is all the more surprising as the banking supervisory authority BaFin has been complaining about deficits in the fight against fraud and money laundering (compliance) for two years. Since May, a special officer has been monitoring whether N26 is improving compliance as promised. Apparently that does not seem to be the case.
BaFin limits growth
Company co-founder Valentin Stalf said that banking regulators intend to limit the growth of N26 in Europe to “a maximum of 50,000 to 70,000 new customers per month” – a setback for the company, which is estimated to have grown by around 100,000 new customers per month over the past few months is. Stalf was nevertheless optimistic and said that N26 could continue on its growth path with the decision. That sounds like management had expected an even tougher measure, said experts. At the same time, Stalf promised to further expand the control processes in the bank in the coming months.
At the end of September it became known that the smartphone bank had paid a fine of 4.25 million euros to BaFin because reports of suspected money laundering had been submitted late to the banking supervisory authority. Cell phone banks or fintechs such as N26, Revolut or Monzo are considered to be more susceptible to fraud than traditional financial institutions because their customers only register online and authentication is often carried out by external service providers. Fraudsters or operators of fake shops therefore prefer to open accounts with smartphone or online banks.
Targeting the IPO
Investors hardly seem to care. The donors involved in N26 include the insurance company Allianz, the Singapore sovereign wealth fund GIC, the Chinese internet giant Tencent, Earlybird and the US investor Peter Thiel. The US private equity firm Dragoneer Investment Group was also involved in the latest financing round. N26 wants to use the money to expand further and is focusing on continental Europe. For example, customers in Poland and Romania are to be won. A smaller test run is also planned in Brazil.
N26 also wants to expand the offers available via the app and enlarge its teams. In the coming years, 1000 people are to be recruited worldwide in the areas of technology, product management and digital security. N26 currently employs around 1500 people. At the same time, the bank is also targeting its IPO. “With the investors we have got on board, we are also taking a very important step towards going public in the coming years,” said Stalf.
Klarna is worth more than Deutsche Bank
A look at the Swedish payment service provider Klarna shows that the young tech companies are putting more and more pressure on traditional banks. The company is considered Europe’s most valuable tech group in the financial sector and is currently valued at just under 26 billion euros. Klarna is therefore worth more than Deutsche Bank; Germany’s largest bank is valued at 23.7 billion euros. For investors, the double-digit growth rates and the increasing digitization of banking transactions are what count. Companies that have focused on technology from the start, such as Klarna and N26, benefit from this more than stationary banks with their tens of thousands of employees and an expensive branch network.