Germany’s financial regulator lifts growth restriction on N26 signups after $10M fine

Following the Wirecard scandal, Germany’s financial regulator BaFin intensified its scrutiny on fast-growing young fintech startups, prioritizing caution over risk.

One such startup, N26, based in Berlin and boasting a unicorn status with hundreds of millions of euros raised, has faced a complex relationship with BaFin in recent years. The regulator had imposed a cap on new signups as a punitive measure, compelling the startup to enhance its anti-money laundering procedures.

This week, N26 revealed that BaFin will be removing the growth restriction effective June 1, 2024. Originally set in 2021 at 50,000 new customers per month, the cap was marginally increased to 60,000 customers per month by the end of 2023.

As a conclusion to this oversight period, BaFin imposed a €9.2 million fine (approximately $10 million today) on N26 last week for inadequate reporting of suspicious activities in 2022. N26 had anticipated this fine, setting aside provisions in its 2022 financial statements. The company disclosed that it had invested €100 million in enhancing its compliance team and procedures since 2022.

“We are pleased with the confidence of our regulators and are committed to continuing our close collaboration in the future. Over the past years, we have made significant strides in preventing and combating money laundering and financial crimes,” stated N26 co-founder and CEO Valentin Stalf.

Owing to the growth restriction severely impacting N26’s expansion plans, the company refined its strategy to concentrate on its existing customer base. N26 now provides savings accounts in Spain and Germany, while users in some markets can access up to €25,000 in loans through the app.

N26 has also introduced crypto and stock trading services through partnerships with Bitpanda and Upvest respectively. Additionally, users can now sign up for insurance products from within the app, aimed at boosting average revenue per user.

In 2023, N26 reported a loss of €100 million, but improvements are anticipated this year due to higher interest rates, diversified revenue sources, and the removal of the signup cap. The company has expressed its expectation to achieve "monthly profitability" sometime in the latter half of 2024.