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Germany’s financial watchdog is poised to ease a crippling growth cap imposed on N26 two years ago, when BaFin took issue with shortcomings at the Berlin-based online bank.
N26 founders Valentin Stalf and Max Tayenthal told investors on Wednesday that the start-up expected to be allowed to attract up to 60,000 new clients a month soon, compared with a previous restriction of 50,000 disclosed in October 2021.
“While this number is slightly below our own expectations, we recognise that this outcome is still a big step and sign of trust from the regulator,” Stalf and Tayenthal wrote in an email to investors seen by the Financial Times.
BaFin’s original cap was a draconian move for a bank that had emphasised client growth since it was founded in 2013. It marked an escalation of a long-running row with the regulator over alleged flaws in the bank’s internal organisation as well as its anti-money laundering controls. The watchdog had earlier fined N26 €4.25mn for flagging a large number of potentially suspicious transactions to law enforcement authorities too late.
The co-founders stressed it was unclear when the regulator would remove the growth cap entirely. “We understand BaFin will need more time to assess our improvements in more depth relating to further growth,” they wrote to investors.
The bank initially expected to overcome the growth cap as early as last year. In recent months, investors hoped that BaFin would lift it by the end of the third quarter.
People familiar with the matter told the FT that BaFin staff signalled the regulator’s willingness to partially ease the growth cap to 60,000 in a meeting with Stalf and Tayenthal last week, adding that the authority had not yet taken a formal decision.
Compared with N26’s growth of 170,000 new clients per month in the run-up to BaFin’s 2021 intervention, a cap of 60,000 would still be a significant constraint for the growth-hungry start-up.
N26 told the FT that “any easing of the growth restrictions is a recognition of our progress”. The bank added that it was “confident” that the growth restrictions will be further eased “in the coming months”. BaFin declined to comment.
Over the past two years, the bank has spent more than €50mn to improve its internal controls, transaction monitoring and fraud-prevention systems, according to people familiar with the matter.
With more than 8mn clients in 24 countries including Germany, France, Spain and Italy, N26 is one of Europe’s largest challenger banks aiming to disrupt the continent’s incumbent retail lenders. Since it was founded in 2013, the bank has raised $1.8bn from investors including Peter Thiel’s Valar Ventures and Li Ka-shing’s Horizons Ventures.
In its last funding round in October 2021, it was valued at more than $9bn, but tech valuations have since fallen sharply. N26’s most recent financial accounts show it generated losses of €172mn in 2021 while revenues increased 50 per cent to €182.4mn.