Frankfurt N26 is again in trouble with the authorities: the Italian financial regulator on Monday prohibited the Berlin neobank from taking on new customers until further notice, as N26 explained. Accordingly, the Italian central bank is demanding improvements in the fight against money laundering for the Italian market.
For Germany’s most valuable fintech, the conditions in Italy, which “Finance Forward” and “Finanz-szene” first reported on, mean another setback. People familiar with the topic confirm that N26 has made progress in the fight against illegal business. But they also assume that the bank will be busy for some time to come to terms with the failures of the past. “N26 heard the shot – but it will take time to resolve the issue,” a source said.
Investors are also alarmed by the problems. “N26’s growing pains are not good,” said Allianz X boss Nazim Cetin, one of N26’s major financiers, recently to the Handelsblatt. Some fintech experts are also questioning whether N26 should also think about changes in management staff.
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In principle, however, the vast majority of N26 investors are convinced that the neobank can solve its problems and be successful in the long term. “From our point of view, N26 is a success story – a German neobank with operations in 24 European countries and extreme customer growth,” said Allianz X boss Cetin.
IPO prospects dim
N26 had collected 780 million euros from investors in October last year and increased its valuation to around 7.8 billion euros. “We want to be structurally IPO-ready by the end of the year,” said founder Maximilian Tayenthal at the beginning of March.
However, the prospects for an IPO have worsened again due to the conditions in Italy. “This means that the latter company value should also be obsolete,” wrote Volker Brühl, Managing Director of the Center for Financial Studies at Frankfurt’s Goethe University, on Twitter. Investment bankers still consider an IPO to be possible in principle in the coming year – but only if the neobank has solved its regulatory problems by then.
The German financial regulator Bafin has long criticized deficits at N26. In October 2021, the authority limited the growth of the neobank to 50,000 new customers per month across Europe. The supervisors justified the brake on growth with “deficiencies, particularly in risk management in the areas of information technology and outsourcing management”. These deficiencies “are due to the strong growth of the bank,” the authority explained at the time.
The Bafin had previously sent a special auditor to N26, among other things, due to deficiencies in the prevention of money laundering and terrorist financing. Specifically, it is about “deficits both in EDP monitoring and in the identification and verification of customers,” said the financial regulator in May. Furthermore, the neobank must ensure “appropriate staffing and technical and organizational resources to comply with its money laundering obligations”.
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Last year, the financial supervisory authority also issued a fine of 4.25 million euros against the Berlin fintech and justified this with failures in submitting suspected money laundering reports.
N26 wants to fix problems quickly
Due to the growth restriction in force since last year, N26 in Italy has only focused on premium customers who wanted to open a paid account. Up to now, this was possible from a cost of EUR 4.90 per month. Customers who wanted to open a free account had to wait until now. Now N26 has to do without new premium customers. A spokeswoman for the neobank did not want to reveal how many customers N26 has in total in Italy.
However, the bank explained that there are no changes for existing customers in Italy. The accounts would continue to be fully available to customers. N26 is also committed to implementing all the measures requested by the Italian central bank as soon as possible.
The local and global teams and experts worked closely with the Italian regulator, the institute explained. “N26 is confident that through the implementation of the measures to date, significant progress has already been made towards solving the shortcomings identified in Italy over the last year.”
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