Frankfurt The Berlin smartphone bank N26 remains on course for growth despite tough conditions imposed by the financial regulator Bafin. “In 2022 we assume that we will increase sales by around 30 percent despite limited customer growth,” said co-founder and co-boss Valentin Stalf on Tuesday at a press conference.
Last year, gross income jumped by 50 percent to 182 million euros. Net interest and commission income even climbed by two thirds. Since administrative expenses and risk provisions also increased significantly, the bottom line was a slightly higher annual loss of EUR 172 million. N26 CFO Jan Kemper indicated that the bank will probably also make losses in 2022, but these should be lower than in 2021.
At the end of last year, N26 collected 700 million euros in a financing round. The bank wants to use these funds to become profitable and no longer be dependent on further financing, emphasized Kemper. However, he does not want to commit to a specific year from which N26 will be in the black so that he can continue to react flexibly to market conditions.
The chief financial officer emphasized that there are currently no plans for an IPO. “If you look at the market out there, this is not the time to talk about IPOs.” If the situation on the markets improves and the N26 owners aim for this “logical next step”, the bank will be prepared for it .
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N26 was valued at 7.7 billion euros last year, making it one of the most valuable fintechs in Germany. By the end of 2021, the number of customers in Europe had increased by more than one million to eight million. Of these, however, only 3.7 million customers were relevant to earnings. So they either paid for their account or made transactions that made N26 earn.
Financial regulator slows down customer growth
The Financial Regulator believes that for many years N26 has grown too rapidly and has not evolved its processes and controls accordingly. In November 2021, the Bafin therefore sent a special representative to the bank and ordered that N26 be allowed to take on a maximum of 50,000 new customers per month.
Since the smartphone bank is also losing users, the institute will have “very, very limited customer growth” in 2022, said co-boss Stalf. The focus is currently on earning more with existing customers.
The Italian central bank had even imposed a ban on new customers at N26 due to significant shortcomings in the fight against money laundering. Stalf assumes that the problems in Italy will be solved in the next six months. In Germany it could be faster, but also take longer, he said. The decision lies with the regulators and is difficult to predict.
>> Read here: Financial supervisor Birgit Rodolphe: “Combating money laundering is like raising children”
Stalf thinks “that we have made good progress overall and today we also meet most of the regulatory requirements very, very well”. In the past 18 months, N26 has built up a “very good and very, very close relationship” with the financial regulator and aims to be a “figurehead of regulation” in the future.
Waiting for the green light for crypto business
In order to further develop the company, N26 also relies on the support of Holger Friedrich from the digital consultancy Core. He managed large projects at N26 and was therefore given power of attorney, said Stalf. Friedrich, who is best known to the public as the publisher of the “Berliner Zeitung”, is not part of the N26 management.
Overall, N26’s goal is to evolve from a niche provider to a full-service bank, explained Stalf. The next step is to enter the crypto business. “We have a product in the crypto area that is finished from the programmed side,” said the Austrian. Before it is introduced, however, the bank needs the green light from various regulators in Europe.
>> Read here: The first Volksbanks and a savings bank offer crypto trading
In addition, N26 wants to offer its customers trading in shares. “Our goal is to build up a strong foothold there over the next two years,” said Stalf.
On the loan side, where N26 has so far only offered bridging loans, he is more cautious. N26 does not want to grant long-term loans and take them on its own books because the business is complicated and the margins are low, explained Stalf. However, he could well imagine closer cooperation with real estate loan platforms in the next two years.
N26 currently generates around 40 percent of its income from account management fees, 30 percent from merchant fees in the card business and 30 percent from bank-related products and the investment of customer deposits in the money market.
Going forward, deposit-taking revenues are likely to pick up as banks are able to earn more there thanks to the European Central Bank’s (ECB) turnaround in interest rates. Several banks are therefore again offering their customers positive interest rates on call money.
According to Stalf, N26 also has an eye on the topic. In the future, the bank will probably pay its customers positive interest “in one or the other product”.
More: Why call money accounts and time deposit accounts are worthwhile again