Frankfurt The Berlin smartphone bank N26 is focusing on a strategy that seems inevitable for fintechs in the current market environment of inflation and the Ukraine war: profitability. “We want to become profitable in the next 24 months,” said Valentin Stalf, co-founder and co-boss, on Wednesday at the Handelsblatt banking summit in Frankfurt.
According to Stalf, the turnaround in interest rates will make a significant contribution to this. “We weren’t used to making money from deposits in the last ten years,” he said. That will change in the future.
N26 is not alone in its focus on profitability: After record financing last year, fintechs are now facing a changed market environment and major challenges.
Lots of financing fails, investors have become more selective. In the summer of 2022 there will be significantly fewer deals than in the previous year. In the past few months, there have also been reports of layoffs and changes in strategy. With the Berlin fintechs Kontist and Penta, two German players have already been sold. The Berlin crypto bank Nuri even had to file for bankruptcy.
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“We are no longer seeing the rounds of funding that we probably saw a year ago,” Stalf said. N26 was able to complete a large round of financing last October – and collected 900 million dollars. At that time, the Berliners achieved a valuation of a good nine billion dollars.
Trend towards digital figures makes up for macro environment
But the way into the black is still a long way for N26: In the most recently published annual figures for 2020, there was still a deficit of 150.7 million euros.
However, Stalf said that both the deposit and the transaction volume had already grown by 50 percent in the past year. In 2020, liabilities to customers amounted to around four billion euros. According to this, it should be around six billion at the end of last year.
However, N26 does not communicate specific customer numbers. The Berliners only reveal the total number of customers in Europe: seven million. But this has been known since last year. Stalf also does not comment on the number of active customers.
“Customers are doing more digital, making more cashless payments and also building up their account balances more,” said Stalf, who founded N26 in 2013 together with Maximilian Tayenthal.
These effects masked any macro trends. “We are growing disproportionately,” said the co-founder.
Stalf hopes that the Bafin conditions will be lifted
And this despite the fact that the German financial regulator Bafin N26 has been restricting growth since November of last year. The bank can therefore grow by a maximum of 50,000 customers per month in 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 continued.
At that time, Stalf had still expected that this restriction would apply for about half a year. Now he is much more reserved: “We are making very good progress”.
He hopes that in the “near future” he can talk about being able to grow again without restrictions. To this end, the company has also invested in IT structures and internal control systems.
Share trading is scheduled to start next year
In the future, the co-boss sees Central Europe in particular as a growth market for N26. The smartphone bank currently has “a few million customers in Central Europe”. According to their own statements, this number should grow to at least 20 million in the next few years.
In the past, however, N26 had to withdraw from the USA and Great Britain. In Great Britain, Brexit has completely changed the conditions.
The USA is still an interesting market, but it needs “a very clear focus” there, it is not big enough to be interesting for investors. Therefore, the company wants to focus on Europe in the future.
Stalf is planning new products for this. It was already known that N26 wants to get into the crypto business. However, the question is when. Due to the current crypto crisis, there are apparently still regulatory clarification questions.
The smartphone bank’s plans to offer customers trading in shares have also been circulating for some time. Customers want to be able to provide for their old age in the long term, said Stalf. The new feature should be launched in the next twelve to 18 months.
The N26 boss is also considering acquisitions: Many of the smaller fintechs have not yet reached critical mass, they are running out of money or the business model is not yet so clear.
“We now have an exciting environment,” said Stalf. So far, however, the smartphone bank has decided against it because the integration tasks were too high.
More: Market crash, Ukraine war, inflation: Direct banks are under pressure