N26 got it wrong on global expansion and crypto, co-founder admits

The co-founder of N26 admits that the German online bank rushed to be global too quickly and missed out on the cryptocurrency boom, as it battles to justify its status as one of Europe’s most highly valued fintechs.

The Berlin-based group, which counts Peter Thiel’s Valar Ventures and Li Ka-shing among its backers, is one of a wave of European online lenders established over the past decade to shake up the region’s banking system.

However, almost a decade since its founding, N26 is closing its US operations after exiting the UK in early 2020. While the group offers current accounts to 7m customers in 24 countries, its rapid geographical expansion left it flat-footed in developing other services, such as crypto or catering to the retail boom in equities trading.

“Should we have built trading and crypto instead of launching in the US? In hindsight, it might have been a smart idea,” N26 co-founder and co-chief executive Max Tayenthal told the Financial Times in an interview.

Tayenthal acknowledged that in recent months the bank had realised that “we were spreading ourselves extremely thinly”, adding that there are “so many things we can work on instead of putting flags in new markets”.

N26 is planning to launch a cryptocurrencies trading business this year and an equities brokerage after that, Tayenthal said. “We really want to expand our product universe and we have to.”

Although N26 was valued at €7.8bn last year, when it raised a further €780m, rival fintech Revolut was valued at more than three times as much.

The once high-flying fintech has also come under fire from German financial regulator BaFin for an array of shortcomings, including poor anti-money laundering controls.

As a result, BaFin decreed that N26 could only accept 50,000 new customers a month. According to BaFin, the restriction can only be fully lifted when N26 has “a proper business organisation and [mitigated] risks to the institution’s operational resilience”, in particular “shortcomings in risk management with regard to IT and outsourcing management”.

In a rare move, BaFin appointed two special representatives to track improvements at N26 on its behalf.

Tayenthal said that BaFin’s cap was “a massive restriction” for a bank that was funded by “growth investors” and regarded itself as a fast-growing company. N26 took on an average of 170,000 new clients a month last year.

“There is a lot of trust [among the investors] in our capabilities to have these growth restrictions removed again,” he insisted, and is confident the cap can be fully lifted by late summer. “We have a plan. We have an understanding of what needs to be done and we are able to execute [that],” he said.

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Although N26 has already “massively” increased its anti-financial crime capabilities over the past year, “certain aspects” of compliance and internal processes still needed to be improved further, Tayenthal acknowledged.

He also stressed that the bank’s investors were aware of the looming restriction from BaFin before last autumn’s record funding round, which put N26’s valuation on a par with Commerzbank, Germany’s second-largest listed lender with €541bn in assets.

The co-chief executive is confident that the group will be ready for a stock market listing by the end of the year, but said that was just one of several options and not a necessary one.

“The question is always: What is the right point in time? Do you want to go public when you still have a lot of money on the accounts” from last year’s fundraising, he asked.

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