Germany’s Financial Regulator Lifts Anti-Money Laundering Cap on N26 Sign-Ups After $10 Million Fine

BaFin Eases Restrictions on N26, Fintech Startup’s Growth

After the Wirecard scandal, Germany’s financial regulator BaFin started to look more closely at young fintech startups that wanted to grow at a rapid pace. It’s always better to be safe than sorry when it comes to regulating such companies.

In particular, N26, a Berlin-based banking startup that has raised hundreds of millions of euros and quickly became a unicorn, has had a complicated relationship with BaFin for the past few years. The regulator imposed a cap on new signups as a sanction to force the startup to improve its anti-money laundering processes.

BaFin Imposes Growth Restriction on N26

The cap was originally set in 2021 at 50,000 new customers per month. At the end of 2023, it was increased slightly to 60,000 customers per month. This restriction seriously hampered N26’s growth, and the company adjusted its strategy to focus on its existing customers.

N26’s Relationship with BaFin

In recent years, N26 has been working closely with BaFin to improve its compliance team and processes. The company has set aside provisions in its 2022 financial statements for potential fines related to shortcomings in reporting suspicious activity that occurred in 2022.

As part of the conclusion of this oversight period, BaFin fined N26 €9.2 million (around $10 million at today’s exchange rate) for these shortcomings. According to the company, it has also invested €100 million to improve its compliance team and processes since 2022.

"We are pleased about the trust of our regulators and will continue our close exchange in the future," N26 co-founder and CEO Valentin Stalf said in a statement. "In recent years, we have been able to make significant progress in preventing and combating money laundering and financial crime."

N26’s Growth Strategy

The company has added crypto and stock trading to its services, in partnership with Bitpanda and Upvest, respectively. You can even sign up for insurance products from the app. All of these additions are designed to increase the average revenue per user.

In 2023, N26 reported a loss of €100 million, but things should be better this year thanks to higher interest rates, new revenue streams, and the end of the signup cap. The company said it expects to reach "monthly profitability" at some point during the second half of 2024.

N26’s Expansion Plans

N26 has been expanding its services in recent years, offering savings accounts in Spain and Germany. In some markets, users can also get a loan of up to €25,000 from the app. The company is now focusing on increasing revenue per user through these new offerings.

The end of the growth restriction will likely lead to an increase in N26’s customer base, which could further boost its revenue. The company has already seen an improvement in its financial performance since the beginning of 2024.

Conclusion

N26’s complicated relationship with BaFin has come to an end, and the fintech startup can now focus on growing its customer base without restrictions. With a strong growth strategy and a focus on increasing revenue per user, N26 is well-positioned for success in the future.

About Romain Dillet

Romain Dillet is a Senior Reporter at TechCrunch, covering the latest news in the world of fintech and startups. He has a deep understanding of the industry and provides insightful analysis on the companies that are shaping it.