Blog post: Trouble at N26 – BaFin plans to limit new business for neobank

Yesterday (August 19, 2021), Handelsblatt – one of Germany’s most respected business newspapers – reported that German financial supervisor BaFin was considering limiting what new business N26 would be able to do. This would not only – potentially severely – limit the growth of the neobank, but would hamper the efforts of their current fundraising campaign. They are reported to be raising new funds at a valuation of US $ 10 billion, which would restore their crown as Germany’s most valuable fintech after it was withdrawn by Trade Republic (more here).

Updated July 25, 2021

The news has just been shared that N26 is promoting Thomas Grosse, taking on the additional role of risk manager. Interestingly, we had Thomas in an interview, but at a time when he wasn’t working for N26, but for Google. You can learn more here:

The story

You can read more about their fundraising here:

N26 failed to fight money laundering

As you may know, Germany consists of 16 stars. One of them is Niedersachsen (larger than Denmark), in which one in 10 cases reported to the authority on suspicion of money laundering was with the neobank (Source: https://buff.ly/3yPDYp2). There are some examples in the article mentioned about fake names and addresses on the streets, where the house number simply does not exist. The Niedersachsen State Office for Criminal Investigations claims that N26 has been used “more than average” for scams. Scammers hire unemployed people for part-time jobs and ask them to open accounts for them with an excuse, like opening a demo account or an account for a soon-to-be-established business.

BaFin has already carried out a special audit in 2019, with many findings (Source). The situation does not appear to have been completely resolved to BaFin’s satisfaction, so they sent a special monitor in the spring of 2021 to oversee their improvements in eradicating discoveries, particularly the fight against money laundering (Source).

N26 could grow too fast for a bank

The organization of the bank (yes, they have a banking license, since October 2018 Link to BaFin) is also not stable. As you might expect, there are many sticking points and a large fluctuation in the workforce at N26, which is normal for a high growth startup. It’s a different game for a bank since it has to follow regulations and procedures (at best) in many areas (think credit, risk management, etc.). The bank will therefore have a lot to do to get rid of the trouble with BaFin in order to achieve its fundraising goal.

BaFin perspective

Keep in mind that BaFin has been under pressure since Wirecard filed for bankruptcy. The former Bafin chairman even lost his job because of Wirecard. Now, Mark Branson is the new chairman of BaFin (Präsident is the official title of the head of BaFin). It may take a few more weeks, but Mr. Branson is not hired to continue gentle surveillance. Its mandate will be to avoid a new Wirecard. This may cause additional problems for N26 if they do not speed up their program to improve BaFin results.

Sources (other than those linked in the article):

https://www.handelsblatt.com/finanzen/banken-versicherungen/banken/smartphonebank-n26-droht-neuer-aerger-mit-der-finanzaufsicht-bafin/27531748.html?ticket=ST-9892539-LvT5cgngME25VFEkrYHY-bafin/27531748.html?ticket=ST-9892539-LvT5cgngME25VFEkrYHY-bafin


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