Frankfurt, Düsseldorf The words were open. "We understood that we have a lot to do," said N26 CFO Jan Kemper at the end of December about the conditions imposed by the German financial regulator. But since this week it has become clear that fintech is not only being targeted by inspectors in their home country. The Italian financial supervisory authority prohibited the Berlin neobank from taking on new customers on Monday until further notice, as N26 explained.
Accordingly, the Italian central bank is demanding improvements in the fight against money laundering for the Italian market. The order follows a review by Italy's financial regulator last year.
On the German market, which is significantly more important for N26 than the Italian one, the neobank has only been able to take on a limited number of new customers since the end of 2021 on the instructions of the financial regulator Bafin.
For Germany's most valuable fintech, the conditions in Italy, which "Finance Forward" and "Finanz-szene" first reported on, mean another setback. Investors are alarmed by the problems. "N26's growing pains are not good," said Allianz X boss Nazim Cetin, one of N26's major financiers, recently to the Handelsblatt.
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Some fintech experts are also questioning whether N26 should also think about changes in management staff. People familiar with the topic confirm that N26 has made progress in the fight against illegal business. But they also assume that the bank will be busy for some time to come to terms with the failures of the past. "N26 heard the shot – but it will take time to work out the issues," said an insider.
In principle, the vast majority of N26 investors are convinced that the neobank can solve its problems and be successful in the long term. "From our point of view, N26 is a success story – a German neobank with operations in 24 European countries and extreme customer growth," said Allianz X boss Cetin.
Christian Nagel, partner at the Munich N26 investor Earlybird, described the measure taken by the Italian financial regulator as "annoying", especially since it was based on outdated data. Growth in Italy is now being stopped, although the problems have already been addressed. However, he expressed confidence that N26 could also prove the progress and that the measure would be lifted quickly.
Prospects for IPO are clouding over
However, the prospects for a possible IPO for Berliners have worsened again due to the conditions in Italy. "This means that the latter company value should also be obsolete," wrote Volker Brühl, Managing Director of the Center for Financial Studies at Frankfurt's Goethe University, on Twitter.
Investment bankers still consider an IPO to be possible in the coming year – but only if the neobank has solved its regulatory problems by then. N26 had collected 780 million euros from investors in October last year and increased its valuation to around 7.8 billion euros. "We want to be structurally IPO-ready by the end of the year," said founder Maximilian Tayenthal at the beginning of March. However, the market environment is poor for the foreseeable future.
The German financial regulator Bafin has long criticized deficits at N26. In October 2021, the authority limited the growth of the neobank to 50,000 new customers per month across 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 explained at the time.
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Last year, the financial supervisory authority also issued a fine of 4.25 million euros against the Berlin fintech and justified this with failures in submitting suspected money laundering reports.
N26 wants to fix problems quickly
Due to the growth restriction in force since last year, N26 in Italy has only focused on premium customers who wanted to open a paid account. Up to now, this was possible from a cost of EUR 4.90 per month. Customers who wanted to open a free account had to be patient. Now N26 has to do without new premium customers. A spokeswoman for the neobank did not want to reveal how many customers N26 has in total in Italy.
However, the bank explained that there are no changes for existing customers in Italy. The accounts would continue to be fully available to customers. N26 is also committed to implementing all the measures requested by the Italian central bank as soon as possible.
The institute stated: "N26 is confident that through the implementation of the measures to date, significant progress has already been made towards solving the shortcomings identified in Italy over the last year."
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