On the first day of every month, a queue begins to form outside the Berlin headquarters of online bank N26 — new recruits, waiting to join the fast-growing ranks at one of Europe’s most valuable fintech companies. Valued at $3.5bn in its latest funding round, and with investors including China’s Tencent, N26 has drawn customers and staff at breakneck speed. Since its launch in 2015, the company has signed up 3.5m clients in 24 countries to its app-based suite of bank accounts, and is adding 10,000 more every day. Valentin Stalf, the co-founder and chief executive of N26, makes no secret of the company’s ambitions. “Our goal is to build a global brand. We want to provide the app that you turn to every day to deal with your financial issues. Our goal is ultimately to do for finance what Spotify did for music and Uber did for mobility,” he told the Financial Times in an interview. A 33-year-old from Vienna who wears his hair several inches longer than your typical bank chief executive, Mr Stalf co-founded N26 with a friend from the University of St Gallen, Maximilian Tayenthal.
The online bank has become particularly popular with younger customers, who are drawn by a number of factors including the ease of signing up, which includes verification by video chat, and an intuitive app that allows users to establish subaccounts to share with friends and family. “We would like to list on the stock exchange in three to five years,” Mr Stalf said. N26 is turning the screws on a banking industry that is already reeling from low interest rates, rising regulatory burdens and lacklustre growth. In recent months, however, the start-up’s dash for growth has hit a series of obstacles. In May, the German banking regulator BaFin took the unusual step of publishing a list of shortcomings at the company, together with a formal order to “take appropriate internal safety measures and to comply with general customer due diligence obligations”.
BaFin told the Berliners to remove backlogs in the monitoring of suspicious transactions, produce more written records of internal procedures, step up the verification of its customers and review a number of current clients who qualify as “high-risk”. N26 has also come under attack from consumer protection offices in Germany, over complaints that clients in distress were unable to reach customer service. Another criticism has focused on a string of well-publicised phishing attacks, which saw N26 accounts hijacked by fraudsters. Mr Stalf insisted that the problems at N26 were never as grave as suggested in the media, and have in any case now been largely fixed. “We have a full banking licence and we comply with every law there is,” he said. “There were some things that BaFin criticised that we tackled immediately, and others that we had been working on already.” He added: “We already resolved some of the issues that were mentioned by BaFin in the public statement. The rest will be dealt with in the coming weeks.” A person familiar with the internal regulatory discussions told the Financial Times that the lender, which has to file monthly updates on its progress in tackling the issues, has indeed made significant improvements since May. “N26 is addressing its anti-money laundering shortcomings and is working on overcoming them,” they said. The run of negative headlines has in any case done little to dent investor appetite. N26 has raised $470m this year alone, from backers including the Singapore sovereign wealth fund GIC, Peter Thiel’s Valar Ventures and Allianz X, an offshoot of the German insurance group. Nor has it stopped the bank from making one of its boldest bets to date, launching in the US last month. The US business is still in the “beta” or testing phase. According to Mr Stalf, it has 110,000 clients on the waiting list, of whom “several thousand” are invited to open an account every day. Unlike in Europe, where it has a full banking licence, in the US the banking services that underpin the N26 account for now will be provided by San Diego-based lender Axos.
Mr Stalf pointed out that the usage of a white-label product does not mean “we will never get a banking licence in the US”, adding that N26 will decide about applying for a licenceonce it has 1m-2m customers in the country. The US launch, he said, forms part of an intensifying global race for market share that pits the spin-offs of traditional retail banks against fintech competitors like N26, which also plans to open services in Brazil next year: “There is a certain time window. I do believe we see the demand for this now.” The main advantage that start-ups like N26 have over traditional retail banks is cost. With no bricks-and-mortar bank branches to fund and a comparatively small staff, new players like N26 or Britain’s Revolut operate at a fraction of the cost per customer of established banks. “Our cost base is about one-fifth or one-sixth of the cost base of a traditional retail bank. Our revenues are also lower but overall we have better margins,” said Mr Stalf, adding that his long-term goal is to get between 30m and 70m customers. Europe’s largest lender HSBC worldwide has 38m retail and wealth management customers. N26’s basic bank account comes free of charge, but customers are asked to pay a monthly fee if they upgrade to a premium service, which comes with an insurance package and a sleek coloured or metal bank card. The bank’s other sources of revenue are card fees from retailers and charges for overdrafts. Profitability, saidMrStalf, isa“long-term” goal.