Blog Post: Trouble at N26 — BaFin considering limiting new business for the neobank

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This blog post first appeared first on old medium publication (https://medium.com/startuprad-io), and was moved to this blog with the relaunch of our website in summer 2024.

Yesterday (August 19th, 2021) Handelsblatt — one of Germany’s most respected business newspapers — reported that the German finance oversight BaFin is considering limiting the new business N26 would be able to conduct. This would not only limit — potentially severely — the growth of the neobank, but hurt the efforts of their current fundraising campaign. They are reported to be raising new funds at a 10 bn US$ valuation, which would give them their crown back as Germany’s most valuable fintech after it was taken away by Trade Republic (learn more here).

Updated July 25th, 2021

The news has just been shared that N26 promotes Thomas Grosse, taking on the additional role as a risk manager. Interestingly we had Thomas in an interview, but from a time, when he was not working for N26, but for Google. You can learn more here:

The Story

N26 failed to fight money laundry

As you may know, Germany consists of 16 stars. One of them is Niedersachsen (larger than Denmark), in which every 10th case reported to the authority on suspicion of money laundry was with the neobank (Source: https://buff.ly/3yPDYp2). There are some examples in the article mentioned about fake names and addresses in streets, where the number of the house simply does not exist. Niedersachsen’s State Office for Criminal Investitagtions says N26 was used “more than average” for scams. Scammers hire unemployed 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 company soon to be established.

BaFin already conducted 2019 a special audit, with a lot of findings (Source). The situation appears to have not been solved completely to the satisfaction of BaFin, so they sent a special overseer in Spring 2021 to oversee their improvements in eradicating the findings, especially fighting money laundry (Source).

N26 may be growing 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 it would be expected there are many friction points and high fluctuation in N26’s staff — as is normal for a high growth startup. This is a different game for a bank since they have to follow regulations and procedures (best to the point) in many areas (think credit, risk management, …). So the bank will have a lot to do in order to get rid of the trouble with BaFin in order to achieve their fundraising goal.

BaFin Perspective

Keep in mind here that BaFin is under pressure ever since Wirecard filed for insolvency. Bafin’s past president even lost his job due to Wirecard. Now Mark Branson is the new president 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 a soft oversight. His mandate will be to avoid a new Wirecard. This may spell additional trouble for N26 if they are not speeding up their program to improve the BaFin findings.

Sources (other than linked in the post):

https://www.handelsblatt.com/finanzen/banken-versicherungen/banken/smartphonebank-n26-droht-neuer-aerger-mit-der-finanzaufsicht-bafin/27531748.html?ticket=ST-9892539-LvT5cgngME25VFEkrYHY-ap2

📚 Frequently Asked Questions About N26 and BaFin's Oversight

🏦 N26 Compliance & Regulatory Risk

Q: Why is BaFin considering limiting N26’s new business?BaFin is concerned about N26’s compliance with anti-money laundering (AML) regulations. Reports indicate the bank failed to adequately address previous audit findings, prompting BaFin to consider restricting new customer onboarding to prevent further risk.

Q: What exactly did N26 do wrong?According to state investigations in Niedersachsen, N26 was frequently used for fraud — including accounts created under false identities or addresses. These accounts were allegedly used for scams and money laundering.

Q: Has N26 faced regulatory scrutiny before?Yes. BaFin already conducted a special audit in 2019, citing multiple compliance weaknesses. In Spring 2021, they appointed a special overseer to monitor N26's progress in fixing these issues.

Q: What actions did N26 take in response?N26 promoted Thomas Grosse to lead risk management, hoping to address BaFin’s concerns. Grosse had previously worked at Google and appeared in a Startuprad.io interview before joining N26.

📈 Growth, Fundraising & Business Impact

Q: How could BaFin’s actions affect N26’s valuation?N26 was seeking a valuation of $10B in its next funding round. Regulatory intervention could shake investor confidence and hinder the company’s ability to secure that valuation.

Q: Is N26 still Germany’s most valuable fintech?No. For a period, Trade Republic surpassed N26 in valuation. However, N26 was attempting to reclaim that title with its new fundraising round.

Q: Why is N26 under more pressure than before?BaFin itself is under heightened scrutiny after the Wirecard scandal. With a new president, Mark Branson, BaFin is expected to enforce stricter compliance standards — and N26 is now in its crosshairs.

🔒 Banking License & Internal Operations

Q: Is N26 a fully licensed bank?Yes. N26 received its German banking license in October 2018. As a licensed institution, it must meet strict regulatory requirements — especially around AML and customer due diligence.

Q: Is N26 growing too fast to stay compliant?Possibly. Like many high-growth startups, N26 has high internal turnover and rapid user growth. But unlike a typical tech company, it must meet strict banking regulations, which some believe it hasn’t kept up with.

Q: How is this different from Wirecard?While N26 has not been accused of fraud, the situation reminds regulators of the risks posed by fast-scaling fintechs. BaFin, burned by Wirecard, is now taking a tougher stance on all financial institutions.

📰 Context & Media Coverage

Q: Where can I read more about this story?One of the original reports came from Handelsblatt, one of Germany’s top business outlets. You can read it here (paywalled).

Q: Where can I learn more about Thomas Grosse?Thomas Grosse was featured in a previous Startuprad.io interview during his time at Google. You can find that episode on Startuprad.io.

🔮 Outlook

Q: What’s next for N26?N26 must implement stronger AML controls and satisfy BaFin to avoid regulatory restrictions. Its ability to raise funds and maintain growth depends on restoring confidence with both regulators and investors.

Q: Will BaFin actually limit N26’s growth?Possibly. BaFin already restricted N26’s new customer onboarding to 50,000/month in a later development. Further limits may follow if compliance doesn’t improve rapidly.

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About the Author:

Jörn “Joe” Menninger is the founder and host of Startuprad.io -- one of Europe’s top startup podcasts that scored as a global Top 20 Podcast in Entrepreneurship. He’s been featured in Forbes, Tech.eu, Geektime, CTech and more for his insights into startups, venture capital, and innovation. With over 15 years of experience in management consulting, digital strategy, and startup scouting, Joe works at the intersection of tech, entrepreneurship, and business transformation — helping founders, investors, and enterprises turn bold ideas into real-world impact.

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