Blog Post: Trouble at N26 — BaFin considering limiting new business for the neobank
- Jörn Menninger
- Sep 8, 2021
- 4 min read
Updated: Mar 26
BaFin may limit N26's growth over money laundering concerns, potentially impacting their $10bn fundraising. Learn more about the risks.
What Is This About?
BaFin is considering limiting N26's new business over money laundering compliance concerns, potentially impacting the neobank's planned $10 billion fundraising round. This article analyzes the regulatory pressure on Germany's highest-valued fintech and what it means for the company's growth trajectory.
Introduction
BaFin is considering limiting N26's new business over money laundering compliance concerns, potentially impacting the neobank's $10 billion fundraising ambitions. This analysis examines the regulatory pressure on Germany's highest-valued fintech and its implications for the broader neobanking sector.
Executive Summary
BaFin considers limiting N26 business over money laundering concerns, potentially impacting the neobank's $10B fundraising. Regulatory pressure on Germany's highest-valued fintech signals broader neobanking sector risks.
BaFin may limit N26's growth over money laundering concerns, potentially impacting their $10bn fundraising. Startuprad.io brings you independent coverage of the key developments shaping the startup and venture capital landscape across Germany, Austria, and Switzerland.
This article is part of our coverage of Fund Formation and LP Relations in Germany, Austria, and Switzerland.
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):
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