Germany’s financial regulator ends anti-money laundering cap on N26 signups after $10M fine

After the Wirecard scandal, Germany’s financial regulator BaFin started to look more closely at young fintech startups that wanted to grow at a rapid pace — it’s better to be safe than sorry.

In particular, N26, a Berlin-based banking startup that raised hundreds of millions of euros and quickly became a unicorn, has had a complicated relationship with BaFin for the past few years. The regulator imposed a cap on new signups as a sanction to force the startup to improve its anti-money laundering processes.

This week, N26 announced that BaFin is going to lift the growth restriction starting on June 1, 2024. The cap was originally set in 2021 at 50,000 new customers per month. At the end of 2023, it was increased slightly to 60,000 customers per month.

Last week, as part of the conclusion of this oversight period, BaFin fined N26 €9.2 million (around $10M at today’s exchange rate) for shortcomings in reporting suspicious activity that occurred in 2022. N26 expected this fine as it set aside provisions in its 2022 financial statements. According to the company, it has also invested €100M to improve its compliance team and processes since 2022.

“We are pleased about the trust of our regulators and will continue our close exchange in the future. In recent years, we have been able to make significant progress in preventing and combating money laundering and financial crime,” N26 co-founder and CEO Valentin Stalf said in a statement.

As this restriction seriously hampered N26’s growth, the company adjusted its strategy to focus on its existing customers. In Spain and Germany, N26 offers savings accounts. In some markets, users can also get a loan of up to €25,000 from the app.

The company has added crypto and stock trading too, in partnership with Bitpanda and Upvest respectively. You can even sign up to insurance products from the app. All of these additions are designed to increase the average revenue per user.

In 2023, N26 reported a loss of €100M but things should be better this year thanks to higher interest rates, new revenue streams and the end of the signup cap. The company said it expects to reach “monthly profitability” at some point during the second half of 2024.