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N26 losses widen after increasing anti-fraud spending

German online bank N26 logo displayed on a smartphone.

Thomas Totchell | | Photothek via Getty Images

German mobile bank N26 reported on Tuesday that its annual revenue rose sharply as its platform usage increased, but losses also widened after higher spending on regulatory compliance.

N26 net revenues increased 67% to €120.3 million ($116.8 million) in the fiscal year ending December 31, 2021. This is because banks have benefited from increased subscriptions, increased customer engagement, and higher interest rates. In 2020, the N26 made his €72.1 million in earnings.

But the $9 billion start-up continued to lose money last year, with net losses rising 14% to €172.4 million. Of this amount, €28.2 million came from losses in N26’s operations outside the European Union, according to the company’s financial report released on Tuesday.

N26 is refocusing resources on its core European markets after high-profile exits from the US and UK. Closed US business It’s January, but we’re still active in Brazil.Berlin-based startup previously withdrawn from the UK 2020, citing Brexit.

Last year, German financial watchdog BaFin imposed restrictions On the growth of N26 aimed at addressing “risk management shortcomings regarding IT and outsourcing management”.

With this move, N26 could only register up to 50,000 new customers per month, well below its previous 170,000. report I had signed up at the time. BaFin has also appointed a special representative to oversee the implementation of the restrictions.

N26 reduced its 2020 loss from €216.9m to €150.7m. But after being reprimanded by regulators for failing to prevent money laundering, the startup has increased spending on internal compliance and fraud controls.

This resulted in a significant increase in overall management costs, up 30% to €269.8 million. Personnel expenses increased by 10.7% year-on-year to €102.1 million and administrative expenses increased by 47% to €167.7 million.

N26 chief financial officer Jan Kemper said BaFin’s restrictions remain in effect, but declined to comment on when the restrictions will be lifted.

N26 has had to invest ‘substantial sums’ of consultants, internal structures, etc. to raise the bar on regulatory elements. [and] A “new system” is being put in place, Kemper told CNBC in an interview.

So far, these actions don’t appear to be eroding N26’s margins, but Kemper said “net profit margins are actually moving in the right direction year-over-year.” .

Fintech like N26 is below rising pressure To combat abuse of our platform by criminals. In the UK, the Financial Conduct Authority warned Some challenger banks fail to adequately assess financial crime risk during customer onboarding.

Meanwhile, venture capitalists are putting pressure on portfolio companies to pursue profitability as the economic outlook becomes more uncertain. Khurana, May Approximately 10% reduction in global workforce Several other technology companies have taken similar cost-cutting measures.

Kemper said he has not seen a slowdown in consumer spending on the N26 platform so far and has no plans to make layoffs. The company, backed by Coatue, Tencent and Peter Thiel’s Valar Ventures, Raised $900 million Last year’s funding brought the company’s valuation to $9 billion.

“Winter is Coming”

“There was no slowdown in consumer usage” in September, according to Kemper. Customers are also spending more on summer vacations and eating out after two years of lockdown, he added.

But he warned that “winter is coming,” adding, “If prices rise like we see at the moment, there will be a certain shift in user behavior.” , believes the company’s revenue mix is ​​diverse enough to weather a potential recession storm.

Despite widening losses, Kemper said N26’s margins have improved. This is thanks to a more solid user base and higher interest rates across Europe.

“If you look at our most mature market, Germany, around 50% of our active customers are now salary accounts,” says Kemper. It has driven a “massive shift towards deposits and deposit volumes,” he added.

The company said the N26 had 8 million users by the end of 2021, of which 3.7 million were “revenue-related,” or contributing to positive cash flow. The user is also paying more to his N26 account, and the bank reports he will see a 60% increase in premium subscribers in 2021.

The company doubled its net interest income (the amount the bank earns from its lending activity after deducting interest owed to depositors) to 29.7 million euros.

N26 increased its financing through buy-now-pay-later loans and overdrafts, but its loan balance was Deutsche Banksaid Kemper. The main driver of the increase in N26’s net interest income is due to its large deposits of €6.1 billion, which he increased by 52% year-on-year in 2021.

N26 has tapped its excess cash by investing in low-risk, high-yield bonds like municipal bonds.

In Europe, we went from a long period of flat or even negative interest rates to the introduction of interest rates. positive As the central bank tries to curb soaring inflation,

“The interest rate curve is changing,” said Kemper. “In 2022, we will see it on a much larger scale.”

N26 previously said,structurally readyHowever, Kemper tempered his hopes for floats in the near future, saying it could take banks six to 18 months to have all the ingredients needed to go public.

“It’s not an environment where I want to go out and be listed,” he said. $72 billion listing German sports car maker Porsche Last month was an otherwise dark year and an outlier for European IPOs.

https://www.cnbc.com/2022/10/11/n26-losses-widen-after-ramping-up-spending-on-fraud-controls.html N26 losses widen after increasing anti-fraud spending

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