The logo of the German online bank N26 is displayed on the smartphone.
Thomas Trutschel | Photothek via Getty Images
German mobile bank N26 reported a sharp rise in annual revenue on Tuesday as usage of its platform grew, but losses also widened as compliance costs increased.
N26 net income for the year ended 2021 as of December 31, increased by 67% to 120.3 million. EUR ($116.8 million) as the bank benefited from increased subscriptions, stronger customer engagement and higher interest rates. In 2020, N26 earned 72.1 million. euro income.
But the $9 billion startup continued to lose money last year, with a net loss that widened 14% to 172.4 million euros. According to the financial data published by the company on Tuesday, 28.2 million out of this amount, losses of N26 activities outside the European Union amounted to EUR.
N26 has refocused its resources on key European markets following its high-profile exit from the US and UK. The company closed its US operations in January, but is still active in Brazil. The Berlin-based startup previously pulled out of the UK in 2020, citing Brexit.
Last year, Germany’s financial watchdog BaFin introduced restrictions on N26 growth to address “risk management weaknesses in IT and outsourcing”.
These measures meant that N26 could take on no more than 50,000 new customers per month, far less than the 170,000 reported at the time. BaFin has also appointed a special representative to oversee the implementation of the curbs.
In 2020, N26 reduced its losses from 216.9 million. EUR to 150.7 million But after regulators took punitive action over alleged money-laundering prevention deficiencies, the startup increased spending on internal compliance and fraud controls.
This contributed to general administrative expenses, which increased by 30 percent to 269.8 million. euros. Personnel-related expenses amounted to 102.1 million. euros, which is 10.7% more than a year ago, and general administrative expenses increased by 47% to 167.7 million euros.
Jan Kemper, N26’s chief financial officer, said BaFin’s restrictions remained in place but declined to comment on when he expected them to be lifted.
N26 had to invest “a significant amount” to “raise the bar on regulatory elements with consultants, internal structures”. [and] new systems,” Kemper said in an interview with CNBC.
So far, the moves don’t appear to be eating into N26’s margins, but Kemper noted that “the net income margin is moving in the right direction every year.”
Fintech companies like N26 are under increased pressure to combat the misuse of their platforms by criminals. The UK’s Financial Conduct Authority has warned that some self-styled banks are failing to properly assess the risk of financial crime when taking on customers.
Meanwhile, venture capitalists are pressing their portfolio companies to achieve profitability as the economic outlook grows more uncertain. May. Klarna has cut about 10% of its global workforce, and several other tech companies have taken similar cost-cutting measures.
Kemper said that so far, N26 is not seeing a slowdown in user spending on its platform, and the company has no plans to lay off workers. The company, which is backed by Coatue, Tencent and Peter Thiel’s Valar Ventures, raised $900 million last year.
‘Winter is coming’
According to Kemper, as recently as September, “consumer usage has not slowed down.” He added that after two years of quarantine, customers are increasingly spending on summer vacations and dining out.
But he warned that “winter is coming”, adding: “If prices go up like we’re seeing at the moment, then yes, that will lead to some changes in consumer behaviour.” Either way, the N26 executive believes the company’s revenue mix is diversified enough to weather any potential downturn storm.
Despite the widening losses, Kemper said N26’s margins are improving as its user base grows and across Europe is higher.
“Looking at our most mature market, Germany, currently about 50% of our active customers are salaried,” meaning users who receive a monthly salary through N26, Kemper said. This helped drive “a big move to deposits and deposit volumes,” he added.
in 2021 at the end of 2018, N26 had 8 million users, of which 3.7 million were either revenue-related or positive cash flow, according to the company. Consumers are also increasingly paying for their N26 account, with the bank reporting that by 2021 the number of premium subscribers increased by 60 percent.
The company doubled net interest income — the amount banks earn from lending activities minus the interest they owe depositors — to $29.7 million.
While N26 increased its lending through buy-now, pay-later loans and overdrafts, its loan portfolio was small compared to major banks such as Deutsche BankKemper said. The main driver of the N26 net interest income was a crowd of deposits worth N6.1 billion, a 52% increase compared to 2021.
N26 used excess cash to invest in low-risk, interest-bearing debt, such as municipal bonds.
Europe has moved on from a long period of flat and even negative interest rates for central bankers to curb soaring inflation.
“The yield curve is inverting,” Kemper said. “In 2022 you will see it even more.
N26 previously said it would be “structurally ready” for an IPO by 2022. the end Kemper, however, tempered expectations for any near-term outlook, saying it could take six to 18 months for the bank to have all the necessary components in place to go public.
“It’s not an environment where you want to go out” and go public, he said, referring to the German sports car maker’s $72 billion acquisition. Porsche last month was a standout in an otherwise dismal year for European IPOs.