Mobile bank N26's losses widen after ramping up spending on fraud controls

German mobile slope N26 reported Tuesday a crisp emergence successful yearly revenues arsenic usage of its level grew, nevertheless losses besides ticked higher aft an summation successful spending connected regulatory compliance. 

N26's nett gross accrued 67% successful the twelvemonth ending Dec. 31, 2021, to 120.3 cardinal euros ($116.8 million) arsenic the slope benefited from maturation successful subscriptions, stronger lawsuit engagement and higher involvement rates. In 2020, N26 generated 72.1 cardinal euros successful revenue.

However, the $9 cardinal startup continued to suffer wealth past year, with its nett nonaccomplishment climbing 14% to 172.4 cardinal euros. Of that sum, 28.2 cardinal euros came from losses astatine N26's non-European Union operations, according to financials released by the institution connected Tuesday.

N26 has been refocusing its resources connected halfway European markets aft high-profile exits from the U.S. and U.K. The steadfast closed down its U.S. operations successful January but is inactive progressive successful Brazil. The Berlin-based startup previously withdrew from the U.K. successful 2020, citing Brexit.

Last year, German fiscal watchdog BaFin imposed restrictions connected N26's maturation aimed astatine addressing "shortcomings successful hazard absorption with respect to IT and outsourcing management."

The measures meant N26 could lone onboard a maximum 50,000 caller customers per month, acold little than the 170,000 it was reported to person been signing up astatine the time. BaFin besides appointed a peculiar typical to oversee the implementation of the curbs.

N26 had trimmed its losses successful 2020, to 150.7 cardinal euros from 216.9 cardinal euros. But aft punitive enactment from regulators implicit alleged shortcomings successful its prevention of wealth laundering, the startup ramped up spending connected its interior compliance and fraud controls.

That contributed to a sizable summation successful wide administrative costs, which grew 30% to 269.8 cardinal euros. Personnel-related spending totaled 102.1 cardinal euros, up 10.7% year-on-year, portion wide admin expenses changeable up 47%, to 167.7 cardinal euros.

Jan Kemper, N26's main fiscal officer, said BaFin's restrictions stay successful spot but declined to remark connected erstwhile helium expects to spot them lifted.

N26 had to put a "significant amount" to "raise the barroom connected regulatory elements, with consultants, interior structures [and] caller systems" being enactment successful place, Kemper told CNBC successful an interview.

So far, these steps don't look to beryllium eating into N26's margins, however, with Kemper noting "the nett income borderline is really year-over-year moving successful the close direction."

Fintechs similar N26 are nether heightened pressure to code the maltreatment of their platforms by criminals. In the U.K., the Financial Conduct Authority warned some challenger banks are failing to adequately measure the hazard of fiscal transgression erstwhile onboarding customers.

Meanwhile, task capitalists are pressuring their portfolio companies to propulsion toward profitability arsenic the economical outlook becomes much uncertain. In May, Klarna cut astir 10% of its planetary workforce portion respective different tech firms person made akin cost-cutting measures.

Kemper said that, for now, N26 isn't seeing a slowdown successful user spending connected its level and the institution doesn't mean to marque immoderate layoffs. The company, which is backed by Coatue, Tencent and Peter Thiel's Valar Ventures, raised $900 million past twelvemonth successful a fundraise valuing the steadfast astatine $9 billion.

As precocious arsenic September, "there was nary slowdown successful user usage," according to Kemper. And aft 2 years of lockdowns, customers person been expanding spending connected summertime vacations and eating out, helium added.

However, helium cautioned that "winter is coming," adding: "If prices summation arsenic we spot astatine the moment, past yes, that volition pb to a definite alteration successful idiosyncratic behavior." In immoderate case, the N26 enforcement thinks the firm's gross premix is divers capable to upwind the tempest of immoderate imaginable recession.

Despite the widening of its losses, Kemper said N26's margins were improving, acknowledgment to a much sticky idiosyncratic basal and higher involvement rates crossed Europe.

"When you look astatine our astir mature market, Germany, astir 50% of our progressive customers are salaried accounts by now," meaning users taking their monthly wage via N26, Kemper said. That helped thrust "a monolithic displacement to deposits and deposit volumes," helium added.

N26 had 8 cardinal users by the extremity of 2021, 3.7 cardinal of which were "revenue-relevant," oregon contributing affirmative currency flow, according to the firm. Users are besides progressively paying for their N26 account, with the slope reporting a 60% ascent successful premium subscribers successful 2021.

The institution doubled its nett involvement income — the magnitude banks gain from lending activities aft deducting the involvement they beryllium depositors — to 29.7 cardinal euros.

While N26 accrued lending done bargain now, wage aboriginal loans and overdrafts, its indebtedness publication was tiny compared to large banks similar Deutsche Bank, Kemper said. The main boost to N26's nett involvement income came from its 6.1 cardinal euro horde of deposits, which was up 52% year-on-year successful 2021.

N26 has been putting excess currency to enactment by investing it successful low-risk, interest-yielding indebtedness similar municipal authorities bonds.

Europe has gone from a lengthy play of level — and adjacent antagonistic — involvement rates to seeing rates brought into positive territory for the archetypal clip successful 10 years arsenic cardinal bankers question to incorporate soaring inflation.

"The involvement curve is turning," Kemper said. "You'll spot that adjacent much massively successful 2022."

N26 antecedently said it would beryllium "structurally ready" for an IPO by the extremity of 2022. But Kemper watered down expectations of immoderate near-term float, saying it could instrumentality anyplace from six months to 18 months for the slope to person each the required ingredients successful spot for it to spell public.

"It's not the situation wherever you privation to spell out" and database connected the banal market, helium said, adding the $72 cardinal listing of German sports car shaper Porsche past period was an outlier successful an different bleak twelvemonth for European IPOs.