German mobile bank N26 revealed on Tuesday, Oct. 11, an increase in losses of its net revenue due to large spending on regulatory compliance, CNBC reported.
The startup continued to lose money throughout the course of the previous year, with the net loss increasing by 14% to reach €172.4 million ($167.5 million). According to the financials that were made public by the company, €28.2 million ($27.3 million) of that total came from damages incurred by N26's activities in countries outside of the European Union (EU).
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Resolving Flaws in Risk Management
In order to solve the shortcomings in risk management in relation to IT and outsourcing management, the German financial watchdog BaFin put growth limitations on N26 a year ago. These constraints prevented the company from expanding further.
Because of the measures, N26 was only able to bring on a maximum of 50,000 new subscribers per month, which was significantly fewer than the 170,000 new consumers it was said to have been signing up at the time. In addition, BaFin appointed a special representative responsible for monitoring the execution of the restrictions.
The Raise in Compliance and Fraud Spending
N26 had reduced its losses for the year 2020, bringing them down from €216.9 million ($210 million) to €150.7 million ($146 million). However, in response to regulatory action taken against the startup company for alleged failings in its prevention of money laundering, the company significantly increased its spending on its internal compliance and fraud controls.
According to the report, overall administrative expenses increased by 30% to €269.8 million ($262 million) as a result. The cost of paying employees rose to €102 million ($99 million), an increase of 10.7% from the previous year, while the cost of running the business as a whole skyrocketed by 47.1%, reaching €167.7 million ($162.9 million).
N26 chief financial officer Jan Kemper confirmed to CNBC that the limits imposed by BaFin are still in effect, but he would not speculate on when they may be lifted.
Increased Net Revenue
Alongside the announcement of a loss, the company also confirmed a material rise in annual revenues as a direct result of increased utilization of its platform. This followed a successful performance in the years before this one.
In the fiscal year that ended on Dec. 31, 2021, N26's net revenue climbed by 67%, reaching €120.3 million or about $116.8 million. This was because the bank profited from increased subscriptions, more consumer engagement, and better interest rates.
In the year 2020, the bank brought in total revenue of €72.1 million or approximately $70 million.
After leaving the U.S. and the U.K., N26 is now focusing on Europe's most important markets. The firm ceased business in the U.S. in January but is still active in Brazil. Then, it said it would stop doing business in the U.K. in 2020, citing Brexit as the reason.
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Written by Trisha Kae Andrada
