Optimistic Outlook for Neo-Bank N26
Neo-Bank N26 is viewing its future with optimism. Despite facing numerous challenges in recent years, the bank is hopeful of achieving profitability by 2024.
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The past two years have been a tumultuous journey for N26, once celebrated for its success. The bank had to undergo significant changes to meet the requirements set by the German Federal Financial Supervisory Authority (BaFin). This involved organizational restructuring and process improvements under close supervision. Additionally, since November 2021, N26’s growth was capped, limiting them to a maximum of 50,000 new customers per month.
Recently, BaFin slightly eased these restrictions, allowing N26 to onboard up to 60,000 new customers monthly.
Current Customer Base of N26
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Presenting their 2022 figures, N26 offered insights into their current state and future prospects. Despite the growth limitations imposed since the end of 2021, N26 managed to increase its revenue-generating customer base by 300,000 in 2022, reaching a total of 4 million. This marked an 8% increase compared to the previous year.
Out of the permitted 600,000 new customers annually, only half are active or have completed the registration process, including Know Your Customer (KYC) procedures. This distinction is also apparent in the reported total customer count of 8 million, with N26 considering only 4 million as “revenue-generating.”
This ratio is notable as it suggests that every second customer remains just an interested party, either not completing the registration process, getting stuck in KYC procedures, or not showing any active engagement that could positively affect revenue.
Transparency in Customer Numbers Among Neo-Banks
Neo-banks often withhold specific numbers and lack transparency. While few openly report their active customer base, most only mention global customer figures without distinguishing between active, revenue-generating customers and inactive accounts.
For instance, Revolut, a competitor, capitalized on N26’s forced hiatus and now reportedly gains nearly a million new customers each month, boasting over 35 million customers globally. If N26’s pattern holds true for Revolut, it would mean they have approximately 18 million “revenue-generating” customers.
The communicated customer numbers should always be approached with caution. If they need to be halved for accuracy, additional transparency would be beneficial. N26’s new openness in this regard is well-received as it replaces speculation with facts.
Financial Performance of N26 in 2022
Cost-cutting measures and optimizations seem to be paying off. In 2022, N26 increased its gross revenues to 236 million Euros, a 24% increase from the previous year. With significant increases in account usage and continued customer growth, the company projects its gross revenue for the current year to exceed 300 million Euros, a rise of over 27%.
Customer transactions in 2022 grew to over 97 billion Euros, with N26 forecasting further growth in transaction volume to exceed 110 billion Euros in 2023.
The bank managed customer deposits totaling 7.2 billion Euros in 2022 (an 11% increase from the previous year). By the end of 2023, N26 expects to manage around 8 billion Euros in customer funds. Interest income, a crucial revenue stream, is expected to contribute around 40% of the total revenues in 2023, up from 30% in 2022.
Besides interest earnings, N26 primarily generates revenue through premium accounts and commission fees.
Despite the increased investment in infrastructure, the bank’s deficit rose by 24% to 213.4 million Euros in 2022 (up from 172.4 million Euros in 2021). Thanks to operational efficiencies, N26 anticipates reducing this deficit by more than half to around 100 million Euros in 2023.
| Metric | 2021 Value | 2022 Value | 2023 Projection (if applicable) |
|---|---|---|---|
| Gross Revenues | Not specified | 236 million Euros | Over 300 million Euros |
| Customer Transactions | Not specified | Over 97 billion Euros | More than 110 billion Euros |
| Customer Deposits | Not specified | 7.2 billion Euros | 8 billion Euros |
| Percentage of Total Revenues from Interest | 30% | Not specified | 40% |
| Deficit | 172.4 million Euros | 213.4 million Euros | Approx. 100 million Euros |
| Number of Customers | Not specified | 4 million (revenue-generating) | Not applicable |
This table effectively encapsulates the financial journey of N26 from 2021 through the projections for 2023. It provides a clear and quick reference for readers to understand the bank’s financial health and growth trajectory.
Challenges and Expenses for N26
The figures presented by N26 are modest, considering the restrictions and requirements imposed by BaFin. The bank has been operating under constraints for two years, necessitating substantial investment in organization, KYC processes, fraud detection, and anti-money laundering measures.
In 2022 alone, N26 invested over 80 million Euros in advanced technology, team development, and external expertise. As a result, the company made significant strides in preventing, identifying, and managing fraudulent activities and money laundering.
Opportunities for cost savings were identified, leading to a reduction in marketing expenses to the lowest level since 2017. This decision makes sense given the customer acquisition cap, but it’s a double-edged sword. Once the restrictions are lifted, N26 might need to invest heavily to regain visibility and brand recognition.
Path to Profitability for N26
N26 has long aimed to achieve profitability by 2024, a goal it steadfastly pursues. However, the company notes:
“Accelerated customer growth and improved customer profitability are expected to make the company profitable on a monthly basis in the second half of 2024.”
This approach to monthly profitability has been adopted by other neo-banks as well, providing a cushion on their path to overall profitability. The two-year stint under BaFin’s restrictions has significantly hindered N26’s development. If the bank manages to achieve profitability in this relatively short timeframe, despite self-inflicted challenges, it would be a notable achievement.
