N26, Germany’s Most Valuable Fintech, Withdraws From The US

Not one month ago did the mobile bank, N26, announce its record breaking $900 million Series E funding round, reflecting the largest financing round to date for a digital bank in Europe. Furthermore, a company valuation of more than $9 billion seemed to suggest that one of the world’s leading fintechs were on a path of unstoppable growth. However, CEO and Co Founder of N26, Maximillian Tayenthal, has just announced their shutting down of its US operations, less than two and a half years since it launched in the country. With other huge challenger banks like Monzo withdrawing their application for a US banking license last month, why is it so difficult for European fintechs to expand their services into America?

N26’s 500,000 American customers will no longer be able to use the organisation’s app from January 11th 2022.  N26 highlighted their desire to shift its core focus onto European business instead. This was reiterated by Krik Gunning, CEO and Co Founder of Fourthline, a startup which helps N26, as well as other German fintechs such as Trade Republic, tackle fraud. Gunning said ‘they [N26] want to double down on their strongest markets in Europe which, if you ask me from a personal perspective, is a smart move.’ N26, despite its successes, are facing regulatory pressure from German regulators, being fined $5 million this June for failing to submit suspicious activity reports on money laundering on time. Thus, solidifying their position in their strongest market does make sense as a strategic priority. 

Working in the US has had its fair share of challenges too. The pandemic meant that N26 had to lay off 10% of its New York-based workforce last year, with Nicolas Kopp, the Head of its US Operations, subsequently leaving the organisation. The withdrawal from the US is not all doom and gloom though. N26 has rebounded from this by pouring further investment into its European features.

This event draws obvious comparisons to Monzo, who withdrew their application for a US banking license in October. The move highlighted the concern among US regulators about allowing loss-making startups to become banks, in contrast to the UK where dozens of licences have been handed out in recent years to promote competition. 

Do American banks have the same issue in Europe? – American online brokerage. Robinhood were unsuccessful in their plans to launch a UK version of its app last year, despite obtaining broker authorization from the Financial Conduct Authority last summer. 

However, JP Morgan has appeared successful in their launch of JPMorgan Chase, the UK version of the American digital bank. Sanoke Viswanathan, Head of JP Morgan’s international consumer division, told the Financial Times that ‘we will spend hundreds of millions before we get to break-even and get to a place where this is a sustainable business, and we’re not in a rush.’ Is willingly acknowledging a slow pace of expansion the critical assumption needed for success then? Or is it simply the fact that JP Morgan is one of the largest, most formidable established banks in the world, with assets valued at over $3.7 trillion and a strong infrastructure equipped to survive the challenge?

JPMorgan first announced plans to launch Chase in the UK in January and has hired hundreds of people in the UK to work on the project. The banking giant snapped up British digital wealth manager Nutmeg over summer as part of its expansion plans. Furthermore, JPMorgan Chase is offering its UK customers 3% cashback on Amazon purchases. 

Deborah Keay, Chief Marketing Officer of the digital bank emphasised how, with Christmas approaching, ‘we want to help everyone to have an even more rewarding festive season this year, so we’re delighted to be expanding our fuss-free rewards programme so Chase customers earn a little extra back while they spend with Amazon in the run-up to the holiday period.’ 

It is clear that US banks can be successful in Europe then, but that there is greater difficulty for the challenge when posed the other way around. Whilst this may be circumstantial, it does reflect how the dynamically evolving ecosystem is a challenge for even the top fintechs of the world, emphasising the competitive nature of the industry.