EXCLUSIVE: “Coming Down to Earth” – Pablo Reboiro, N26 in ‘The Fintech Magazine’

N26 was enjoying stratospheric growth when it had its wings clipped by the German financial regulator. Now it’s more grounded, but in a good way, says Pablo Reboiro.

When two Austrian entrepreneurs decided to build a banking solution called Number 26 for Expats moving to Berlin in 2013, they likely had no clue as to how their dream would snowball – from making the cover of Forbes Austria under the title ‘No Country for Old Banks’ in its launch year, to reaching a multi-billion dollar valuation on par with Commerzbank by 2021.

Pablo Reboiro, former head of global strategy, now general manager for Spain and Portugal at what is today known as N26, believes it was the originality of that early concept that dictated the challenger’s astonishing growth trajectory.

“That niche segment of happy Expats who had just moved to Berlin and didn’t speak German, yet wanted to open a bank account, was the magic one that took the company from zero to one. It was that ‘somewhere’ from which the company kickstarted into growth,” he says.

Importantly, it also set the scene for the relationship the challenger had with the German watchdog BaFin, which became its financial supervisor in 2016 and gave wings to the N26 Bank GmBH.

“Banking is a business of trust and the German regulators are the gold standard,” says Reboiro. “We pursued a full banking licence from BaFin because it’s not only regarded as a strict regulator in Germany, but it’s also considered zero-risk everywhere else. People immediately feel safe with it.

“Our fully regulated licence under its supervision was a real enabling factor in us winning the Central European territories surrounding Germany,” he continues, referring to the company’s millions of users in Austria, Switzerland, Liechtenstein, Poland, Estonia, Latvia, Slovakia, Slovenia, and Luxembourg.

N26 has had glowing reviews from customers across Europe who have voted it ahead of established banks like Deutsche Bank, BNP Paribas, and Santander as this year’s number one best bank in France and in Spain, the 3rd best in Austria and Germany, and the 5th best in Italy.

“We were skyrocketing in the face of demand. Was it exhilarating? Yes, but incredibly tricky because whilst one can quickly scale tech, you cannot scale your banking operations, back office, nor your customer service at the same clip”

And yet, we’ve seen the fintech dealt some of the most punitive reprimands from regulators at home and abroad, which have included paying a €4.25million fine for late filing of suspicious activity reports in 2019 and 2020, being told in 2022 that it could not onboard any more new customers in Italy because of regulators’ concerns there over anti-money laundering (AML) processes, and having its total, global onboarding capped at 50,000 new customers per month in 2021 – an order that was extended this summer by BaFin, which said N26 still has a way to go to improve on AML.

The regulator also had concerns over the bank’s IT monitoring, quality assurance and outsourcing controls. A full-time commissioner from BaFin now sits on the fintech’s board. All this following a year in which N26’s net revenue had increased 67 per cent to €120.3million. It was that huge leap in popularity that sparked BaFin to order a deeper audit of N26.

Neos in other jurisdictions might well wince at what it’s put the bank through since.

“But I see BaFin as an N26 ally and a partner who helps us in an immeasurable way,” insists Reboiro. “We have a close connection, which now includes having a specially appointed member of the board, and we all want the same thing, which is to see sensational growth but done well and with control.

“Growing a bank at any pace is a hard enough task, and at the time of BaFin’s judgement call to restrict our customer pipeline, for example, we were skyrocketing in the face of demand, completing within five months international expansion milestones that traditional banks completed in five years.

“Was it exhilarating? Yes, but incredibly tricky as well because whilst one can quickly scale tech, you cannot scale your banking operations, back office, nor your customer service at the same clip.

“BaFin was clear in saying, ‘hey, we think true growth at this pace [50,000 a month] is achievable, but above that, we feel like it is irresponsible for your customers’. And, I believe their approach was the right one. It has made us stronger as a business.”

He also thinks that having a regulator in the boardroom that has made a point of not offering special support for challengers (BaFin doesn’t and does not plan to introduce a sandbox, for example, and applies regulation equally to startups and incumbents, albeit it with an element of proportionality), is a blessing and not a curse.

“Regulation oversight within banking is tremendously positive,” says Reboiro. “As a customer, I am more confident in my choice of where I put my money because of closely monitored regulation. It’s the same for N26. We have closer oversight from BaFin now and the regulation insight brought by its appointed board member is a very positive asset.”

Think of it as a secret weapon to help N26 build the industry’s most trustworthy challenger. Reboiro also believes that the close relationship between it and the watchdog tempers the company’s tendency for bold decision-making – in a good way.

“I see BaFin as an N26 ally… we all want the same thing, which is to see sensational growth but done well and with control”

“At the time of my joining the firm, N26 was characterised by this very ambitious, go-getter attitude, which was emboldened by rapid successes. We thought ’hey, if we are winning in Europe to this level, let’s conquer the US now.’

And just like that we launched States-side, but it was only after we had launched and had our initial traction of half a million customers that we started to ponder the differences of how finance was done in the US versus Europe, or the UK. And there are many differences.

“For example, we realised that the interchange fee is different in the US. We began to understand that Americans were not as interested in debit as they were in credit cards. And that winning over a country with a 300 million population required a huge amount of direct investment, which would detract from our European markets.”

It was such realisations that influenced N26 to set sail back to its home continentand conquer it in earnest, which, according to Reboiro was ‘already hard enough with a resource pool so different to that of our competitors, the traditional banks.’

“I also see it as a return to our core strength because N26 became successful across Central Europe by being part of Central Europe: by which I mean being physically present within these core markets with team members from those regions. It is that combination of being in the same time zone, culturally speaking, as our market and hiring corresponding talent that has helped, and will help us, further our game across Central Europe.”

Reboiro is excited for the launch of the bank’s latest products there.

“N26 benefited from some good macroeconomic timing – a bit of the best of both worlds,” he says. “We lived through the previous era of relatively easy VC money for innovative startups, and now that interest rates are less favourable, we are a fully regulated bank, benefitting from the upsides of that category – making a much bigger margin on deposits with the ECB.

“We strongly believe that now interest rates are less favourable for individuals and startups, we can’t simply receive four per cent for our deposits with the ECB, yet offer zero back to our customers. Therefore, we launched our first N26 Savings Account product for Spain, which will be rolled out gradually across other European markets.

“We also have several future products on the go: one centred around onboarding a crypto trading platform in order to offer crypto assets in a manner that targets all demographics rather than just the early adopter. The other is building an N26 experience around investing into equities and ETFs because we think we could build up the culture of that in Central Europe.”

With the benefit of hindsight and BaFin in its corner, hopefully, all this and more will be achieved without losing focus on the game plan: to become the best trusted bank account for daily usage in Europe.

This article was published in The Fintech Magazine Issue 29, Page 70-71