Fintech firm N26 is now worth more than Germany’s second-largest bank

  • Berlin-based fintech firm N26 has raised $900 million in a new funding round led by Third Point and Coatue.
  • The round values the eight-year-old start-up at $9 billion, higher than the market cap of Germany’s second-biggest listed bank.
  • N26 expects it will be ready to go public within the next 12 to 18 months, co-CEO Maximilian Tayenthal said.

LONDON — German digital bank N26 said on Tuesday it has raised $900 million in a new funding round that values the firm at $9 billion.

That's nearly three times N26's valuation in its last private fundraising round and means it's now worth slightly more than Commerzbank, Germany's second-largest listed lender. Frankfurt-listed Commerzbank has a market cap of 7.6 billion euros ($8.8 billion).

N26, which counts billionaires Peter Thiel and Li Ka-Shing as investors, raised the fresh cash from Third Point, the hedge fund led by U.S. billionaire investor Dan Loeb, and Coatue, while Dragoneer also invested.

Founded in 2013, N26 is one of several start-ups in Europe seeking to challenge established banks with app-based checking accounts and little to no fees. Competitors include Revolut, which was recently valued at $33 billion, and Monzo.

Maximilian Tayenthal, N26's founder and co-CEO, said the company plans to spend the extra cash on hiring 1,000 people globally and on launching new features like cryptocurrency trading.

"We want to bring in more people with a focus on product, technology and security," Tayenthal told CNBC in an interview.

IPO ambitions

N26 now has 7 million customers across Europe and the U.S. and is on track to process $90 billion in transactions this year. The company recently acquired a banking license in Brazil, with a team of 40 employees already on the ground in São Paulo. N26 expects to roll out its app publicly in the country within the next year, Tayenthal said.

N26 now has enough "financial leeway" to prepare for an initial public offering, Tayenthal said, adding that he expects the firm to be "structurally IPO-ready" within the next 12 to 18 months.

"We have no hurry to go public," Tayenthal said. "With increasing profitability, the kind of money we are raising right now, it really takes away any time pressure."

With plenty of money available in private equity markets, many tech companies are opting to stay private for longer. Stripe, for example, raised funds at a $95 billion valuation earlier this year, making it one of the most valuable start-ups in the U.S.

Several European fintechs have managed to reach multibillion-dollar valuations amid surging investment activity. Revolut was recently valued at $33 billion in a funding round led by SoftBank, for example.

However, some investors have expressed concern about their ability to make a profit.

N26 is still loss-making, racking up losses of 216.9 million euros in 2019. Its European business lost 110 million euros in 2020, down from 165 million a year earlier. Tayenthal said N26 isn't under pressure from investors to make a profit anytime soon.

Growing pains

Like other fintech companies, N26 has dealt with growing pains lately. The firm faced outcry from staff at its Berlin office last year, who at the time said that trust in management was at an "all-time low."

Meanwhile, N26 was fined $5 million by BaFin, Germany's financial services regulator, for being late to submit suspicious activity reports that are used by authorities to investigate money laundering.

On Tuesday, the bank said it had reached an agreement with BaFin to limit how many customers it onboards each month to a maximum of 50,000 to 70,000. The watchdog is expected to publish the decision in an upcoming order, N26 said.

Tayenthal warned the move is likely to slow N26's growth significantly in the short term.

"For a couple of months, it will be material to the business," he said.

As for work culture, Tayenthal says the firm has worked to improve employee representation at the company over the past year. The company has also begun to foster a shift toward flexible work during the Covid-19 pandemic, he added.

"We were actually very strong believers in having everyone in the office as much as possible. We are moving away from that," Tayenthal said.

"There [are] obviously certain roles where you need to be in the office more regularly. And we also believe in bringing people together occasionally, but we are going to move to a more flexible model."

N26 isn't the only fintech embracing remote work. Revolut has said it will allow employees to work overseas for up to 60 days a year. Such moves are in contrast with major Wall Street banks like JPMorgan and Goldman Sachs, which are encouraging workers to return to the office. Some big European lenders are taking a more flexible approach.

N26 said it would expand its staff equity ownership scheme to cover all employees. Germany last year unveiled plans to reform its rules on employee stock options, a typical perk at many tech start-ups.

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