N26 Deep-Dive In Pursuit of Profit by c-Innovation

In Pursuit of Profit: N26's Urgent Drive to Stay Competitive

In this deep-dive, C-Innovation offers a comprehensive analysis of N26's strategic adaptation in the evolving digital banking landscape amidst a backdrop of regulatory challenges. This report unveils N26's transformative journey throughout 2023 and into 2024, dissecting its efforts to enhance profitability while maintaining competitiveness despite regulatory hurdles. N26 navigated regulatory obstacles, including its exit from Brazil, a decline in valuation, and challenges with customer growth. Furthermore, regulatory constraints in key markets like Germany and Italy limited service expansion, posing obstacles to achieving a sustainable business model.

N26's Recent Initiatives

N26 has shown agility in embracing innovative technology and customer-centric solutions while streamlining operations, including a 4% staff reduction in April 2023. In November 2023, it ceased operations in Brazil. Anticipating profitability by the second half of 2024, N26 focuses on core markets like Germany, France, Spain, and Italy.

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In Pursuit of Profit: N26's Urgent Drive to Stay
Competitive

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This is not a commissioned report and all data used for the analysis is taken from
Allica Bank’s financial statements and other publicly available sources. The
information presented here is intended for informational purposes only. The opinions
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4. ”Should we have
built trading and
crypto instead of
launching in the
US? In hindsight, it
might have been a
smart idea.”
Maximilian Tayenthal
Co-ChiefExecutiveOfficer& Co-Founder
Source: FT
Image: chadhensley

5. 1. BusinessUpdate 3. Competitors
4. Future Prospects
•EuropeanCompetitive Landscape
•Retail Banking Services
•Banking products
•N26’s Positioning amogeEuropean
peers
•ProfitabilityRace
•Revenue Growth
•Monetization Potential
•UK Countpartsbenchmarking
•Valuation
•2024 IPO
2. Financial Metrics
5. KeyTake-Aways
Contents
•Breakingmilestones
•Companyoverview
•Executive team
•Company Value
•Product Stack
•Marketing
•Business model
•Revenue Streams
•All will be around achieving Profitability
•Market Focus
•Strategic investments
•N26 Financialsata glance
•Key Performance Indicators
•Revenue, Costs & operatingloss
•Source of income
•Transactions Volume and customer growth
•Evolutionof Customer Deposits
•N26’s Unit Economics

6. 2019
2021
Funded
1.8 million euros raised
Launches business bank accounts
and Consumer Credit Loans
Business Accounts
From the European Central Bank
and becomes N26
Got Banking License
Soft launch in the US
through partnerships with
Axos Bank and Visa
Launches in the US
Reach 5m customers and
officially leaves the UK.
Doubles customer
base
6

N26’s in 2023 I Regulatory Challenges, Brazil Exit, Valuation Drop,
Customer Growth Impact, & Service Expansion Toward 2024 Profitability.
2014
Seed funding
2015
2018 2017
Lands in Brazil
20162013
Launched
In Germany andAustria
throughWirecard
partnership
22 Countries
Expanded to European markets
outside the monetary union
Is Fined €4.25 million by
BaFin for weak money
laundering controls
Compliance Issues
Exit the US market, is
banned from onboarding
more customers in Italy
and officially lands in Brazil.
8m+ Users
Becomes a Unicorn
2020
20232022
Leaves Brazil Seeking Profitability
N26 ceases operations in
Brazil, invested in improving
its Compliance Infrastructure
and introduced new Instant
Savings Accounts
Launch of a Trading Product in
partnership with fintech Upvest.
Set its sights on becoming
profitable in the second half of
2024.
67%
$3B
Valuation
$9B
8m+ Users
(Unchanged base since 2022)
Valuation
$3.5B
Valuation
$2.7B
Valuation
2024

7. 2024
N26 Challenges Update I A three-year compliance and security breaches Journey
have significantly tarnished N26's reputation and growth prospects. Little headway
has been made in managing regulatory concerns thus far.
7
Source: BaFin

Timeline of some regulatory challenges faced by N26
2019 2020 2021 2022 2023
•50,000 New
customers monthly
limit imposed (from
an average of
170,000).
•€4.25m Fine for
lax money-
laundering controls.
•Internal Controls
were required to be
strengthen and
comply with due
diligence.
•Security
Concerns
by Germany’s
financial
watchdog.
•€80,000
was drained
from a
customer’s
account.
•Banned from
New Offerings.
by The Bank of
Italy.
•Prevented from
onboarding
new customers.
•Anti-money
laundering
measures
requested to be
strengthened.
•Extends N26’s
previous
measures on anti-
money laundering
and 50,000 new
customer limit.
•N26 anticipates
raising monthly
client intake to
60,000 soon.
•New customers
are still unable
to join N26, in
Italy with a waiting
list in effect
•BaFin extends
its oversight of
N26's anti-money
laundering
practices.

8. 2
8
17
24
26
25
25 25
24
2
6
9
7
2
-1
0
0
-1
-2
0
2
4
6
8
10
0
4
8
12
16
20
24
28
2015 2016 2017 2018 2019 2020 2021 2022 2023
Number of Countries it has presence New markets opened/closed

8
Source: C-Innovation Internationalisation Blog.
International Expansion I N26 shifts focus to Europe, following rapid exits from US
and Brazil, signaling struggles in international expansion since 2019.
N26 International Expansion Timeline
Just after 18 months,
N26 leaves the UK.
Expansion to European markets outside
the EEA.
First European
challenger bank
launching in the US
Exit the US market
and lands in Brazil
Brexit vote
N26 decided to
withdrawn from Brazil
Period of Unsuccessful Expansion

9. € 12 € 29
€ 92
€ 121
€ 190
€ 236
€ 300
-€ 32
-€ 73
-€ 217
-€ 151
-€ 172
-€ 213
-€ 100
€ 36
€ 91
€ 248
€ 212
€ 275
Revenue € Profit/Loss € Costs €
9
C-INNOVATION
Note: Cost figures available until 2021. (E) Refers to N26 Expected value
Source: Annual financial statements for the financial year from 01.01.2020 to 31.12.2020. N26 Ltda. expectations for 2023 released by N26 in October 2023.
•Interest Income
•Fees and Commissions
•Other operating Income
•Personnel expenses
•Marketing and admin
•Depreciation & impairment
•Other operating expenses
Revenue Streams Total Expenses
Gross Income, costs & Net Loss
2017-2023 (millions)
>30%
YoY
(E)
(E)
2017 2018 2019 2020 2021 2022 2023
c53%
YoY
Losses persist at consistently high levels I Despite N26's goal of a 30% revenue
increase to €300 million in 2023 and plans to cut losses by 53%, signaling a significant
step towards sustainability, losses persist at high levels.

10. Source: From Disruption to Profit: The Rise of Digital Banking in Europe's Profitability Paradigm. C-Innovation. 2023
$3.
1B
$4.
5B
$
1
B
10
37
12
11
7
7
With N26 Focus on the European Market I It challenges intensifies, as the digital
banking sector has become an increasingly crowded market.
Note: Non-exhaustive list.

11. 11
Note: Selected examples. Valuation data as 26 April 2023
$45B
$25B
(Publicly listed)
$33B
C-INNOVATION
Previous vs current private/ market cap value
Valuation after IPO
Listed on December 12, 2021
Valuation at latest funding
round. 2021
45%
16%
Valuation at latest funding
round. 2021
$25B
$9B
Valuation at latest funding
round. 2021
$3B
11%
67%
Thus, N26's valuation currently mirrors its market position I Contrasting
with other global brands that have increased their value and navigated successfully
through challenging environments.
$52B
(April 2024)
39%
$25B
(April 2024)$18B
(2023)
$4.5B
Valuation at latest funding
round. 2021
$5B
(April 2024)

12. The research team
Javier
12
Javier is co-founder and CEO of C-
Innovation. Having worked with both
technology companies and corporates such
as HSBC and Santander, he has a unique
view of the challenges from both sides of the
table.
For any feedback, comments or any research suggestions feel free to reach us at [email protected]

Giulia
Giuliacompletedadoubledegreeprogram
inDigitalMarketing&Communication,
studyinginbothRomeandLyon.Currently,
sheholdsthepositionofSocialMediaand
DigitalManageratC-Innovation

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