Introduction
German digital bank N26 has recently announced the shutdown of its operations in the United States, just a little over two years after launching in the country. This decision comes as N26 aims to redirect its focus on its core European market. With a valuation of $9 billion in its most recent funding round, the Berlin-based fintech company will no longer support its app for its 500,000 American customers starting from January 11, 2022. This article explores the reasons behind N26’s withdrawal and the challenges European fintechs face in expanding their services in the United States.
N26’s Retreat from Major English-Speaking Markets
This is not the first time N26 has withdrawn its services from a major English-speaking market. In early 2020, the company pulled out of the United Kingdom, citing the uncertainties surrounding Brexit as the reason. N26 had encountered difficulties in acquiring users in the UK. Similarly, British digital bank Monzo, which began testing its services in the United States in 2019, recently abandoned its application for a US banking license. On the other hand, American online brokerage firm Robinhood also faced challenges when it decided to launch globally, ultimately abandoning its plans to introduce a UK version of its app last year.
The Complexities of Expanding European Fintechs in the US
Expanding into the United States has proven to be a formidable challenge for European fintech companies. Established banks such as JPMorgan Chase and Bank of America, as well as emerging players like Chime and Varo, present fierce competition in the US market. Overcoming well-established incumbents is no easy feat. However, Krik Gunning, CEO and co-founder of Fourthline, a startup specializing in fraud prevention for companies like N26 and German fintech Trade Republic, sees a lot of growth potential in European online banking. Gunning believes that N26’s decision to focus on its strongest markets in Europe is a wise move.
N26’s Shift in Strategy
Aside from refocusing its attention on the European market, N26 has announced plans to increase investments in new features, such as investment products, in the coming year. Furthermore, N26 intends to expand its presence in Eastern Europe to meet the rising demand in the region. The company will also make efforts to relocate its US staff to other areas of its business wherever possible.
Regulatory Pressure and Challenges in N26’s Home Market
N26 is facing regulatory pressure in its home market of Germany. In June, German regulators fined the bank $5 million for failing to promptly report suspicious activity related to money laundering. Moreover, N26 reached an agreement with the German financial watchdog, BaFin, to limit the number of new customers onboarded each month. These challenges alongside N26’s recent infusion of $900 million in funding from investors, which brings their total funding to $1.7 billion, highlight the complexities N26 faces in managing its operations, complying with regulations, and expanding its customer base.
Conclusion
N26’s decision to withdraw from the United States highlights the difficulties European fintech companies encounter when expanding into the American market. By refocusing their efforts on their strongest markets in Europe, N26 aims to consolidate its position and capitalize on the growth potential in online banking. Despite the challenges faced in the US and regulatory pressures in their home market, N26 remains determined to navigate these obstacles and continue its expansion plans in Europe and beyond.
