German challenger N26 pulls out of UK ‘over Brexit’

N26, the German challenger bank with five million global customers, has decided to pull its operations out of the UK and has cited Brexit as the reason.

“With the UK having left the European Union (EU) at the end of January, we will in due course no longer be able to operate in the UK with our European banking licence,” the company’s statement reads. Existing UK accounts will be closed on 15 April 2020.

Operating under “passporting” rules in the UK since October 2018 after the country’s EU referendum, N26 has never applied for a UK banking licence. Without one now, post-Brexit, the challenger can no longer do business in the UK.

The bank cites “complex regulatory measures” and costs as reasons for its UK exit

The neobank reasons that applying for a UK banking licence would require “complex regulatory measures” as well as “significant operational processes and costs”. Until the April deadline, customers’ money will be protected up to the equivalent of €100,000.

Fellow challenger bank Bunq has reaffirmed its UK presence. The Dutch neobank launched in the UK last October, and only operates euro accounts to target British citizens who spend money overseas. Its founder and CEO Ali Niknam said yesterday: “Based on the current rules and regulations, we see no (regulatory) reason to leave the UK.”

When N26 launched in the UK it drove a big marketing push – the price tag for which has not been revealed. Initially its plan was to project N26’s logo onto the Bank of England building, but this was squashed as being “too controversial”. Instead, the bank projected its campaign onto central London areas such as Carnaby Street and Liverpool Street Underground Station.

“We had some great footfall on the day and there was a lot of excitement at the time [of launch],” N26’s strategy and operations manager at the time Myles Tullo said in December 2018 shortly after the campaign. “Once we started in Europe, I think the UK was always the natural next step […] watch this space”.

N26’s debut at Liverpool Street

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Indeed, this space is soon to become empty. In December 2019, N26 ranked just 19th on the UK challenger bank list for most active users (MUAs) according to App Annie figures cited by a Sifted report, behind My Argos Card and cryptocurrency exchange app Coinbase.

Its late arrival to a market already in the thick of its challenger bank movement can certainly be speculated as part of the reason for its decision to abandon the UK all together. According to the BBC, the challenger has around 200,000 UK users. The source of these figures is not mentioned, but the challenger – which has not revealed the size of its UK user base – did say on launch that it had a 50,000-person waiting list.

Commenting on N26’s departure from the UK, 11:FS’s group CEO David Brear thinks N26 “has struggled more in the UK than anywhere else” because of its “diverse and mature market”. Brear cites the likes of home-grown Monzo and Starling, both of which are in the midst of or at the tail end of funding rounds, as the competition making it “a harder market to break”.

A large part of N26’s recent customer acquisition has come in the US, where it has now gathered a quarter of a million users since its launch in the overseas market last summer.

Tony Craddock, director general of the Emerging Payments Association, says that it can be easy to blame legal or political constraints, but “we will have to see if N26’s departure is the beginning of a trend or a company who simply withdraws from the UK’s fiercely competitive payment account market.”

He adds: “Companies continue to enter the UK’s payments market because it gives access to the biggest source of capital, access to the highest quality talent, and access to the biggest markets for paytech in the world: Asia, LatAm, Africa and North America. A trend we hope will continue unhindered by Brexit.”

Becoming one of Europe’s most valuable fintechs with a $2.7 billion valuation after raising $300 million in a Series D funding round last year too, N26’s founders Maximilian Tayenthal and Valentin Stalf say the challenger will “continue to focus on growing within the EU” and build on its presence in the US – where they say the bank has “huge potential”.

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