One high-profile victim of Brexit is German digital bank N26 despite its notable success since launching less than two years ago in October 2018.
By April 15, 2020, an estimated 3.5 million UK customers of the neobank will need to transfer deposits, move funds from their cards, withdraw money from an ATM, and change any subscriptions and auto payments – all part of the wind-down of N26 in Britain.
In a statement Thomas Grosse, Chief Banking Officer at N26 said, “While we fully respect the decision that has been taken, it means that N26 will in due course be unable to serve our customers in the UK and will have to leave the market.”
UK banks impacted
Like many other EU banks, N26 benefited from “passporting” where its German central bank license enabled it to easily expand to other EU member countries. The reverse is also true where UK-headquartered banks, including digital banks, will now have to apply in individual EU countries for licenses and regulatory approval.
These are substantial costs and are accompanied by significant timing delays to reenter each of the 50-plus EU markets
“Although we will be leaving the UK, we will continue our mission to radically transform the global banking industry through innovation and the power of technology and design to build a bank the world loves to use. This means growing within the European Union, where we recently crossed the 5 million customer mark, building our presence in the US, one of the most attractive global banking markets, and expanding into new countries.”
UK digital banks and other financial institutions will now be at a big disadvantage when trying to expand operations into the EU.
UK digital bank shakeup looming post-Brexit?
We recently profiled UK neobanks and found that the nine largest digital banks have more than 18.7 million customers, including N26’s 3.5 million users. UK consumers have obviously embraced digital banking, but these homegrown digital banks now have a post-Brexit challenge to expand their growth outside of their home base.
“We are sorry to be leaving and we understand this will be disappointing for our customers,” Grosse added.
That said, 3.5 million N26 customers will be looking for a new digital bank and the homegrown UK neobanks will marketing and working hard to acquire these digital-savvy financial services consumers.
“The resources (financial and otherwise) of getting and maintaining a license in the UK probably weren’t worth it as far as N26 was concerned, which in turn suggests it had struggled to acquire a meaningful number of customers here,” Sarah Kocianski, head of research at fintech consulting group 11:FS, told CNBC.
“Given it holds a European license it can easily turn its attention to another market there without the expenditure required to get regulated in the UK,” Kocianski added.
A bigger question for UK digital banks is how investors will respond to the more limited UK-only opportunities. There could also be a chill on innovation and product development with more limited growth potential given the added regulatory costs as a result of Brexit.
Meanwhile, Boris Johnson’s government seems to believe it can negotiate “permanent equivalency” for its London financial center post-Brexit. Many of the other 27 members of the EU will beg to disagree – strenuously.
Other foreign digital banks, UK businesses, and industries will be watching closely as they try to manage their own post-Brexit futures.
You can read more about N26’s expansion plans and quick US growth here.
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