N26’s disregard for profit is digital banking’s Uber moment

By Oliver Smith on 19th July 2019

Challenger Banks

If profitability isn't a "core metric" for the CFO of a bank, what is?

N26’s disregard for profit is digital banking’s Uber moment
Image source: Maximilian Tayenthal/Valentin Stalf/N26.

Antony Jenkins, the former CEO of Barclays, coined the “Uber moment for banking” phrase during his 2015 speech at Chatham House.

The banker picked on Uber due to its seemingly unstoppable explosion in cities across the world, using technology to disrupt the business of traditional taxis—a threat he foresaw in traditional banking.

Four years later his words seem prescient.

Not because traditional banks are threatened by digital upstarts, indeed Britain's top banks are currently revealing the largest profits since the financial crisis.

Instead, because digital banks have taken a worrying page from Uber’s playbook.

The Uber of banking

Today we know it wasn’t just technology that propelled Uber to near-global domination.

There was also the more than $11bn in venture capital that the company burned through, its attitude of running roughshod over local regulations, and a toxic corporate culture which ultimately led to the CEO being ousted.

Enter N26.

This week the German digital bank raised another $170m in venture funding, topping up its $300m Series D and scoring a valuation of $3.5bn.

But it was co-founder Maximilian Tayenthal’s comments which drew the ire of many fintech watchers.

Profit motive

“In all honesty, profitability is not one of our core metrics,” he told the Financial Times.

“We want to build a global financial services company… in the years to come we won’t see profitability, we’re not aiming to reach profitability.”

“The good news is we have a lot of investors that have very deep pockets and that share our deep vision and that are willing to support the company over many years to come.”

Tayenthal went on to talk about N26’s next funding round in 18-24 months.

Let’s remember that N26 was awarded a banking licence from the German regulator BaFin in 2016 and is responsible for the deposits of 3.5m Europeans, Americans and, soon, Brazilians.

N26 is hardly the only one, several European digital banking players are chasing customer growth over profits. Tayenthal’s only faux pas was voicing this reality.

Where does that leave us?

We’re in a situation where European financial regulators have handed out banking licences to heavily loss-making businesses, reliant on regular injections of venture capital.

But this situation is far more precarious than Uber, whose collapse would simply be regarded as an annoyance to consumers, an embarrassment to the tech community, and a disappointment to investors.

Banks collapsing have a very real impact on the economy, jobs, currencies and have, historically, resulted in bags of public money being used for bailouts.

To be clear, I’m not saying that a digital bank’s failure could have such an impact today.

But to hear the co-founder and CFO of a regulated bank talk about profitability not being a “core metric” leads one to wonder what kind of banks we’ll be left with tomorrow.

Read more: Martin Gilbert won’t solve all Revolut’s problems