FrankfurtThe smartphone bank N26 is regarded as the star of the German start-up scene. Customer growth: breathtaking. The circle of investors: illuster. The financing rounds: lush. In January, well-known financiers such as the Allianz and the sovereign wealth fund GIC from Singapore invested 260 million euros in the company.
The enterprise value of N26 was estimated at 2.3 billion euros. That’s what makes the institute, which was launched in 2015, the first German fintech unicorn – in other words, a company worth more than a billion euros.
Because in addition to some customers complain now other financial institutions, N26 was not available for them in critical situations. Even more serious is that the financial supervision Bafin has buttoned the Berlin start-up. According to Handelsblatt 2018 information, the agency identified numerous deficiencies that N26 must now shut down as soon as possible.
CEO Valentin Stalf does not want to comment on concrete tests. But he stresses that the bank is “in very close contact with the Bafin” and takes every review extremely seriously. “If there are any complaints during an inspection, then we implement improvement measures in coordination with Bafin in a timely manner” says Stalf.
Fast growth but not well adjusted
According to insiders, financial supervisors believe that N26 has grown rapidly, but has not adjusted structures at the same pace. In a special audit, the agency found that, among other things, shortcomings in terms of staffing, outsourced task management and engineering were identified. In addition, she criticized that the parent company N26 GmbH takes over too many tasks for the N26 Bank.
Special audits are regularly available at all banks. But the Bafin’s criticism of N26 was unusually tough. The overseers warned the insiders with clear words improvements. If it does not come to that, stands as the ultimate threat a cap on the deposit business in the room. The Bafin did not comment on this.
Has the customer service increased in the meantime?
N26 boss Stalf does not believe that the bank is staffed badly with more than 800 employees. In particular, the customer service has been increased in the meantime.
Most recently, criminals have cleared several accounts at N26, in one case it was 80 000 euros. Affected customers complained that they had received no information for weeks. N26 discontinued the phone hotline in August, and the customer chat is not open 24/7.
Banks are complaining
Several banks have complained to Bafin about the poor accessibility of N26. Some of them did not answer the phone at the smartphone bank when they wanted to stop fraudulent transfers.
The pattern: Scammers opened an N26 account under a false or stolen identity. Then money was transferred from an account the criminals had gained access to the N26 account and forwarded from there to another account abroad.
If the stolen customer notices in time, his bank can try to reverse the transfer
But that was not possible with N26 Finanzkreis in several cases. A Sparkassen boss who does not want to be mentioned reports that his house sent a call back to N26 online at the end of February.
Since time plays an important role in fraudulent transfers, it is customary in such cases to call in addition. The savings bank got however only a band announcement to hear. In the early afternoon, the institute additionally sent a fax. A reply from N26 was made but only the next day – and there was the stolen money already gone.
Such a behavior is absolutely uncommon in the industry
Every institute depends on other banks being easily accessible in such cases and reacting on the same day.
The Bundesbank has an industry-internal telephone directory with numbers under which banks should be able to reach each other promptly. An agreement of all German banking associations and the Bundesbank also stipulates that such requests from other institutions are “to be dealt with immediately”.
According to Stalf, N26 has recently worked hard to ensure it’s reachable: “For two or three weeks, we have been really easy to reach for other banks as well, for our clients for some time now.”
Some banks also have the impression that the fraudsters unusually often use N26 as an intermediate account. A Volksbank reported that it had noticed in the first quarter that in the case of transfer frauds, the fraudulent account had been held “in more than every other case” at N26. From the point of view of IT security expert Vincent Haupert of the University of Erlangen-Nuremberg, the photo identification at the account opening, which N26 uses in some foreign markets, is a weak point.
N26 is in the limelight. Accordingly, isolated cases are highlighted. Christian Nagel, co-founder of Earlybird
“This procedure is more susceptible to forgery than, for example, the video-ident method” says Haupert. The Photo Ident procedure allows customers to upload photos from their identification documents. In Germany, the procedure is banned because of security concerns, but abroad it may be used in several countries.
If the account opening succeeds under an incorrect name, a N26 account has an advantage for the cheater from the point of view of Haupert: He receives a German account number (IBAN) regardless of nationality and residence. This could lead to the banks’ risk systems failing to apply, according to Haupert. For them, potentially fraudulent transactions would look like domestic transfers.
N26 boss Stalf considers the criticism unjustified
“There’s no evidence in our data that our accounts are being used more often for fraud because we’re leasing a German IBAN,” he said. Percent, there are “very few cases” in N26 where accounts with stolen identities were opened. Abroad, the bank often uses additional security checks in addition to photo identification.
Christian Nagel, who is co-founder of the venture capitalist Earlybird on the Advisory Board of N26, is behind Stalf. “Security is a top priority for N26,” he says. “Customer service has to keep up with growth.” That’s why the bank has significantly expanded its customer service over the past six months.
That the criticism of N26 has increased, Nagel also leads back to the increased awareness. “N26 is in the limelight. Individual cases are highlighted correspondingly prominently. “Stalf sees things as similar. Compared to many banks, N26 has better customer ratings and higher growth. “That does not come from somewhere”.
In the future, Stalf also wants to be at the forefront of customer protection. “We want to become the industry leader in fraud prevention and security.” Financial supervisors and the other banks will be watching closely to see if Stalf’s words are followed by action.
Also published on Medium.