Online banks and massive frauds

N26 fined €4.25m for its weakness of Anti-Money Laundering (AML) checks, regarding 50 transactions that were reported to late to the authorities, puts once again online banks in the spotlights.

BaFin which is the German control authority has placed their own people inside N26 following a big series of weakness found into N26 AML system. It seems that N26 was under close watch since 2017 and that its management was well aware of these issues.

There has been countless articles and reports in the news the last few years regarding those regulations weakness inside the fintech. A few weeks ago, a german journalist was reporting that the bank was hoping for a regulation change within the German authority instead of taking care of the issue.

The fine seems pretty small but you have to take into account that it only concerns 50 transactions reportes to late to the authorities.

N26 has been suffering since 2017 of a huge back log of reports between authorities requisitions and internal reporting coming from automated alerts and customer care flagging. It has suffered for years from online complaints regarding accounts blocked for weeks until they could finally make a decision between closing an account or unflagging the transaction.

The worforce organisation is also in the spotlights, N26 has been leveling down their AML services by creating low paid low level entry jobs consisiting of pre analysing fraud alerts and was in fact relying on a few seniors to supervise the operations. I wonder if the fact that their AmL team works in the sulphurous city of Berlin has had a negative impact on their reporting abilities ? A quick search over the Internet will lead you to countless pictures of after work parties within their Berlin office !

I am not saying that hyper growth is easy, but when a service, that doesn’t work as it should,is potentially exposing your whole company to big fines it’s the CEO responsibility to make changes !

Most fintechs road maps are pressuring the world wide expension and customer acquisition before the regulatory compliance. I am not sure european authorities will be any flexible regarding those questions anytime in the future. German baFin was already in the spotlights following Wirecars scandal, they won’t let the fintech rule compliance their own way.

N26 will likely survive to the storm if they make the right decisions regarding compliance.

For years they have been focusing on a fast answer less than 30 seconds answers for their customers, with the use of customer care workforce from external centers. Maybe it’s time to finally focus on quality whether than fast answering. Being myself a user of their banking services I was surprised by how low the level of 1st level customer care was, no better then Amazon ones. Then i was transferred to their level 2 which is an agent in Berlin to take care of a chargeback, they told me it would take weeks dor my demand to be processed given the huge back log. It only confirms that their N26 Operations is totally overwhelmed and under-staffed, both on customer care side and compliance.

All european fintechs now that they are being screened by the authorities, that they will be meticulously controlled by them, some are playing by the rules and some are bracing for impacts.

After sharing with some N26 employees I found out that they were planning to go Public soon, I am not sure given the situation they will be allowed to do so before thoroughly working on their internal compliance systems…

To conclude this fine is likely another BIG warning from the German authorities which have been more than nice since the beginning with the well known German fintech.

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