Europe’s $9 Billion Digital Bank N26 Launches Crypto Trading Service Amid Bear Market

European digital bank N26 announced Thursday it is launching a crypto trading service, starting with Austria as the first market for the product.

The service, called N26 Crypto, is set to become available to N26′s Austrian clients in the coming weeks and will initially include 100 tokens including bitcoin and ether. N26 plans to roll out the feature to users in other markets over the next six months and eventually expand its token offering to include a total 194 coins.

Gilles BianRosa, N26′s chief product officer, told CNBC the bank’s crypto brokerage feature allows users to “dip their toes into the water in a way that’s not frothy.”

To make a trade, users select a coin and specify how much they want to buy or sell. Once they complete their order, cash is deducted from their main account balance and appears alongside the token of their choice. Customers can also “drag and drop” funds from their main account into their crypto portfolio, or vice versa, N26 said.

Berlin-based N26 is a bit of a latecomer to the crypto rush. Fintech rivals PayPal and Revolut have long offered their users the ability to buy and sell digital assets, and payment leviathans Visa and Mastercard also sell their clients crypto and so-called “Web3” services. On Wednesday, Brazilian digital bank Nubank launched its own token, called Nucoin.

“Our users are extremely interested in crypto,” BianRosa said in an interview. “That interest remains super high, even in a bear market.”

N26's crypto foray could have been better timed. Bitcoin and other tokens are deep in the red this year after investors fled the market due to fears over higher interest rates and liquidity constraints. While main street banks have steered clear of crypto due to concerns over its sharp volatility and involvement in fraud, N26 - which holds an EU banking license - is dipping its toes into the space out of the belief that it’s more than “just a fad.”

“We want to take a pretty long-term view around this,” BianRosa said. “It’s not like we’re trying to time the launch on how the market is doing.”

N26 is charging a 2.5% fee on buy and sell orders for all cryptocurrencies - other than bitcoin, which it offers at a reduced transaction fee of 1.5%. For subscribers to its paid Metal accounts, which cost 16.90 euros ($16.54) a month, the transaction fee is 1% on bitcoin and 2% for all other tokens.

The feature is powered by Bitpanda, the Austrian crypto and stock trading app that shares N26 backer Peter Thiel as an investor - with Bitpanda pocketing a commission on each trade processed through N26. N26 said it plans to support trading in other asset types over time.

The move may cause discomfort for regulators, who’ve gotten much stricter in their approach to crypto after the $2 trillion market wipeout this year. The European Union in particular has sought to crack down on the “Wild West” of crypto, with incoming rules expected to enhance investor protections around digital assets. N26 has previously had restrictions placed on its growth by BaFin, the German financial watchdog, due to alleged failings in its fraud prevention systems.

“We have a very strong working relationship with all the regulators, so obviously we inform them of our plans, they’re aware and we’ve covered all the regulatory needs we have for this market,” BianRosa said.

A BaFin spokesperson said the company doesn’t comment on individual banks but that, generally, “banks must comply with any statutory obligations for the prevention of money laundering and all other banking supervisory requirements also when doing business with crypto assets.” The Austrian Financial Market Authority, which supervises the market in which N26 is first launching its crypto service, said any questions on the move should be directed at BaFin.

Notably, N26's crypto service doesn’t include support for custodial wallets, meaning customers are unable to move their assets off the platform. Platforms like Robinhood and Revolut have introduced features giving users more control over their crypto assets lately.

BianRosa said this creates a “closed-circuit investment loop” where users’ assets are sealed in a controlled environment. It’s a feature some of crypto’s biggest proponents might say is at odds with the technology’s decentralized roots. But N26 argues this offers greater protection for its users. Clients have to fulfill identity verification checks before becoming eligible to make crypto trades.

“It’s not like you can convert those bitcoins and buy something from the dark web with those assets from your wallet,” N26′s product chief said.

N26 is one of Europe’s largest fintechs, scoring a $9 billion valuation in its most recent financing round last year. Like other fintechs, however, the firm is losing money. N26 racked up net losses of 172.4 million euros ($168.8 million) in 2021, a 14% increase from the year before.