N26’s ‘Maybe’ IPO Boils Down to Timing, Interest Rates

For digital-only banking firms seeking to go public, timing is everything.

Germany-based N26 is mulling an initial public offering (IPO) in the U.S. markets, which might happen later than sooner as Founder and Co-CEO Maximilian Tayenthal has been quoted as saying private markets have been “incredibly liquid.”

Read more: Digital Bank N26 Ready by Year’s End for IPO

Herein lies a bit of a tell as to whether or not the firm will IPO. Liquidity, after all, is the lifeblood of any company, within any vertical.

Whether the private markets or the public markets prove to be the ultimate path of N26’s financial future may hinge on rates. Generally speaking, as rates rise, earnings (or the prospect of earnings) are adversely affected, as are top lines. But for financial companies, N26 included, the impetus may be there for consumers to look to park their savings accounts or turn to relatively lower-cost loan providers to conduct their daily lives.

Higher Required Rates of Return

Higher rates also imply that the “discount rate” — used as a sort of hurdle for returns for public and private investors — may increase too. A higher discount rate makes money worth less in the future than it is today and increases risk. It becomes more expensive to borrow funds, so the idea here is that companies like N26 would do well to tap funding sooner rather than later, given volatility (and, again, the specter of rising rates).

Recall that in October the company raised $900 million at a $9 billion valuation, which would seem to indicate that there is no need to tap markets, near term, for cash as the company seeks to grow a user base that at a recent tally topped 7 million individuals.

But growth is no easy feat on a global scale, particularly within banking. N26 shuttered its U.S. operations earlier in 2022. Being truly global means that firms must grapple with the vagaries of market-by-market (OK, continent-by-continent) regulations and oversight, as well as marketing services and products in an increasingly crowded digital field. (Other firms like Monzo withdrew banking licenses here in the states.)

See more: German Digital Bank N26 Shutting Down US Operations

One inherent example that traditional incumbents have, at least here in the U.S., is reflected in PYMNTS research that consistently finds that trust and brand names are key considerations when choosing a financial services provider.

But, again, timing is everything. Chime, in one notable “delay” has reportedly backed off its IPO plans that made headlines earlier this year, as Forbes wrote last month.

The latest edition of the PYMNTS FinTech IPO Tracker — soon to be updated — noted that the average FinTech IPO is officially busted, down 27% from first-day pricing. No wonder a neobank IPO, at least as evidenced by N26’s somewhat vague timeline, is no sure thing.