FinTech Shifts its Axis

Due to uncertainty in the market after Brexit referendum, many FinTech companies and investors are now going to Germany. From insurance to crypto-finance and SME lending, Germany’s startup cities are welcoming the new disruptors of finance.

June, 2018

Brickvest, a London-based real-estate investment platform that uses technology to “close the investment gap,” is just one example of a young Fintech company opening an office in Berlin to take advantage of Germany’s swelling market and reduce Brexit-induced risk. “Our industry relies heavily on talent with a creative and global outlook. The uncertainties around the status of EU citizens post-Brexit and the high cost of living in London have become a real barrier to hiring international talents since Brexit. We opened an office in Berlin in 2016 to enable the firm to attract talent,” says Thomas Schneider, Brickvest’s CEO.

FinTech is a very lively part of the digital revolution, which has been disrupting traditional financial models and probing new kinds of transactions and processes to both monetize links in the value chain and provide better value for the average consumer.

Germany’s FinTech hotspots

The substantial investment drive in FinTech over recent years has produced companies like Cringle in Berlin and Lendstar in Munich, whose apps enable people to transfer tiny amounts of money to each other via their phones. And there’s Kreditech in Hamburg, which specializes in small loans by assessing customers’ online data as opposed to credit rating information. Digital banks, digital currencies, mobile wallets and peer-to-peer lenders are all new variations on classic banking services that FinTech startups are bringing into the mainstream economy.

While bankers in Frankfurt are rubbing their hands in anticipation and getting ready to receive major international banks and financial institutions fleeing the uncertainties of Brexit, the FinTech scene is a Germany-wide phenomenon. Hamburg, Frankfurt, Munich and Berlin are all hotspots. Boasting the largest investments, Berlin is the clear leader and there are strong indicators that it may take over from London as Europe’s FinTech capital. Since September 2016 it has welcomed nearly three times more FinTech startups and certainly as much venture capital as any other European city.

»FinTech ­companies do not see ­London as first choice anymore.«

Sebastian Schäfer, CEO of TechQuartier, Frankfurt

Market intelligence

A 2016 EY study put Germany’s overall FinTech market size at US$2.5bn, the fourth-largest in the world, with new investments of US$539m. VC-backed funding for German FinTechs rose by 118 percent in 2016, contrary to an overall global downward trend, according to Business Insider. As for last year, the statistical observer Statista reckons that transactional value in 2017 across German FinTech companies was US$115bn; a Dorfleitner/Hornuf study FinTech Market in Germany estimates that the market volume in finance and asset management alone will grow from €2.2bn in 2015 to €58bn by 2020.

Sebastian Schäfer, CEO of TechQuartier in Frankfurt, sees Germany as the future center of the industry in Europe, filling the hole left by Brexit. “There are opportunities here in insurance, crypto-finance, RegTech, infrastructure and particularly SME lending,” he says. “Crucially, FinTech companies from Germany and other countries do not see London as first choice anymore.”

With FinTech seemingly looking for a new base, Germany’s tech hubs, so strong on innovation, are actively courting startups. “A recent survey counts about 700 companies in this sector in Germany, half of them founded during the last three years,” says Josefine Dutschmann, senior manager at Germany Trade & Invest’s Investor Consulting. “A series of regional digital hubs has been established in Germany as an initiative of the Federal Ministry for Economic Affairs and Energy, where startups, science, SMEs, industry and administration join together and become centers of digital transformation. These also become centers for collaboration, which is interesting, as banks and insurance companies are starting to be a lot more open to FinTech collaborations and partnerships.”

A carpet with a programming code motif in the offices of the Berlin-based FinTech N26, a startup which aims to fix all the “outdated” quirks and oddities of the European banking systems.

© Andreas Pein/laif