Fintech’s Role in Germany’s Recovery

The coronavirus has had a major impact on all aspects of the German economy, but for the fintech sector in particular, the challenges created by the pandemic are quickly turning into opportunities.

October, 2020

The social and economic disruption arising from Covid-19 has hit Germany’s small and medium-sized businesses (SMEs) hard, but it is also leading to changes in operations and strategy within financial institutions. Banks are increasing outsourcing, intensifying their digitalization efforts and expanding remote working. They are also reprioritizing their strategic goals.

Enter the fintechs – in Germany, a dynamic and growing sector comprising some 900 companies, which managed to raise EUR 1.3 billion in venture capital in 2019. “To achieve these top strategic goals, partnerships with external service providers or fintechs are essential, especially in this crisis,” says Tomas Rederer, head of PwC’s Financial Services Operations Consulting. He adds that Covid-19 has accelerated many banks’ existing plans to further optimize processes and strengthen business models.

900

Approximate number of fintechs in Germany in 2019

Source: comdirect

One fintech that is gearing up to partner with big lenders is Teylor AG. The Zurich-based company develops digital credit solutions for SMEs and also provides the technology to banks, allowing them to digitalize and automatize every aspect of their SME lending business.

In June, the company announced its expansion into Germany after raising CHF 8 million (EUR 7.5 million) from investors.

Teylor says the significant increase in demand for digital banking solutions has bolstered growth and allowed the company to raise additional capital. It is opening an office in Berlin in 2020 as it expands its business in Germany and Europe.

1.3bn

Venture capital investment in fintech companies in Germany in 2019

Source: EY

In another example of collaboration between large- and small-scale players, the Berlin-based fintech Pylot is developing an integrated solution that will help SMEs operate more efficiently. The start-up is backed by German insurance giant Signal Iduna and leading European fintech builder FinLeap. “With Pylot, any company can digitalize their processes, products and services quickly and easily,” says the firm’s CEO Michael Hartwig.

In a recent interview with financial news site Finanz-Szene.de, FinLeap’s CEO Ramin Niroumand predicted that while the crisis would lead to short-term consolidation within the sector, it would favor fintechs in the long run.

75%

Share of banks that say fintechs and external service providers offer key leverage in increasing profits and reducing costs

Source: PWC

There’s no shortage of success stories. In April, investors led by U.S. venture capital firms Accel and Founders Fund raised EUR 62 million for Berlin-based Trade Republic, a mobile broker developing a platform that allows users to invest in stocks, exchange-traded funds and derivatives commission-free via a smartphone app. Meanwhile, Berlin-based mobile bank N26 took in a whopping EUR 91 million in the first half of 2020.