Germany’s Fintech Boom

The popularity of online financial and insurance services has created a bumper crop of opportunities for start-ups in both new areas and established sectors. International companies looking for a foothold in Germany can take advantage of this trend.

August 2021

Ask the French insurtech start-up Zelros what it was like to expand into Germany last year, and they’ll tell you that it was a learning process. “You need to have some German language abilities (as a company) or it gets difficult to do business here,” says Gero Reiniger, sales director for Zelros in Germany, Austria and Switzerland.

The company uses artificial intelligence (AI) to help insurance companies better advise and attract customers. That entailed putting a learning process in place for their customers. “With AI being relatively new, people don’t know what to do with the topic,” Reiniger says. “It’s not magic. It’s a tool and we need to put it to work.”

So, do the results justify the effort? Definitely, says Zelros. One advantage is the availability of highly trained employees. The success of Germany’s insurtech sector helped Zelros find qualified applicants with experience in the field despite a competitive job market. And the benefits don’t stop there.

Valentin Stalf, founder of Berlin-based online retail bank N26, is typical of the young start-up talent that is flocking to Germany‘s fintech hubs. © picture alliance / Hans Klaus Techt

A decade of growth

Insurance and financial technology companies have thrived in Germany over the past decade by tapping into the country’s unique mix of market size, government support and diverse environments. In 2015, Germany attracted EUR 332 million in investment, but by 2019 that number had grown to EUR 1.2 billion, business consultants Ernst & Young have calculated. Although the figure slipped in the pandemic year of 2020, the number of completed investments remained high, and investors appear to have just been catching their breath. This year started off with a record 13 deals in January alone. They were worth EUR 275 million, according to Barkow Consulting.

That was, in part, due to another disruption. “Brexit has expanded Germany’s traditional financial sector,” says Josefine Dutschmann, senior manager in financial services at Germany Trade & Invest. “London remains the European financial capital, but Germany is quickly making up ground.” Part of Germany’s strength in this regard is that the country doesn’t depend on just one main financial location.

The Bottom Line

As Europe’s largest market, Germany already had one of the world’s leading financial sectors. Brexit has only bolstered its status, while disruption in the sector could make this an ideal time for foreign companies to get involved.

A number of hotspots

Although Germany’s banking sector was historically based in Frankfurt, the lively urban backdrop and start-up-friendly infrastructure of Berlin has put the German capital firmly on the map. In 2020, Berlin fintech start-ups received EUR 342 million in financing, or 64 percent of the total invested in the German sector. And the dynamism doesn’t stop there. Bavaria came in second with EUR 123 million in investment, about 24 percent of the total. As Munich is Germany’s traditional insurance hub, Zelros chose the Bavarian capital over Berlin for its expansion.

Digital hubs

Zelros benefited from a program devised by the German Ministry for Economic Affairs and Energy to create regional concentrations of fintech/insurtech start-ups through a network of four digital hubs that bundle expertise. Berlin and Frankfurt, together with nearby Darmstadt, are fintech hubs, while insurtech is focused in Munich and Cologne. The hubs are part of the Digital Hub Initiative, a network of 12 hubs in digital fields ranging from mobility to digital health to artificial intelligence.

The hubs capitalize on Germany’s unique decentralized economy. In many European countries, expertise and industries are focused on large urban centers, but Germany’s industrial landscape is spread around the country – an added advantage perhaps for companies looking for the ideal location in Europe’s biggest economy.

Investment in Fintechs

Where investment into Fintechs went in 2020 (in EUR million)

340

Berlin

123

Bavaria

58

Baden-Württemberg

29

Other regions

Source: EY Startup barometer Germany – January 2021

Big Data cluster

The German government and nearly 50 partners are also working together to explore how a financial big data cluster in Frankfurt can contribute to the country’s data sovereignty. About a dozen of those partners have agreed to top up a EUR 10 million subsidy allocated by the government. The cluster links financial institutions, regulatory bodies, start-ups and research institutions to develop commercially viable platforms based on big data.

Launched in 2020, the Financial Big Data Cluster is an excellent opportunity for foreign investors to get help from established players and gain a foothold in a burgeoning industry in Germany. While fintechs such as online banks and payment solution providers were quick to attract investor attention, interest in insurtech is now also ramping up. Insurtechs ranked fourth in new investments in Germany behind payment- and trading-solution providers last year. Still, the trend for traditional banking going online continues to be the biggest driver of financing. That’s thanks in no small part to Berlin’s N26 and Solarisbank.

4 Reasons Why German Fintech Rocks

Robust infrastructure and support for start-ups and the availability of skilled workers offer a winning combination for companies looking to invest in Germany’s financial tech sector.

1.

Europe’s biggest economy

Germany is the continent’s most populous country and is its largest national market. Companies and investors cannot afford not to be here.

2.

Established networks

The German government has established four hubs to support the foundation of fintechs and insurtechs in Germany. The insurtech hubs in Cologne and Munich, for example, leverage the historical expertise of both those cities.

3.

Start-up infrastructure

Berlin attracts more fintech investment than any city within the European Union, and Germany is home to some of Europe’s biggest start-ups. Executives, founders and employees will find excellent support networks for any questions or issues they might have.

4.

Qualified employees

Germany’s labor laws support both employers and employees to find an enjoyable and productive work-life balance. And the country’s network of colleges and universities means qualified labor is available anywhere a company might choose to locate.

Fantastic fintechs

N26 is a purely online retail bank and Solarisbank allows other companies to use its platform and banking license to offer financial services. N26 simplified banking in Germany and attracted a new class of international, highly qualified, young start-up talent. Contrary to the stereotypical image of the banking sector, fintech benefited from Berlin’s hip image and relatively low rents compared to other major German and European cities.

“Berlin is a massively growing tech hub with lots of start-ups, a lively and creative cultural scene and attractive nightlife,” Robert Bueninck, chief commercial operator at Heidelberg-based payment provider Unzer, told the Berliner Morgenpost newspaper last year. Bueninck’s career trajectory illustrates the growth of fintech in Germany: Up until March 2021, he was general manager DACH for Klarna, the Swedish online payment company that is now Europe’s most valuable financial start-up with a valuation above EUR 30 billion.

Unzer itself was picked up by US private equity firm Kohlberg Kravis Roberts & Co. for a reported USD 600 million (EUR 502 million) in 2019. With Germany’s fintech infrastructure so robust, and the sector being particularly accommodating to current geographical and technological shifts and changes, we are likely to see more of these major deals and acquisitions in this exciting growth market.

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