In recent years, the banking sector has evolved radically due to digitisation trends, changing consumer behavior and making way for new regulations. This article takes a closer look at the emergence of FinTechs that are changing the financial sector, their cooperation with established banks and other start-ups, industry networks as well as the Covid-19 impact on customers.
What are FinTechs?
The abbreviation FinTech stands for a combination of “Financial Services” and “Technology”. FinTechs are therefore companies or start-ups that offer innovative solutions from the field of finance through the use of new digital technologies. These companies contribute to existing financial models with customer-focused mobile services that stand out with their easy and convenient usage.
Overall, under the label of FinTechs one can see a variety of different services ranging from finance, banking, cryptocurrency and blockchain, accounting, InsuranceTech, PropertyTech, and different payment and investment services such as crowdfunding.
The German FinTech Industry at a Glance
In contrast to other countries Germany has been slow in adopting FinTech solutions. In Germany banking licences are strictly regulated by the Federal Financial Supervisory Authority, Bafin. FinTech founders have reported difficulties while applying for a banking license and navigating the stringent regulations to enter the marketplace. In addition, Germans in general still prefer paying in cash and tend to be sceptical in terms of trying new technologies and services. This explains why FinTechs are slowly gaining significance in the minds of the German population. In comparison to the US for instance, the German FinTech sector still lags behind in regard to investment, regulatory requirements, industry networks and start-up culture.
According to a recent study by comdirekt bank, there are currently almost 900 FinTech companies operating in the German market. The most represented sectors are real estate with over 200 PropTechs and the financing sector with 172 start-ups. In addition, the study found that blockchain start-ups have seen a growth rate of over 100% since 2017. For venture capital, the German FinTech market is very attractive, as almost 40% of their total investment assets went to start-ups from the financial sector in recent years.
FinTech Collaborations
FinTechs are not only collaborating with established banks but also with IT, media, insurance companies, payment service providers or asset managers.
According to a PwC report, in 2019, there were around 500 collaborations of FinTechs with other start-ups as well as established companies from different industries varying in terms of duration. Compared to 2014, there were only around 50 partnerships between Fintechs and traditional companies.
Through cooperation with new FinTechs established banks and insurance companies are able to offer customers innovative products or lower costs. This can take place through loose cooperations or a complete takeover. In 2019, two-thirds of completely acquired start-ups were focused on B-to-B services. Overall, by the time of their takeover, most of them were on average 5 years in business.
Covid-19 Impact on FinTechs
The Covid-19 pandemic and the corresponding health measures have changed customer behavior immensely. As people sought to make less physical contact, the demand for contactless paying services grew strongly in 2020. According to Germany Trade and Invest, 43% of Germans changed their paying method to cashless options to avoid human contact. Even small retail shops that in the past only accepted cash have been switching to contactless payments for hygiene reasons. However, only 8% of the German consumers prefer mobile paying options instead of classic card payments.
Nevertheless, in 2020, as a result of a struggling economy due to the impact of Covid-19, investment in FinTechs worldwide went down. According to a KPMG report on global FinTechs, the total investment from private equity, M&A, as well as venture capital, was around $150 billion in 2019 whereas in 2020 only $26 billion were invested globally. As the international economy is recovering, investments are expected to rise back to the level from 2019.
German FinTech Investors
AllianzX
The Munich-based insurance giant Allianz actively invests in startups especially in the FinTech sector with a volume of €1 billion from its AllianzX fund. Among others, they have invested in the unicorn N26 and the InsureTech Simplesurance.
Earlybird Venture Capital
Earlybird is best known for its 11% stake in N26. Founded in 1997, Earlybird has currently invested €1.5 billion in start-ups from different stages in Europe and worldwide. They have a portfolio of over 50 German startup investments among them numerous blockchain companies.
Finleap
The Berlin-based tech incubator was founded in 2014 by CEO Ramin Niroumand in collaboration with the company builder Hitfox, which is now known as Ioniq Group. Some of the companies that have successfully emerged from the incubator include Solarisbank, Elinvar and InsurTech Clark. The incubator has founded and scaled around 18 companies by offering a highly-skilled workforce, access to capital and extensive industry connections.
Finlab
Finlab is one of the first and largest investors for FinTechs in Europe and currently listed on the stock exchange. One of the stars from its investment portfolio is Deposit Solutions, an open banking platform connecting banks and depositors in Europe, that has secured a funding of €171 million since its founding in 2011.
Centurion Plus
The financial industry is constantly evolving and innovating to meet the needs of consumers and business partners. Germany offers a unique environment for new and existing start-ups to grow and to cooperate with established industry players from the banking and insurance sector.
Have you considered investing in the growing FinTech scene in Germany? Are you planning to found your own FinTech, insurtech or proptech? Are you an established company looking to acquire a start-up or build your own incubator?
Do you need legal advice regarding regulations for financial technologies or support for your legal department with experience in regards to FinTech?
Contact Centurion Plus Germany today for an initial consultation to find out about our legal solutions for the financial services industry.
