Bi-Monthly August 2024

According to Bitkom, there are 700 fintech companies in Germany, with five out of the twelve largest financial services providers excluding insurance companies already being fintechs². At first, this number seems quite impressive, but it's important to consider that Germany is the largest country in Europe by GDP and population. When viewed in this context, countries like Estonia, Spain, and the UK significantly outperform Germany. Per 1 million inhabitants, Germany has 9 fintechs, whereas Estonia, Spain, and the UK have 93, 69, and 33, respectively². These three countries have unique strengths from which Germany could learn a thing or two from. Estonia is renowned for its world-leading digital infrastructure and digital society, while Spain provides strategic access to the Latin American market and boasts a highly supportive ecosystem with numerous accelerators, incubators, and government-backed networking opportunities. The UK, particularly London, offers strong financial support and incentives, notably through its Enterprise Investment Scheme, which provides tax relief for UK investors investing in domestic startups, offsetting some of the investment risks and actively attracting startups to the UK³.

Despite Germany’s weaknesses in these areas, many fintechs have successfully navigated this landscape. Raisin, which provides digital savings and investment products in Europe and the USA, and N26, offering retail-banking solutions to customers, are just two examples. Germany remains a very lucrative market with a wealthy customer base and the highest number of banks and savings institutions, offering numerous business opportunities for tech-driven startups supported by strong government incentives. The German government has launched a series of successful programmes and initiatives, such as the de:hub digital ecosystems initiative, which fosters partnerships by connecting SMEs and corporations with the newest innovators from the science and startup scenes. Additionally, the €10 billion Startup Fund from the BMWK (Federal Ministry for Economic Affairs and Climate Action) will be increased to €30 billion by the end of this decade. With two-thirds of venture capital investments coming from abroad, the WIN initiative, currently in development, aims to attract institutional investors to Germany, enhancing the funding environment for domestic startups⁴. There are also numerous regional funding programmes, such as the one from the IBB (Investment Bank Berlin).

The German financial services sector has also been very open to collaborations with fintechs. Recent examples include UniCredit’s acquisition of Banxware, Raisin’s acquisition of its own bank in Frankfurt, and Bitpanda’s partnerships with Deutsche Bank and N26.

The German government is already addressing certain weaknesses, such as the attractiveness of Germany for institutional investors; however, reducing bureaucracy itself is a harder nut to crack. While establishing a digital and streamlined public administration is much easier to implement for a small country like Estonia, it wouldn’t necessarily work for an industrial giant like Germany with its 16 states. Realistically, you can’t change German bureaucracy overnight, which is rooted in the Prussian empire and reinforced by German culture that values order, precision, and thoroughness. To make Germany more attractive for existing and new founders, we need to work on solutions that bring noticeable changes within the coming years. While bureaucracy has advantages, such as fighting corruption, establishing the rule of law, and enabling strong social policies, it doesn’t have to make starting and running a business more complicated. The burden of bureaucracy often stems not just from the actions required to comply with regulations but from the complexity of understanding what is required in the first place. This includes researching applicable laws, deciphering guidelines, and ensuring that all paperwork and processes are completed correctly.

By establishing public-private innovation hubs that provide clear guidance and decipher bureaucratic language, we can make Germany significantly more accessible, especially to non-German founders. Services could range from consulting in German and English, providing tools to digitally collect necessary information, and liaising with public institutions to make processes more efficient. That’s why we at the BFI have been working with private and public stakeholders to establish the House of Finance & Tech Berlin, which will officially launch next month. Stay tuned as we reveal more about HoFT.Berlin in our next newsletter in October!