Frankfurt Main Finance

Frankfurt Main Finance e.V. continues to grow and extends its executive board

The Financial Centre initiative Frankfurt Main Finance e.V. continues to grow in 2018. With Reinvent Law GmbH, Fincite GmbH and Accelerator Frankfurt GmbH joining, the initiative gained three new members – raising the number of members to 54. Through their membership the representatives of public administration, science, the financial market and financial technology demonstrate their commitment to the Financial Centre Frankfurt, advocate for its national and international importance and actively take up current finance topics.

The executive committee appointed Andreas Glänzel as managing director with immediate effect to strengthen the executive board. Frankfurt Main Finance is thus reacting to the growing demand for information on the Financial Centre. The 53-year-old banker Glänzel has long-standing experience in the field of financial communication and previously held the position of marketing director at the Deutsche Bank corporation. As managing partner of NewMark Finanzkommunikation he currently supports companies in the field of digital communication. Moreover, he lectures students at the International School of Management on marketing and communication.

“The Financial Centre Frankfurt is on the rise. This is shown by the global demand for information on the Financial Centre Frankfurt and the growing number of our members.”, says Dr. Lutz Raettig, President of Frankfurt Main Finance. “We are proudly welcoming Reinvent Law, Fincite and the Accelerator Frankfurt, who are each seizing the opportunity that digitalisation brings and are thus shaping the future. Andreas Glänzels appointment as managing director is a great addition that allows us to react to new challenges in several ways.”

The new member Reinvent Law GmbH was founded in December 2017 and offers its services as Legal Innovation Hub to law firms, corporate legal departments, legal tech companies and universities. They focus on testing new legal tech solutions live, using the knowledge of experienced entrepreneurs and developing new products in close collaboration with Reinvent employees.

The in April 2015 founded software company Fincite GmbH offers software solutions for digital asset & wealth management. Their platform Fincite.Core is the basis for robo advisory and other asset management products, which enable financial service providers to analyse, monitor and optimise existing portfolios as well as to implement dynamic saving plans – across multiple accounts and deposits. Fincite stands for a new, interconnected finance approach, which prioritises the end customers portfolio performance.

Founded in 2015, Accelerator Frankfurt is an independent accelerator that supports startups becoming ready to enter the German market by connecting them with partners, clients and investors. The startups complete a four-month go-to-market program during which they have access to a shared workspace, conference rooms and other services that are offered by partners. The program focuses on Fintech, RegTech, Cybersecurity, InsureTech, PropTech und Blockchain startups.

Frankfurt Main Finance grows: three new members pledge their support for Financial Centre

The Financial Centre initiative Frankfurt Main Finance is proud to welcome three new members. With the addition of SDG Investments GmbH, niiio finance group AG and Vendôme Associés, the initiative now has more than 50 members. The young companies niiio finance group and SDG Investments join as FinTech members, and Vendôme Associés as a sustaining member.

The association’s members are representatives from research institutes, the financial sector, public administration and the emerging FinTech sector. Through their membership and engagement, they all demonstrate their close relationship to Frankfurt and desire to position Frankfurt amongst the top national and international financial centres. Frankfurt Main Finance leverages the influence of its members to advocate for the Financial Centre Frankfurt and provide high-calibre dialogue platforms.

“We are delighted about the new members and their commitment to the Financial Centre Frankfurt,” say Dr. Lutz Raettig, President of Frankfurt Main Finance. “The growth strengthens the association and lends more power to our voice – a benefit for all members. In turn, we also provide fast, direct access to a prominent industry network.”

Since Brexit discussions began in 2016, Frankfurt Main Finance has been an in-demand conversation partner for the media, reaching more than eight billion potential contacts with its messages. Publications in 93 countries have either conducted interviews with representatives of the initiative or published statements and comments released by Frankfurt Main Finance. In addition to promoting the Financial Centre Frankfurt as a home for financial services affected by Brexit, Frankfurt Main Finance is also an outspoken advocate for the Frankfurt Rhine-Main Region’s emerging FinTech-ecosystem.

Founded in 1987, the new sustaining member Vendôme Associés specialises in the direct recruiting of leaders and experts as an independent HR and Executive Search Consultancy. Headquartered in Paris, they continue to strengthen their presence in Germany, opening a Frankfurt office in 2014. “We are thrilled to join Frankfurt Main Finance and to actively support the promotion of this future-oriented and promising city,” says Anne von Bredow, partner at Vendôme Associés. “We believe Frankfurt can attract even more talents from other European countries once people realize how much the city has to offer in terms of career possibilities, infrastructure and cultural life.”

Digital services for the digital future of banking – that is niiio finance group’s speciality. “Our goal is to position niiio finance group as a strong member of the FinTech Ecosystem in Germany’s leading financial centre and thanks to our membership in Frankfurt Main Finance, hopefully develop valuable synergies with cooperation partners,” says Johann Horch, CEO of the Niiio Finance Group. In addition to the robo-advisor, the young FinTech offers a community platform, API banking tools, tailored consulting and development services, and operating models.

SDG Investments operates a matching platform for financing and investment products based on the United Nations Sustainable Development Goals (SDGs). “We became aware of Frankfurt Main Finance through the SDG Fintech Initiative,” explains Frank Ackermann, director and managing partner at SDG Investments. “From our point of view, Frankfurt, as the most important financial centre in continental Europe, is the right location for our activities. Since we are aimed at institutional investors, we achieve the highest degree of efficiency here. We hope that we will find many supporters among the members of Frankfurt Main Finance.” Through the platform, registered professional and institutional investors will find sustainable investments that meet their individual investment criteria.

Costs of relocating Euro Clearing significantly lower than expected

  • Up to thirty-percent savings for asset managers if Euro Clearing moves to EU27
  • 100 billion USD costs estimated by London Stock Exchange found far too high
  • Maximum costs over five years to be around EUR 3.2 billion

Frankfurt am Main – The discussion on the effects of Brexit on Euro Clearing and its supervision continues to concern experts, practitioners and politicians. A working paper from Frankfurt based asset manager, Union Investment, indicates that relocating Euro Clearing to an EU27 financial centre would result in significant cost savings for asset managers. These savings should be realised in initial margin costs and clearing broker fees which currently account for approximately seventy-percent of the total clearing costs for asset managers. The paper explains that in the long term, the up to thirty-percent savings would compensate for any temporary additional costs caused by a wider bid-offer spread.

Another working paper by the Center for Financial Studies (CFS), an independent non-profit research institute at Frankfurt’s Goethe University, contests London Stock Exchange’s (LSE) estimate and other similar studies. According to the paper’s author and CFS Managing Director, Professor Dr. Volker Brühl, “Due to the fragmentation of the market there may be a temporary increase in costs. However, the costs of up to USD  100bn cited by LSE are not verifiable and are far too high. Basing an estimate on more realistic assumptions, the maximum costs over a period of five years are likely to be around EUR 3.2bn. This is before even accounting for the potential savings that asset management companies could make as a result of the relocation.”

Central counterparties (CCPs) and clearing houses are systemically relevant and critical components for maintaining global financial stability. Any crisis situation would likely require an injection of euro liquidity from the ECB and thus, these CCPs deserve to fall under ECB supervision. “The primary goal of any discussion on Euro Clearing must be protecting stability in European financial markets,” explains Hubertus Väth, Managing Director of Frankfurt Main Finance. “The exaggerated estimates stemming from London are neither constructive nor prudent. While decisions on Euro Clearing should not be made purely on a cost basis, the findings of CFS and Union Investment are reassuring. Should clearing relocate, the Financial Centre Frankfurt would be a competent alternative to London, especially with Deutsche Börse’s Eurex Clear.”

Currently, ninety-percent of euro-denominated OTC derivatives are cleared in London. Following Brexit, the calls to relocate Euro Clearing to a European financial centre under the ECB’s supervision, like Frankfurt, were reborn. In response, estimates from the London Stock Exchange pointed to a cost increase of more than 100 billion USD if clearing were to leave London.

The study from the Center for Financial Studies can be downloaded here.

The study from Union Investment can be downloaded here.

 

The Financial Centres Frankfurt and Astana intend to work more closely together

Frankfurt Main Finance e.V. (FMF) and the Astana International Financial Centre (AIFC) from Kazakhstan signed a Memorandum of Understanding (MoU) on cooperation between the two financial hubs on Friday, 17.11.2017.

The AIFC Governor Kairat Kelimbetov and Dr. Lutz Raettig, President of Frankfurt Main Finance signed the MoU agreement on the premises of the company Economic Development Frankfurt in the presence of the Kazakh Ambassador Bolat Nussupov, City Councillor Markus Frank, Managing Director of Frankfurt Economic Development Oliver Schwebel, and Hubertus Väth, Managing Director of FMF.

An AIFC delegation visited Frankfurt am Main last week. In addition to holding several meetings with Frankfurt Main Finance and FMF members such as German banks, the delegation attended the Astana International Financial Centre Forum within the framework of the Euro Finance Week, where Kairat Kelimbetov and his team presented their extensive plans for the years ahead.

“Astana is a young and ambitious financial centre, with which we have enjoyed a close and friendly relationship for many years,” as Frankfurt Main Finance President Dr. Lutz Raettig described the links to the Kazakh financial centre.

Hubertus Väth sees great potential in the new agreement that has been reached: “There are many different opportunities for collaboration in the fields of infrastructure, training, or internal and external financial centre marketing.”

Frankfurt and Astana will be implementing their joint plans over the next few weeks and months and will thus be making a contribution together towards strengthening their respective financial centres.

Deutsches Aktieninstitut presents its second Brexit position paper and claims: Transitional arrangements now!

The Deutsches Aktieninstitut (DAI) presents its second position paper. The paper on the exit negotiations between the European Union and the United Kingdom complements the first position paper from February 2017 and covers further relevant topics, e.g. clearing, benchmark and rating. In the light of proceeding negotiations, the position paper claims to find transitional arrangements that prevent Europe from a Cliff Edge Scenario.

Under the slogan “Exit negotiations between the European Union and the United Kingdom: Minimise Brexit risks and strengthen the European capital market”, the analyses of financial and capital market legislation and concrete examples from practice, illustrate which topics deserve particular attention due to their significance for business and society in connection with the Brexit negotiations.

No deal is the worst deal for all parties affected

“The United Kingdom’s departure from the European Union will have considerable consequences for the European economy and society”, Dr. Christine Bortenschläger, Chief Executive of DAI mentions in the paper, “It is not yet possible to predict how those will look like in detail since the outcome of the ongoing negotiations between the United Kingdom and the European Union is still completely open. This means that companies are losing valuable time they need to adjust to the new situation.”

Risk and consequences of a hard Brexit can be reduced with transitional arrangements

The third country regimes in financial -and capital markets law won’t serve as a sufficient basis to regulate the relations between the 27 EU-states and the United Kingdom, as the second position paper shows. Therefore, the European Union needs a new and broad trading agreement that complements first transitional arrangements. “Transitional arrangements are of decisive importance to buy more negotiating time, enable businesses to prepare for the new situation, and avert a no-deal scenario”, is one of the first position paper sentences.

Frankfurt Office Market heats up as banks firm up Brexit relocation plans

Analysis from leading real estate firms and investors shows demand and prime-rents in the Financial Centre Frankfurt reach record highs, while the vacancy rate steadily declines to its lowest point in years. Nearly sixteen months after the Brexit referendum, developments in the Frankfurt Office Market clearly reflect Frankfurt’s popularity amongst banks leaving the United Kingdom. As an estimated 10,000 jobs relocate to Frankfurt over the next four years, numerous construction projects will help to meet high demand for premium office space.

Increased demand in the market has driven investor confidence and analysts report a notable increase in transaction volume in comparison to 2016. Additionally, Frankfurt has also seen larger deals exceeding 10,000 square meters as firms seek larger, contiguous office space to accommodate their expanding operations and personnel. Despite increases in demand and prime-rents, the Financial Centre Frankfurt remains competitively priced relative to other European financial centres.

These developments are discussed in detail by the branch heads Frankfurt Main Finance member BNP Paribas Real Estate, José Martinez and Oliver Barth. Additional observations and perspectives are given by real estate experts from KGAL, Savills Investment Management, and Jones Lang LaSalle (JLL).

Download the Press Release as a PDF here

José Martinez and Oliver Barth, Managing Directors and Frankfurt Branch Heads of BNP Paribas Real Estate

The Frankfurt office market is continuing to expand rapidly. With a take-up of 477,000 square metres, it achieved its best result of the last 15 years. This outstanding performance puts the city third behind Berlin and Munich. Remarkably, demand is spread relatively evenly across all size classes and market segments, thus testifying to the broad basis for this demand. On a particularly encouraging note, several large-scale deals in excess of 10,000 square metres emerged again at last. After the shortage of the last few years, they are currently accounting for 20% of total volumes. One of the largest contracts (around 27,500 square metres) was signed by Helaba in Kaiserlei.

Supply is keeping pace with the robust demand of the last two years. Currently, 1.51 million square metres of office space are vacant, down 10% on the third quarter of 2016. However, only around half of this floor space, namely 749,000 square metres, exhibits the high-quality modern fittings being sought by tenants. At 9.8%, the vacancy rate across the entire market has now dipped below the 10% threshold. At this stage,

the extent to which Brexit leaves traces on future trends in the Frankfurt commercial real estate market still remains to be seen. The fact is that, although Brexit is being felt on the Frankfurt market, it is not a dominating factor. BNP Paribas Real Estate is in initial, good and promising talks with potential relocators. The fact that something is going on is also reflected in the deals by Morgan Stanley and Goldman Sachs that have secured substantial floor space in Frankfurt. If all current inquiries in the market coincide with signings by Brexit banks, this could theoretically cause a bottleneck situation in the Frankfurt CBD, where currently only 120,000 square metres of modern office space are available. In fact, in the banking district, only about 66,000 square metres are vacant. An estimated 150,000 square metres are required for the 10,000 employees expected to additionally come to Frankfurt. However, on the basis of total vacancies, Frankfurt would not experience any problem offering suitable office space if push comes to shove, although not all of this would be in the CBD. The situation will be eased by a number of attractive development projects that are currently under construction such as WINX, Omniturm and Marienturm, which will be completed in time in 2018/2019 and still have vacancies.

At this stage, all signs are pointing to continued brisk demand until the end of the year. Accordingly, total take-up for the year as a whole should come to between 750,000 and 800,000 square metres, resulting in one of the best years ever. Simultaneously, we expect vacancy rates to continue shrinking, meaning that rents will probably rise to some degree.

Gert Waltenbauer, CEO of KGAL

Frankfurt can strengthen its post-Brexit role as a leading financial centre and additionally enhance its appeal, as the decision made by a number of London banks to base their EU headquarters in Frankfurt shows. The airport is conveniently located near the city centre and is a genuine Frankfurt asset, the importance of which will continuously increase with growth in trade and European integration. Office buildings in Frankfurt in particular are rising substantially in value as a result. However, what we are also noting is that residential quality has improved in Frankfurt over the last few years and this is having a corresponding effect on the intrinsic value of residential real estate.

Andreas Trumpp, Savills Investment Management

From our point of view, Frankfurt offers a wide range of affordable office space both in the CBD and in B locations and could effortlessly absorb a further 10,000 office workers. The inflow could only be limited by the lack of available housing. In any case, the retail and food sectors would profit from the influx of well-payed bankers. As one of the world’s major financial centres, Frankfurt boasts outstanding accessibility, i.e. an airport which is close to the city and superbly integrated in the public transport system as well as the short routes within the city and the entire region. The local companies, political and research institutions attract highly qualified specialists from all around the world, thus contributing to diversity in the city.

Markus Kullman, Associate Director Office Leasing Frankfurt am Main, JLL

Brexit has reached Frankfurt. Preliminary signings have been completed over the last few weeks.

JLL is in constant close contact with a very large number of companies that expect Brexit to impact some of their business segments. Service providers addressing the financial sector are also exploring the market for suitable floor space. However, the Frankfurt office real estate market is not an unknown quantity for most potential tenants as they already have at least a small representative office in the city.

In addition to an available selection of potential high-quality alternative spaces, they especially appreciate the excellent infrastructure, for example the airport.

After already becoming evident last year, one fact has been confirmed in our recent talks, namely that it is not a question of a full-scale relocation of a large number of jobs from London to Frankfurt but of incrementally building up the necessary capacity. And in the most important cities of Europe. Apart from Frankfurt, Paris, Amsterdam, Dublin and Luxembourg also play a role. We expect around 100,000 square metres of office space to be absorbed above and beyond customary market demand in the wake of Brexit.

True, there are some signs of a shortage of floor space in some parts of Frankfurt. For example, we can only offer a small selection of legacy properties in the traditional banking region. This particularly applies to high-quality contiguous floor space of more than 5,000 square metres. That said, the large number of new construction projects, such as OmniTurm, MarienTurm and the Four project at the former Deutsche Bank site, will push more than 250,000 square metres of new office space onto the market between 2019 and 2022. Accordingly, we do not expect the recent rise in demand to trigger any massive increase in prices in the Frankfurt market in the medium term. At the moment, the top rent is at EUR 37.50/m²/month, the highest among the Big 7 and at a vacancy rate of 8.2%, also the highest among the German real estate hubs. However, in the areas where the focus of the companies in question is located, it is significantly less. Depending on submarket and quality, it may currently only be 4-6%.

Hubertus Väth, Geschäftsführer, Frankfurt Main Finance e.V.

The availability of commercial real estate is the least of Frankfurt’s concerns. Over a period of 5 years, 250,000 square metres of new office space will be created in several new high-rise buildings. Currently, 19 buildings are under construction and 26 in the planning phase in Frankfurt. As it was, there was already need for action in the residential market. Now conditions have worsened. The situation with respect to micro-apartments for commuters and high-rise living is better than with affordable housing for the mass of interested parties. However, the problem is known and there is still some lead time. Accordingly, it should be manageable with combined forces.

The Financial Centre Frankfurt is in the pole position to win banking business from London following the results of the UK’s referendum. Noted for its strong economic and political stability, Frankfurt and the region offer a top infrastructure, a deep talent pool and an extremely high quality of life. Financial services moving to Frankfurt will find a competent, helpful and welcoming regulator in BaFin, who will accept large portions of applications in English. The Financial Centre is already home to more than 150 foreign banks and 75,000 people employed in financial services.

Download the Press Release as a PDF here

Six new members join financial centre initiative Frankfurt Main Finance

The financial centre initiative Frankfurt Main Finance e.V. continues to grow. Bain & Company, Deutscher Fachverlag, Skubch & Company and Oliver Wyman join the ranks of supporting members. Two start-up companies, Compendor and Raisin, have joined the initiative as new FinTech members.

With their membership, representatives from public administration, research institutes, the financial market and financial technology express their commitment to the Financial Centre Frankfurt and their dedication to furthering its national and international significance as well as actively reflecting on matters of current interest to the financial services industry.

The initiative is an especially sought-after conversation partner for Brexit-related matters. Since discussions concerning the United Kingdom’s withdrawal from the European Union began in April 2016, Frankfurt Main Finance has reached more than eight billion potential contacts with its messages. Over 1,700 different media in 93 countries have either conducted interviews with representatives of the initiative or published statements and comments released by Frankfurt Main Finance.

“The initiative has been able to convey Frankfurt’s function as a bridge linking the London financial markets with the European Union as an important message internationally,” says Dr. Lutz Raettig, chairman of Frankfurt Main Finance. “Frankfurt Main Finance’s communications highlight the numerous benefits which make the Financial Centre Frankfurt the destination of choice for many financial services companies moving parts of their business out of London.”

At the general meeting, Dr. Raettig thanked Frankfurt Main Finance’s many members and supporters for their commitment and welcomed the new board members. Moving forward, Frank Westhoff will represent the Frankfurt Institute for Risk Management and Regulation on the initiative’s board in lieu of Wolfgang Hartmann. Nick Jue succeeds Roland Boekhout as the representative of ING DiBa. Gerhard Wiesheu will represent Bankhaus Metzler in place of Johannes Reich. Dr. Cornelius Riese will replace Lars Hille as DZ Bank’s representative.

“By assigning their board members, our regular members highlight the significance of the work performed by Frankfurt Main Finance for the Financial Centre. We are thrilled by the great commitment shown by all parties involved who support us with Brexit-related matters as well as the city’s development as a FinTech hub and a renminbi centre,” says Dr. Lutz Raettig.

Baker McKenzie, GFT and Interxion AG will leave the initiative at the end of the year. Accordingly, the association has nearly 50 members engaged in supporting the Financial Centre Frankfurt.

CFS Index: Service providers expecting huge revenue growth in fourth quarter

Service providers expecting huge revenue growth in fourth quarter, despite a previous sharp decline. Job cuts at financial institutions on the rise again

CFS Index rises by 2.5 points; considerable movement at sub-index level

The CFS Index, which measures the business climate of the German financial sector on a quarterly basis, rises by 2.5 points to 114.1 points. The positive development can be primarily attributed to the unusually high revenue expectations of the service providers for the fourth quarter. In addition, the financial institutions report that their revenues, earnings and investments have developed positively in the third quarter, while the service providers record declining growth in these areas. Employee numbers are also on a downward trend. Following a brief pause in the second quarter, the financial institutions step up their job cuts again and the service providers limit their recruitment.

“For the banks there are recognizable signs of improved productivity; reducing costs is the first priority here, and the service providers are feeling the effects,” Professor Jan Pieter Krahnen, Director of the Center for Financial Studies, interprets the results.

The future international importance of the Financial Centre Germany is rated even more positively than immediately after the Brexit vote a year ago

Since the Brexit vote, the future international importance of the Financial Centre Germany has been rated very positively. In the fourth quarter of 2017 the corresponding sub-index falls by 3.2 points to 135.5 points, which is just under the historic high reached in the last quarter.

Hubertus Väth, Managing Director of Frankfurt Main Finance e.V., points out: “The results of the survey show very clearly that the increasingly positive expectations for the Financial Centre Frankfurt run counter to the uneasy atmosphere within the German financial industry as a whole. In this respect, there is a rare unanimity among the market participants.”

Revenue and earnings growth positive among the financial institutions and declining among the service providers

There are contrasting developments in the growth in revenues/business volume among the surveyed financial institutions and service providers. The financial institutions report a clear increase of 5.1 points to 111.5 points and expect this trend to continue in the current quarter. Meanwhile, the service providers report a strong decline in the growth of their business volume, though not as drastic as they had predicted in the last quarter. The corresponding sub-index falls by 7.3 points to 117.2 points. However, the service providers are anticipating a huge increase in revenues in the current quarter.

The earnings figures also reveal contrasting trends. For the financial institutions, this sub-index rises by 2 points to 107.4 points. The service providers, on the other hand, record a sharp decline of 12 points. Their earnings sub-index now stands at 106.7 points, which is its lowest level in five years, though the service providers are significantly more optimistic about the current quarter.

Service providers’ investment volume takes a downturn following previous high

Having reached its highest level since the survey began in 2007 in the last quarter, the investment volume sub-index for the service providers now falls by 6.9 points to 116.7 points, thus returning to the level of the previous quarters. By contrast, the corresponding sub-index for the financial institutions gains 2.3 points to reach 118.9 points. Both groups expect to retain this level in the current quarter.

Job cuts at financial institutions on the rise again

After being curtailed in the last two quarters, job cuts at the financial institutions are being stepped up again. The employee numbers sub-index falls by 3.7 points to 95.3 points. Even among the service providers, the trend to recruit new employees has diminished. The corresponding sub-index falls by 5.3 points to 113.3 points. Both groups expect this downward trend to persist in the fourth quarter.

CFS survey: Financial industry believes bubbles are likely to form on the European financial markets

Financial industry believes bubbles are likely to form on the European financial markets due to QE measures and the ECB’s zero interest rate policy. Rapid departure from expansive monetary policy is favored, yet not expected. This is cause for alarm.

According to a recent survey by the Center for Financial Studies, there is firm agreement within the German financial industry (92%) that bubbles have formed or will form on the European financial markets (e.g. stock markets, real estate markets) due to the ECB’s expansive monetary policy if this strategy is maintained.

Since 2015 the European Central Bank (ECB) has pursued a policy of quantitative easing (QE). In addition, the key interest rate of the eurozone, which is the main refinancing rate paid by banks when they borrow from the ECB, has been kept at zero since March 2016. Aside from the feared negative impacts, opinions in the financial industry are split as to whether these measures have brought about the desired results in terms of increasing the rate of inflation and boosting economic growth. Half the survey respondents (49%) regard the ECB’s expansive monetary policy as partially effective, whereas 38% believe the stated goals have not been reached. Just 12% of the respondents regard the expansive monetary policy as clearly effective.

“The survey illustrates the scepticism of market participants about the effectiveness of the ECB’s monetary policy strategy. In particular, the ECB should take the concern about bubbles forming in particular asset classes very seriously,” Professor Volker Brühl, Managing Director of the Center for Financial Studies, interprets the survey results. “A further cause for alarm is the prevailing opinion of market participants that a departure from the expansive monetary policy is called for, yet not expected. This could mean the markets will be caught wrong-footed if the ECB, contrary to market expectations, does initiate a change of direction. It is crucial that the ECB communicates its intentions clearly and in good time,” Professor Brühl adds.

On 26 October 2017 Mario Draghi will announce the next key interest rate decision that will determine the future direction of ECB monetary policy for 2018. The majority of the financial industry (78%) favors a decision to rapidly depart from the expansive monetary policy (by Q1 2018 at the latest). However, hardly any of the respondents (2%) anticipate this outcome.

“The disparity between the desire for an exit from the expansive monetary policy and the low expectation that this wish will be fulfilled is, in itself, a clear warning signal. Real market prices have now been lacking for a considerable period of time,” says Dr. Lutz Raettig, Executive Chairman of Frankfurt Main Finance e.V., commenting on the survey results.

FinTech location Germany set for growth

Germany’s segment of emerging technology companies operating in the financial services sector (FinTech) is increasingly successful in establishing itself as a dynamic and diversified cluster on its own steam. This is one of the key findings of the recent study “Germany FinTech Landscape” carried out by auditing and consultancy company EY which, together with Frankfurt Main Finance, analysed the German FinTech sector and outlined additional opportunities for its promotion. According to the study, there is a clearly discernible trend among financial institutions to respond more vigorously to the challenge posed by the products and services offered by FinTech companies. The majority of the ten biggest banks are today investing in and/or cooperating with FinTechs. The study also shows that the business models of the FinTechs are becoming more mature, and that the companies are entering the next development phase, e.g., through cooperative ventures with each other, in order to strengthen their market position sustainably.

In the first half of the year, the number of FinTech companies in Germany rose by five per cent year-on-year to 295 (2016: 280). The inflow of capital had already reached 307 million euros in the first half of the year, whereas the FinTech companies in Germany collected 400 million euros for the full year 2016. The number of deals also went up, as did the average size of the deals, rising slightly from 7 million to 7.3 million euros.

While absolute growth rates may have levelled off slightly, consistent positive momentum persists for all key metrics. This showed that the FinTech landscape in Germany continued to be on an encouraging path, said Jan-Erik Behrens, co-author and partner at EY: “The trend we are observing here in Germany is headed for another record year, and it impressively demonstrates the innovative power of Germany as a location, with differing regional strengths.”

FinTech sector shifts focus, with business models gaining maturity

The German FinTechs are increasingly moving in on the core functions of the financial services providers. This applies, for example, to payment systems via the Internet or mobile devices (Payments), loans (Lending), but also to offerings for the property sector (PropTech), the insurance industry (InsurTech), the investment sector (InvesTech) and electronic marketplaces (Financial eMarketplaces & Aggregators). Approximately 67 per cent of the new FinTechs come from these core segments, 33 percent are start-ups in the field of Enabling FinTechs, which includes financial and process control software (Processes & Technology), financial data analysis and regulatory management services (RegTech).

The study reveals that there has been a shift in FinTech activities. The segments that had been strong growth drivers in recent years were InvesTech, Financing & Funding and InsurTech. In the first half of 2017, however, there was a very high level of activity in the PropTech area, which is probably due in part to the robust real estate market in Germany, as the study assumes.

Berlin and Rhine-Main-Neckar are the leading FinTech locations in Germany

The regions of Berlin and Rhine-Main-Neckar in particular are consolidating their status as FinTech hotspots within Germany: Berlin currently boasts 80 FinTech companies, while 72 corporations are active in the Rhine-Main-Neckar region. Munich, the third-ranked FinTech location in Germany, is a distant third, with 45 FinTechs based in the Bavarian capital.

The study confirms that the Rhine-Main-Neckar region, led by Frankfurt, is making significant progress towards establishing itself as the leading destination for settlement of FinTechs. The study identifies the special strengths of the Rhine-Main-Neckar region as being events & networks, as well as in infrastructure. Numerous incubators, accelerators, investor meetings and networking initiatives have been initiated and launched successfully. However, the region still has further potential for growth in terms of image and financing opportunities. “International investors continue to focus on London or Berlin,” Behrens notes. “For this reason, the FinTech community needs to work on its international visibility, so as to attract foreign investors as well.”

Amongst the trends that will influence the development of FinTech in the future, the study suggests that Brexit –the UK’s exit from the European Union (EU) –is likely to enhance the appeal of GermanFinTech centres. Like many financial institutions that have already decided to relocate business units from London to the EU, and especially to Frankfurt, FinTech companies are likely to follow suit.

“Frankfurt’s strong appeal to banks makes the region even more interesting for FinTechs,” says Hubertus Väth, managing director of Frankfurt Main Finance. “The EU’s leading financial centre is well placed to attract FinTechs and become a leading location for young, innovative and agile companies. It is a matter of further enhancing the location’s appeal to FinTechs. Frankfurt and the Rhine-Main-Neckar region are facing global competition, and for the foreseeable future London is likely to remain the benchmark in Europe against which company founders will judge us. In particular, we still need to improve in terms of our openness to cooperation with company founders, the social acceptance of failure and subsequent new starts, and the tax treatment of venture capital losses sustained.”

Financial institutions becoming increasingly active in the FinTech segment

The growing presence of FinTechs in the financial sector has prompted banks and other financial institutions to launch various initiatives in an effort to respond to the challenge posed by FinTechs. Nine of the ten largest banks in Germany have already entered into co-operative ventures with FinTech companies; some of them have invested in FinTechs themselves, such as Commerzbank via its investment vehicles Commerz Ventures and Mainincubator, or Deutsche Börse via db1 Ventures. “The banks are closely monitoring the FinTech companies and their solutions – they cooperate with the start-ups and in some cases invest in them directly. However, they still have some catching up to do in the development of their own innovative solutions and products,” observes Christopher Schmitz, co-author and partner at EY. The banks’ current initiatives are still isolated and largely uncoordinated responses to the FinTech challenge. An extensive range of services on a digital platform, where both own products and those of external service providers are offered, would be an appropriate response to FinTechs – banks are working on it, but as yet there has been little by way of tangible added value for customers.” Such digital ecosystems could also be created in co-operation with FinTechs. The DZ BANK Group’s travel bank, with its Bankomo Smartphone Banking product, is in the process of establishing such an ecosystem.

FinTechs cooperating with FinTechs

While financial institutions are still busy working on finding an appropriate response to the FinTech challenge, more and more FinTechs are expanding outside their core market segment, Schmitz observes. In doing so, they are increasingly relying on partnerships with other FinTechs. It is also noteworthy that the more mature FinTechs are already attempting to build their own ecosystems around their core product portfolios. This can be clearly seen in examples such as N26, which have rapidly expanded their range of services by co-operating with other FinTechs. The PSD2, which will be establishing access for third parties to payment accounts from 2018 onwards, in combination with the expected further opening-up within the framework of “open banking” efforts, is paving the way for the digital platform economy in the financial services sector. Competition with established financial institutions will therefore intensify, according to Christopher Schmitz: “Financial institutions should now consider strategies that will be appropriate to the competitive environment and establish their digital ecosystems with recognisable added value for customers, in cooperation with innovative players.”

The study is available as a pdf document here.