On 29 September, the FinTech Germany Awards 2021 will be presented – for the first time in Stuttgart and not in Frankfurt as usual ! We asked Gerhard Wiesheu, President of Frankfurt Main Finance and Board Member at Bankhaus Metzler, Michael Mellinghoff, Managing Director of Techfluence UK and Franz Công Bùi, Head of Online Editorial at Börsen-Zeitung, about the role of location for a FinTech in a digital world and where the FinTech Germany Award will continue its journey through Germany in the coming years.
Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich, Stuttgart – Germany offers several attractive locations for FinTechs. What makes these cities sought-after hubs for FinTechs?
Michael Mellinghoff |Start-ups are often founded where the founder lives, so it is not surprising that in decentrally structured Germany without a dominant metropolis like London for England, Paris for France or Vienna for Austria, the larger urban centres are developing into start-up hubs. But please don’t forget the many many start-ups that are not located in the metropolitan areas. In the past years since 2016, we have received many great applications at the FTGA that did not come from aforementioned metropolitan areas. Good ideas can come from anywhere.
Gerhard Wiesheu | The Brexit also caused movement, as many London FinTechs have relocated their headquarters to Frankfurt, Berlin or Munich, among other places. The choice of these companies in favour of Germany as a business location is favoured by many factors: These include for example, favourable financing conditions, human capital, versatile training opportunities, liveable cities and a good infrastructure. The locations in Germany offer all of these.
Franz Công Bùi | It is well known, that aforementioned metropolitan areas offer a large number of potential employees who expect greater upward mobility from a city, but also a variety of offers for the work-life balance. Then there are logistical and technological advantages, and there are often already existing ecosystems, which makes networking with others and positioning one’s own offering much easier. In addition, there is often a certain density of potential customers and cooperation partners, and in some places a proximity to regulatory authorities or other institutions relevant to the business.
Short List 2021
What role does the choice of location play for FinTechs? In a digital world, does it matter where the official company headquarters are?
Michael Mellinghoff | It’s true that you can initially have the legal company headquarters in another location, but founders need their team within shouting distance, especially in the early stages. It is not for nothing that people say that in start-up investments – especially in the early phase, the team is the be-all and end-all as long as the business model has not yet proven itself on the market. In times of this pandemic, it has been an additional challenge for young teams, mostly successful founders and founding teams are characterised by a special ability to adapt.
Gerhard Wiesheu | Although the majority of entrepreneurial activities take place digitally, especially in times of a pandemic, one should not underestimate the choice of location – because employees have to live somewhere. The “soft factors” of a company’s location, such as lifestyle, openness, internationality, culture, nature, infrastructure, health, safety and housing, are more than just the icing on the cake in the location competition: they determine whether employees and their families feel comfortable – and Germany can absolutely score points with this.
Many companies are suffering from the restrictions of the pandemic, some are benefiting from the situation, because it is a catalyst for a long overdue for digitalisation. To what extent will these developments leave lasting changes in the financial sector after the pandemic is over and FinTechs remain at the centre of attention?
Gerhard Wiesheu | FinTechs are now a serious competitor for classic banks, because they can offer their services to customers without detours. According to a study by the consulting firm PwC, almost 40 % of all European bank branches could close by 2023 to compensate for profit losses. At the same time, many are missing the leap to digitalisation – accordingly their market share in digital offers for their customers is low. FinTechs are filling this market gap, even if their profits and market shares are currently still lower than those of traditional banks. However, the financing rounds of German FinTechs in recent months prove that the FinTech industry has great growth potential and is driving digital innovations within the financial sector. The interest of traditional banks in cooperation opportunities is correspondingly high.
Franz Công Bùi | Currently, it can be observed that some FinTechs are merging, acquiring each other or being taken over by established financial service providers. The same applies to many acting persons, as there have also been many changes from FinTechs to, for example banks. It will be interesting to see whether there are enough new FinTechs and founders to fill the arising gaps. This also depends on the framework conditions for start-ups, where there is still some room for improvement.
Michael Mellinghoff | The pandemic acts like a fire accelerator on all business models that profit directly or indirectly from the change in people’s lives, caused by the pandemic. The study results mentioned by Mr Wiesheu are therefore understandable: If many customers are not allowed to visit a bank branch, are unable to or want to for precautionary reasons, bank management will (have to) quickly ask themselves whether this expensive investment is still worthwhile, if the large mass of customers are able and willing to bank online anyway. A good example are the online brokers, who were literally overrun by the trading storm of the new stock market players sitting at home.
How sustainable the newly achieved turnover levels in the individual FinTech sectors will be depends on the sector and is of course company-specific. What is clear is that the change in lifestyle – otherwise a rather long-term process – has happened or had to happen virtually overnight.
Germany is an attractive location for foreign FinTechs. It is not for nothing that the FinTech Germany Award presents the award “Best Foreign Entrant to Germany”. To what extent do pandemic restrictions have an impact on cross-border activities in the FinTech sector?
Michael Mellinghoff | We introduced the award for foreign FinTech start-ups in Germany at the FTGA a few years ago, because the German market is also appealingly large from an international perspective and thus attractive as a service market. However, a large market also has disadvantages: It sometimes makes market participants sluggish. In smaller markets, we sometimes observe innovative business models earlier than in Germany. So the award for foreign start-ups also has something to do with international competition monitoring and promotion.
Gerhard Wiesheu | The FinTech sector is clearly one of the few winners of the Corona pandemic, as the digitalisation of financial services – and also in many other areas of life – has accelerated immensely and thus boosted the FinTechs’ business model. The global lockdown restrictions have shifted large parts of economic and private life into the digital space: while international supply chains have stalled or come to a complete standstill, the digital ecosystem continues unabated. At the same time, FinTechs have used the time to position themselves more broadly and internationally through cooperations with classic banks.
Franz Công Bùi | There were certainly expansion plans of some FinTechs that were put on hold for the time being during the pandemic. But at the end of the day, I did not notice a real slowdown in the efforts to penetrate the markets of other countries on a broad scale. In some cases, some start-ups have even emphasised the need to expand abroad in order to generate growth.
What challenges and opportunities does the German FinTech ecosystem currently face?
Gerhard Wiesheu | Good conditions must be created for the foundation and growth of FinTechs: For example, Frankfurt has taken many right steps in building the digital ecosystem. Alongside Berlin, Frankfurt has become a funding cluster for FinTechs. Important foundations have been laid with accelerators and incubators, the SDG FinTech Initiative for Sustainability, the Techquartier and the FinTechGermany Award. It is important that the financial industry supports German FinTechs in making the leap to internationality. At the same time, Germany must be a good place for international FinTechs to enter the market. It cannot only be thought of nationally, it’s always embedded in an international context.
Michael Mellinghoff | For the first time in history, the internet enables something like global monopolies. Country-specific regulation prevents this to a certain extent in the FinTech segment, but the trend of the path is marked out, see Paypal for example. Unfortunately, there is a high probability that a global monopolist or a quasi-monopolist will not come from the EU. This prospect should actually unite the individual hubs in Germany and ultimately also fuel the collaboration between banks and FinTechs. A strong opponent unites. Who that will be and when in which segment is, in my view, the exciting question.
The FinTech Germany Award is travelling through Germany and will stop in Stuttgart this year. Can you already reveal where the golden tongs will be presented in the coming years?
Michael Mellinghoff | I hope that we can make guest appearances in all FinTech or InsurTech hubs in Germany in the coming years. Because the core of the FTGA is a wide-ranging jury of 24 members who come from many cities in Germany, and the start-up applications also come from all over the country.
Gerhard Wiesheu | Of course we are looking forward to this year’s award ceremony in Stuttgart, but we can already reveal this much: The next Fintech Germany Award will definitely be presented in Germany.
Cover photo: FinTech Germany Award
Short List Photo: Sebastian Staines/Unsplash