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Frankfurt FinTech

Frankfurt FinTech Report #3

The Frankfurt chapter of Startup Grind hosted their eighth event in the Financial Centre on Thursday, October 13, 2016. Startup Grind is a global community in which local chapters organise monthly events featuring successful local founders, educators and investors who share lessons learned on the road to building great companies. October’s event featured a fireside chat with Ivonne Arold, COO and Head of Funding at Peermatch, a Frankfurt FinTech company and Frankfurt Main Finance member. For 20 years, Ivonne Arold held management roles in the capital markets divisions of international investment banks. Despite her success working for traditional banks, she decided to transition to the Frankfurt FinTech scene and joined Peermatch in 2015. During the fireside chat, moderated by Startup Grind Frankfurt’s Director, Dr. Osman Sacarcelik, she described the differences between the start-up culture and life in a big bank. Arold explained that she did not miss the formality and glamour of the big bank and enjoys the balance found in the start-up environment.

Peermatch is a mortgage lending app allowing investors to directly invest in loans and receive risk-adjusted yields. There is always an underlying property value and borrowers enjoy low capital market rates. The platform was originally intended for institutional investors and commercial borrowers; however, Peermatch intends to roll out products for private borrowers and investors in October 2016. They hope to capture the digital affine segment on the retail lending side who prefer doing business online or have become dissatisfied with brick and mortar institutions. Arold explained that they think Peermatch will be able to attract these customers with the ease of the platform and competitive rates.

The company aims to handle as many processes on the app as possible. Peermatch’s proprietary Cryptographic Chat Search Engine which ensures the secrecy and privacy of all communications made over the app. Although creditworthiness is evaluated traditionally, customers’ first interactions are with a robot before being quickly transferred to the appropriate Peermatch representative.

On the commercial side, Arold explained that these customers would normally need a couple of partners to complete their financing; for example, a bank for a loan and other partners for mezzanine capital. The Peermatch system is designed to be a one-stop-shop for the borrowers and Peermatch will organize the different investors. According to Arold, the borrower just needs to complete the requisite credit paperwork and they will organize the rest. Investors so far include German insurance companies and pension funds looking for safe investments with positive interest rates. Family offices and UK investment funds have financed riskier parts of loans. Arold clarified that Peermatch differs from Asset Backed Securities in that investors are buying risk in individual loans, not bundled, tranched or packaged products.

The Future of Frankfurt FinTech

Peermatch recently became the first FinTech Member of Frankfurt Main Finance. This new membership is an important step in Frankfurt Main Finance’s efforts to advance and support FinTech in the region, currently home to nearly 60 FinTech companies. Arold was quick to emphasize the importance of developing a rich FinTech ecosystem in the Financial Centre. “We welcome every FinTech that settles here in Frankfurt. […] It is important to have other FinTechs around, to exchange and to work cooperatively together. Every FinTech has its one business area, so maybe in a couple years’ time it will be time to collaborate and find which pieces fit together.” Furthermore, according to Arold, Frankfurt’s Financial Centre and infrastructure “predestines it to become the leading FinTech hub in Germany or possibly Europe.”

Frankfurt FinTech Report #2

Catch up on recent goings on in the Frankfurt FinTech Scene with the FinTech Report!

FinTech Bachelor Kicks Off at Frankfurt School and FinTech Group AG

The first group of students in Europe’s first dual Bachelor degree “Digital Innovation and FinTech” have begun their studies. The study program was brought to life by Frankfurt School of Finance & Management and the FinTech Group AG. Currently, students are in an orientation module at FinTech Group AG. During this period, they work with a mentor who guides them through work in various departments and projects in order to gain different perspectives on the diverse FinTech landscape and applications.

New Membership for FinTechs

Frankfurt Main Finance has introduced a new membership level, FinTech Member. As part of their ongoing effort to promote the FinTech scene in the Financial Centre Frankfurt, FMF hopes that this new membership will help to bring promising start-ups from all across Germany closer together with the established finance community. The first FinTech Member is Peermatch Management GmbH. Read more about the new membership level here.

Between the Towers

On October 4, 2016, main incubator’s monthly event, Between the Towers, took place at the Goethe University. This month’s speakers and pitches focused on blockchain technology. The evening’s keynote, Dealing with Disruptive Technologies: A Blockchain Case Study, was delivered by Philipp Harrschar and Daniel Scheu of Zühlke Engineering. This was followed by a panel discussion moderated by Sven Koschinowski of KPMG, sponsors of the event, with Frank Brigge of Commerzbank, Burkhard Blechschmidt of Cognizant, Johann Horch of niiio, Dr. Matthias Terlau of Osborne Clarke and Philipp Harrscharr. Before networking and discussing the night’s presentations over cold beers, the audience enjoyed pitches from Quantoz, Berries, Diversifaktor and Blockchain Helix. Between the Towers is held on the first Tuesday of every month and is one of the most popular, well-attended FinTech events in Frankfurt.

Financial Centre Breakfast with François Villeroy de Galhau: Sustainable Monetary Policy ensures Economic Stability

On August 31, 2016, the Association of Foreign Banks in Germany and Frankfurt Main Finance hosted the seventh edition of their successful Finanzplatz Frühstück (Financial Centre Breakfast) event series. More than eighty entrepreneurs and representatives of the financial sector, were in attendance to hear François Villeroy de Galhau, Gouverneur of the Banque de France, speak on the topic “European Growth – Challenges in uncertain Times.” Welcoming the audience, Dr. Oliver Wagner, Managing Director of the Association of Foreign Banks in Germany, stressed the importance of foreign banks as a critical economic factor for Frankfurt. “Foreign banks assume responsibility for the local economy and recognize the German Financial Centre as the core market in Europe.”

Villeroy de Galhau wasted no time delving into the current state of monetary policy within the EU and how to ensure sustainable growth. Stressing the importance of investment for growth, especially amongst SMEs, he expressed the need for the Capital Markets Union and the movement of risk and capital across borders. He also weighed in on the ECB’s current strategy of negative interest rates, which has been openly criticized by several German bankers. He described the strategy as a crucial instrument in fighting deflation, which he explained would be more damaging than the negative rates. Villeroy de Galhau continued, stating “Negative interest rates are useful but they are just one among many instruments and have their limits. This is why we have to stick to the current monetary policy. And yes, we’re doing so sustainably.” He did, however, reject the notion of the ECB providing helicopter money directly to consumers.

France and Germany are the major drivers of growth in the Union and, according to the Villeroy de Galhau, still have untapped opportunities to ensure sustainable growth for the future. One proposal highlighted in his address would be a so-to-say Erasmus Pro programme which would offer young people the opportunity to gain vocational training outside of their home country as well as provide them the European experience. Such a programme could be particularly useful for France and Germany. France has a demographic advantage in that they have many more young people than Germany, who boasts one of the best training and educational infrastructures in the world. Alleviating this deficit in skilled labour in both countries, and across the EU, would help to ensure sustainable growth for years to come.

Cooperation between France and Germany in the EU is critical for future growth and the success of the European Project. How does this look, however, in a Europe without the United Kingdom? Speculation is still the name of the game when it comes to Brexit, but Villeroy de Galhau did make it clear that they still want London to be at the centre of European Finance, but as Villeroy de Galhau stated, there will be “no free ride, and no cherry picking.” In other words, the UK must accept and abide by EU rules and regulations in order to gain access to European markets post-Brexit.

Frankfurt Main Finance’s Managing Director, Hubertus Väth, summarized the event, “Mr. Villeroy de Galhau encouraged German entrepreneurs to prepare to invest and take on risk. Only France and Germany can set European growth on an adequate track for growth.” Väth continued, stating, “Monetary policy can only be successful if the economy embraces monetary stimulus by accepting and making investments. In this case, trust plays a central role. Mr. Villeroy de Galhau’s contribution today in further developing this trust is not to be underestimated.”

Montagsgesellschaft – What does Brexit mean for Frankfurt?

Days before the EU referendum in the UK, Frankfurt’s Montagsgesellschaft (Monday Society) met to discuss the possible consequences of Brexit for Europe and the Financial Centre Frankfurt. Expert panellists, including Frankfurt Main Finance’s Managing Director Hubertus Väth, weighed in on possible outcomes. The overall mood at the Montagsgesellschaft was certainly that Brexit would be negative for the European Union and Europe, but could have certain positives for the Financial Centre Frankfurt.  Hubertus Väth explained after the event that, “We aren’t expecting nor do we want a Brexit to occur. Nevertheless, we will not waste a good crisis and are prepared to positively position the Financial Centre Frankfurt in the case it does.” Just four days later, all of Europe was shocked by the decision of UK citizens to leave the EU and trying to come to terms with the uncertainty that lay ahead.

On Monday, July 4, 2016, the Montagsgesellschaft convened again with the same panellists to further discuss the Brexit and its now more concrete consequences. During the last meeting, most were almost certain that a Brexit would not happen. However, the tone was quite different this week as most were only certain that Europe will face months if not years of uncertainty. The UK’s departure from the EU does, however, certainly mean that some financial institutions will need to reevaluate their London operations and very possibly relocate to another financial centre on the Continent. One example is the European Banking Authority, currently housed in London’s Canary Wharf. Hubertus Väth elaborated on this during the discussion, “Frankfurt is the natural choice for EBA’s relocation as the ECB and other bricks of the regulatory pillar are already here. EBA is one of the last missing pieces.” While this may only bring a few hundred jobs, it would also augment Frankfurt’s reputation as a regulatory hub, already being home to EIOPA, ESRB and BaFin.

Experts estimate that some 20,000 jobs could leave the Thames in for the Main. Quoting a recent study from the Boston Consulting Group, Väth explained that the Financial Centre Frankfurt actually ranks very highly amongst bank executives as an alternative to London. Amongst others, Frankfurt scores highly for economic and political stability, real estate costs, transportation infrastructure and the availability of a highly qualified workforce.

BaFin-Tech – Fintech caught between Regulation and Digitalisation

On June 28, 2016, Germany’s Federal Financial Supervisory Authority (BaFin) hosted a new conference, BaFin-Tech 2016, in Frankfurt. The sold out conference was attended by around 200 participants representing FinTechs, investors and the broader financial sector. The aim of the conference was to explore regulatory issues that could affect young FinTech companies and new business models. BaFin-Tech consisted of panel discussions and smaller workshops where attendees could gain closer insight into specific themes like Blockchain, Robo-Advisory, Crowdfunding or alternative payment methods.

In his opening address, President of BaFin Felix Hufeld explained that they operate under the principal of same business, same risk, same rules. Hufeld continued, elaborating that, “Supervisors are not a jury delivering verdicts on business concepts. We don’t put up barriers to insulate established companies and we don’t run an incubator for cool newcomers. We are supervision and will remain so. However, what we do want, is to align our administrative procedures accordingly for you as a growing and increasingly more important audience. Accordingly means understandable, fast and, as far as possible, electronic.” Hufeld even invited promising business models which may fall below the required threshold to work with BaFin.

The second panel discussed whether FinTech is a disruption or an innovation. This conversation juxtaposed those in the FinTech sector like Dr. Oliver Vins of vaamo with established actors like Michael Mandel of Commerzbank. After this discussion, FinTech can arguably be characterised as inspirational. While the new innovations from the start-ups may shake up business models and customer demands, it also inspires the old guard to put their full weight behind their digitalisation efforts. Mandel detailed that Commerzbank’s efforts, like integration with PayDirekt, and the board’s goal to completely digitise the customer experience. The conference ended with a reflection from Hufeld, who reminded the audience not to overlook all factors that go into deciding whether a technology is permitted, such as security, anti-money laundering and consumer protection.

As the German FinTech scene has grown substantially over the past year, BaFin-Tech 2016 clearly demonstrated that Germany’s top regulators take FinTech seriously and are invested in fostering innovation in Germany and Europe’s financial sector. The event also proved another advantage of the Financial Centre Frankfurt for young FinTech companies looking for a home. Frankfurt is not just a centre for finance in Europe but also a centre for regulation and supervision, home to the ECB, EIOPA in addition to BaFin.

You can find more information and the presentations from the event on the BaFin website.

WHU Master in Finance Students on the Future of Finance

Top masters students from the region’s business schools were invited to the Frankfurt Finance Summit. John Offermann and Xavier Hilderbrand, both Master in Finance students at the WHU – Otto Beisheim School of Management, reflect here on their impressions from the event.

The world of financial studies is full of theories and ideas. Rational economic actors, econometric methods and various pricing models form a standard diet for would be financial aficionados. The question echoing in business schools is how these ideas actually affect the world of finance, and then in turn, the real economy. Thus as students of the Master in Finance program at the WHU – Otto Beisheim School of Management, we greatly appreciated the opportunity to participate in the Frankfurt Finance Summit 2016 and see how financial theory affects practice.

Over the last six years, the Frankfurt Finance Summit has brought together leading stakeholders of the European financial industry to discuss contemporary issues in different parts of the industry. This year’s theme was On the Move and to a large extent revolved around the megatrend digitalization and its continued role in reshaping the financial sector. The summit is organized annually by Frankfurt Main Finance, an initiative that was established to actively promote Frankfurt am Main as one of Europe’s leading financial centers. Members of the organization include the State of Hesse, the City of Frankfurt and other prominent financial institutions in Europe. Lively and engaging speeches and dialogues, with exceptional speakers such as Wolfgang Schäuble, the German Minister of Finance, Carsten Kengeter, the CEO of Deutsche Börse, and Günther Oettinger, the European Commissioner of Digital Economy and Society, illuminated a select audience.

And what an audience: an inspiring blend of roughly 200 personalities from government, regulatory authorities, leading financial institutions and FinTech startups. Throughout the entire event, the atmosphere was pleasant and there were plenty of opportunities for networking and exchanging opinions. We very much enjoyed the chance to speak to different representatives of banks, insurance companies and foreign embassies and to hear their views on current issues facing the financial markets.

The summit began with an introduction by Dr. Lutz Raettig, Chairman of Frankfurt Main Finance, Wolfgang Marzin, CEO of Messe Frankfurt, and Tarek Al-Wazir, Hessian Minister of Economics, Energy, Transport, Urban and Regional Development. Drawing on Frankfurt’s history as a trading hub, each speaker accentuated the qualities that made Frankfurt one of the world’s most influential financial centers, whether that be the presence of institutions like the European Central Bank, or the State of Hesse’s strategic investments in the Messe and various FinTech incubators.

Notwithstanding the warm welcome, Tarek Al-Wazir made a stark warning to the audience: the financial sector is currently failing to support growth in the real economy. He called for financial institutions to better refine their services to support businesses all over Europe. The minister also underscored that a Brexit is not in the strategic interests of Frankfurt and Hesse, despite what would be an inevitable shift of financial clout from London to Frankfurt. This would be a recurring view from various speakers throughout the day.

Following the introduction, Carsten Kengeter took the stage. Having presided over his first Annual General Meeting the day before and on the cusp of a meeting with Wolfgang Schäuble the day after, Kengeter gave extensive insight into the ongoing merger between Deutsche Börse and the London Stock Exchange. In something of a concession to his critics, Kengeter appealed to the audience’s emotions through sound business logic. His case rests on the benefits that the deal would bring to the Deutsche Börse, the German financial community and European economy as a whole. For the Deutsche Börse, the deal will put an end to stagnant revenue and a sliding share of capital vis-à-vis muscular competitors outside the continent. For the financial markets, a united stock exchange company will better facilitate capital flows between London and Frankfurt, respectively the world’s largest financial center and the premier business gateway to Europe’s single largest economy, Germany. Ultimately, the real economy in Europe would benefit from more efficient capital allocation in consolidated rather than fragmented stock exchanges; a natural development of the European Union’s Capital Markets Union drive.

The summit then continued with the first panel discussion – a debate on financial regulation and its future in Europe. The panelists represented states, regulators and leading financial institutions. There was agreement on most overarching points. The panelists largely agreed that overregulation could threaten the industry and that the industry as a whole is better prepared for any future shocks than in 2008. This consensus broke down somewhat when discussing details; there was a considerable mix of views on further developments to the Basel regulations and the effects of new regulations on important retail financial products like mortgages. The panel agreed that future supervisory efforts should focus on enforcing proper conduct of financial professionals rather than dwelling on problems of the past. Towards the end of the discussion, Mr. Hufeld, President of the Federal Financial Supervisory Authority (BaFin) depicted the “three gorillas” facing the industry: low interest rates, FinTech and regulation.

The second part of the Summit 2016 resumed after participants had the chance to discuss the first speeches and debates over a delicious lunch. The second half revolved around FinTech opportunities. Günther Oettinger was the first to speak. He pointed out that digitalization is tremendously impacting the way people and businesses communicate today. He made clear that the European Commission is trying to foster “common standards in a coherent market” to enable technology companies to operate seamlessly in Europe.

The following interview with Gottfried Leibbrandt, CEO of SWIFT, and the second panel discussion were both moderated by Caroline Hyde, Correspondent at Bloomberg Television for European Business. The discussions dealt with FinTech and the question of to what extent entrepreneurial businesses in the financial technology space are disrupting established banks and insurance companies. The general consensus was that FinTechs are increasingly forcing more traditional players to rethink their business models but are not making them obsolete. Most said that FinTechs oftentimes are helping their bigger counterparties to incorporate innovations more quickly into their businesses.

The next keynote speaker was the Finance Minister of Germany, Dr. Wolfgang Schäuble. In a direct, pointed speech, the Minister focused on the implications of the United Kingdom’s Brexit referendum. Similar to Mr. Al-Wazir, Dr. Schäuble emphatically argued that any upside benefit for Frankfurt would be at the expense of the broader European financial industry and economy. Dr. Schäuble pointed out that access to the single European market comes at a cost and the more access a country has, the more it will have to take responsibility for it. Other topics in the speech and question and answer session included the ECB’s current policies, the relative achievements of financial regulators since the GFC and the merits of the Deutsche Börse LSE merger.

At the end of the summit, Mr. Diwakar Gupta from the Asian Development Bank spoke about how FinTech is helping underprivileged people in Kenya and India take advantage of banking services. By using biometric identification technology and inexpensive cellphones, more and more people are being enfranchised by the financial system. It is now possible for people in rural areas of developing countries to open up bank accounts and make mobile banking payments at reasonable prices.

Finally, we want to thank Frankfurt Main Finance for the great opportunity to be part of the Frankfurt Finance Summit 2016. The discussions were tremendously inspiring and we enjoyed the chance to listen and speak to so many brilliant presenters and participants. We highly recommend the Frankfurt Finance Summit to anybody who has the opportunity to be part of it. You won’t be disappointed!