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FinTech Financial Centre Frankfurt

The Financial Centre Frankfurt has great chances to become the European Capital of Financial Technologies

A European consortium of universities and FinTechs is working to promote knowledge-sharing between banks, FinTechs, regulators, and financial supervisors on the risk management of financial technologies. Since 2019, the financial technology company Firamis GmbH has been part of this consortium. In an interview, Dr. Jochen Papenbrock, CEO and founder of Firamis, discusses the role of Artificial Intelligence (AI) in managing risks of financial technologies and its significance for the Financial Centre Frankfurt.

Dr. Jochen Papenbrock, CEO and founder of Firamis Gmbh

Dr. Jochen Papenbrock, CEO and founder of Firamis GmbH

What are the risks of FinTech’s increasing importance for the financial sector?

We understand the term FinTech to comprise of much more than start-ups using financial technologies such as Big Data Analytics, AI, and Blockchain. Traditional banks and insurers use new financial technologies as well and might face similar challenges as start-ups do, especially with regards to risk management. In addition, banks and FinTech start-ups are increasingly cooperating – more outsourcing relationships are emerging as a result of the continuous break-up of value chains. At the same time, many banks are invested in start-ups. As systems, data, and processes become increasingly intertwined, banks are equally affected by the risks of financial technologies. Therefore, we are currently observing a growing need for discussion between the industry, regulators, and supervisory authorities.

Against this background, Fintech Risk Management and model/data governance are of particular importance. While traditional banks most certainly have gained more experience in regulatory and supervisory practice, it is new territory for many FinTech start-ups.

Can you explain this in more detail?

Complex, non-transparent, and biased models and data pose a problem to new financial technologies. Several supervisory bodies have decided to reject black box models – i.e. non-transparent machine learning approaches such as multi-layered artificial neural networks (deep learning) – in production-critical processes.

We are currently working on these and other topics as part of a larger EU project on Fintech Risk Management. The exchange of knowledge between banks, FinTechs and regulators takes place throughout Europe over a period of two years. Standards are being developed that ensure the use of financial technologies in secure financial products and enable FinTech business models in Europe to be scaled as efficiently as possible. Our Fintech-AI-B2B-start-up Firamis is part of the consortium and member of the Executive Board. We are working to build an EU Research Sandbox and establish requirements for a Trustworthy AI. The EU also runs several programs on related topics.

Furthermore, the increasing use of financial technology may create systematic risks. If several FinTechs use the same technology, they will react quite similarly to certain market phases. In addition, the risks of a domino effect are rising due to the increased interconnectedness of value chains. The supervisory focus will continue to shift from individual companies to the entire value chain.

What regulatory framework is needed to keep risks under control?

We believe that risks can be managed by focusing on model validation as well as the entire model risk management process and data/model governance. Black box models will have a hard time with more intensive regulatory reviews by national and international supervisory authorities. On the other hand, the use of financial technologies will continue to increase due to competitive pressure. So the question of which modification of the technology is needed to meet the requirements remains.

Are there solutions to make these approaches more accessible and understandable for regulators and supervisors?

XAI (Explainable AI or Interpretable AI) is one of those approaches. New approaches, technologies, and data visualization are used to make the models more explainable. XAI is also one of the core competencies of our start-up Firamis, and we are currently expanding our resources in response to those developments. AI thus is implemented to, for example, explain black box models automatically. This is especially important for customers who want to know, for example, why they received a certain credit score or why they are assigned a certain risk profile by their Robo Advisor and how they can improve.

The question of how these regulatory controls should be implemented in practice is exciting. Several models are conceivable, ranging from independent control by supervisors to outsourcing to third parties. We will observe a certain degree of standardisation and also something like a technical inspection for financial algorithms.

What does the dynamic development of AI / Machine Learning mean for the FinTech industry in Frankfurt?

Current developments in financial technologies show that Financial Centres compete with each other. The game is changing due to disruption. The Financial Centre Frankfurt has great chances to become the European capital of financial technologies. (Central) banks, technology companies, FinTech ecosystems, supervisors, and regulators are already presented. AI may hold more potential for the Financial Centre Frankfurt than Brexit and Blockchain do.

So there’s still a lot to do. In 2017, we launched the annual Summit on AI, Big Data and Network Analysis in Financial Services with other partners. In addition, we founded the association  AI in Financial Services e.V., in which anyone can become a member who is interested in advancing AI.

Advanced Analytics and Artificial Intelligence will gain in importance

In our interview Christopher Schmitz, Partner and FinTech specialist at Ernst & Young (EY), evaluates the characteristics of the Rhine-Main FinTech ecosystem and explains why, in the near future, we can expect to see even closer cooperation between emerging FinTechs and established companies like banks, insurers and asset managers.

The investment volume in FinTech start-ups, measured by average deal size, has grown over the past years. Do you think this development will continue?

We estimate the trend of growing deal sizes will continue. Several of the FinTechs founded in Germany in recent years have been able to achieve success on the market side in the B2C or B2B segment. Investors who are operating globally have detected German FinTechs as profitable business cases. Based on these extensive investment rounds FinTechs have been able to grow and expand their businesses internationally. Parallel to this success, the valuations of several FinTechs have risen enormously – most recently to around €2 billion for the most successful start-ups. Therefore, average deal size will continue to grow.

The Rhine-Main FinTech ecosystem focuses on “Enabling Processes & Technology” and “InvesTechs”. Besides this, what else exactly makes the Rhine-Main FinTech ecosystem unique?

Compared to other German FinTech hubs, the Rhine-Main FinTech ecosystem is characterised by a strong focus on B2B business models, a very grown-up start-up network and the proximity to and the active exchange with potential investors and clients. A significant proportion of the founders in the ecosystem benefits from many years of experience in banks, insurance companies or asset managers and use this experience to tailor their business models to the specific problems of their clients. B2B business models for example require significantly less capital in the seed and growth stage compared to B2C business models because customer acquisition is not carried out via the classic online media with correspondingly high marketing expenditure, but through direct customer relations. While this makes the B2B sales cycle considerably longer and more complicated, B2B service providers often achieve a faster break-even. The proximity to regulators, customers and the structure of the ecosystem as well as the good international network enable a rapid evolution to the range of services offered.

What is your outlook for 2019? Which FinTech trends are you particularly interested in and which trends should we prepare for?

We will observe even closer cooperation between emerging start-ups and established companies. Because of their legacy infrastructure and the growing innovation speed, banks, insurers and asset managers won’t be able to ignore emerging financial technologies. However, purely disruptive approaches can only be found in a few successful start-ups. Cooperation will take centre stage. Open banking and the API/platform-economy will become central fields for the future positioning of established players as well as new players entering the market. The beginning convergence of value creation across industry boundaries in emerging marketplaces like mobility, digital health, smart cities or smart home requires a rethink in the financial services industry. Advanced analytics and artificial intelligence will become even more important in this context, and FinTechs will drive much of the customer-centric innovation as a partner and service provider to the financial services industry.

“We should highlight the strengths of the location”, Matthias Hübner, Partner at Oliver Wyman in Frankfurt, in an interview on the FinTechGermany Award 2019

Matthias Hübner, partner at Oliver Wyman, is a jury member for the FinTechGermany Award 2019, the leading investor-driven FinTech Award in Germany. Amongst other things, we asked Matthias Hübner what he pays special attention to when judging FinTech applicants.

What is especially important to you when judging applicants for the FinTechGermany Award?

I find two aspects to be crucial: First of all, a need for a product should be clearly identifiable, which means that the product should offer a solution to an actual problem facing customers. Secondly, it must be innovative. Unfortunately, we have recently seen many copycat products that lack a clear differentiation from existing ones. In my opinion, most of them will not stand a chance in becoming established in the long run.

What are the biggest challenges for FinTechs in Germany? How can start-up companies be supported more? What can platforms like the FinTechGermany Award do to help?

The scalability (i.e. reaching the critical and long-term profitable size) is what most start-ups struggle with – and this doesn’t only apply to the FinTech sector. This is something the FinTech Germany Award helps with: It enables companies to get in contact with potential investors for financing of growth and award winners get a chance to increase their brand awareness.

How will the German FinTech ecosystem evolve in 2019?

With regards to the Fintech ecosystem, Germany still has room for improvement but is developing dynamically and catching up with other countries. This trend should continue in 2019, especially since some of the early FinTechs now have more sophisticated business models and are thus, increasingly growing out of their niche.

How can Frankfurt become one of the leading Fintech hubs in Germany or Europe?

I think that the decentralized structure in Germany is not very helpful in establishing a leading international FinTech hub. However, we should move away from the traditional “Frankfurt vs. Berlin” discussion and instead highlight the strengths of both locations. Frankfurt has the advantage that it offers companies proximity to leading partners such as banks or the stock exchange and has a well-established infrastructure of consulting services. Those are essential aspects for FinTechs with a focus on B2B.

Deutsche Börse – Crypto asset dojo 2018

If your daily activities include any of the following: creative thinking, coding, designing, hardware tinkering and lots of coffee, this one is for you! Deutsche Börse invites you to think about new, innovative financial services business applications. Deutsche Börse’s upcoming dojo is all about crypto assets – or, to be more specific, about Ether, bitcoin, […]

FinTech delegation travels to South Korea and Hong Kong

As in recent years, in January a FinTech delegation will be traveling under the leadership of Dr. Raettig to Hong Kong for the Asian Financial Forum (AFF). The Asia Financial Forum is the most important meeting of the Asian financial sector and will be held for the eleventh time on January 15 and 16, 2018. AFF’s topics include financial innovation and technology, AI and robotics, green finance, insurance technology, Fintech, Blockchain and banking innovations.

Frankfurt Main Finance will present itself with a joint stand with FrankfurtRheinMain GmbH and Hessen Trade & Invest to the Asian financial community as an attractive international financial center – not only in the Brexit context.

For years Frankfurt Main Finance has maintained close ties with the FinTech community in Hong Kong, among others with HKTDC, Invest.HK, the FATHK and Cyberport and Metta as leading FinTech Hubs in Hong Kong.

The FinTech delegation will travel to South Korea already on January 11, 2018, where it will present itself at FinTech events in Seoul and Busan. Frankfurt Main Finance is closely linked to both South Korean financial centers through a number of agreements, among others in the areas of FinTech and Blockchain. For several years there has been a regular exchange at the level of the financial centers as well as the supervisory authorities. South Korea is an important partner for Frankfurt and also a regular destination for delegation trips of the state of Hesse.

About the Asian Financial Forum in Hong Kong

For the eleventh time, on January 15 and 16, 2018, top-class international representatives of the financial and business world will meet at the Asian Financial Forum in Hong Kong. During the two days they will discuss developments and trends in the dynamic markets of Asia and over and above that. The event, organized by the Hong Kong Special Administrative Region (HKSAR) and the Hong Kong Trade Development Council (HKTDC), has this time the motto: steer growth and pave the way for innovations, both in Asia and around the world. In 2017, the Forum had over 2,900 participants, including more than 100 internationally renowned speakers. There was also a great interest in the Deal Flow Matchmaking Sessions, where more than 490 projects were discussed with investors in over 600 conversations. Overall, the organizer has already arranged 3,800 meetings with more than 1,800 companies since the start of these sessions.

Among the contributors in 2018 are Jacob J. Lew, US Secretary of the Treasury until 2017, David Lipton, First Deputy Managing Director of the International Monetary Fund, Pierre Gramegna, Minister of Finance of Luxembourg, Hu Huaibang, Chairman of China Development Bank Corporation, and Takehiko Nakao, President of the Asian Development Bank. From Germany comes Dr. Andreas Dombret, board member of the Deutsche Bundesbank. Speaker at the Keynote-Luncheon on January 16 is this year the expert for AI and Robotics, Professor Daniela Rus, Director of Computer Science and Artificial Intelligence Laboratory (CSAIL) and Professor for Electrical Engineering and Computer Science at the MIT.

The AFF visitors are also offered to have pre-arranged meetings for participants with common interests, the InnoVenture Salon for Startups, who want to present their business ideas to international investors, a free financial and service advisory zone and sessions with project owners, presenting their projects to potential investors.

To the HKTDC homepage: http://bit.ly/2kpfT38

More articles on the topic:

o “Think Asia, think Hong Kong” in Germany

o FinTech Breakfast with Invest Hong Kong

o Leading Korean FinTech companies visit the Frankfurt financial center

o Delegation from South Korea visits the financial center Frankfurt

 

Contact: Dr. Jochen Biedermann

1 Year TechQuartier – FinTech scene in Frankfurt

The Tech Quartier celebrates its 1-year anniversary. Lars Reiner, founder and Manager of Ginmon, Thomas Schalow, founder of AsiaFundManagers.com, Andreas Mang from easyfolio and Christopher Schmitz, author of the EY-study „Germany FinTech Landscape“ take a look at the FinTech scene in Frankfurt and the Rhine-Main-Neckar region.

The FinTech scene in particular continues to grow in the financial centre. These are the findings of the EY study Germany FinTech Landscape – Insights into the respone of financial institutions to FinTechs and inter-FinTech collaboration, which was published in September 2017.  Of the 300 German FinTechs, 73 alone are located in the Rhine-Main-Neckar region. 19 of them have settled in the TechQuartier, between Messe and Tower 185.

Frankfurt offers the best conditions for FinTechs

Lars Reiner, founder and managing director of Ginmon, a Frankfurt-based FinTech company, explains why Frankfurt is a particularly suitable location for FinTech. It enables private investors to invest in an automatically managed ETF portfolio. “The Frankfurt region combines important location factors that are unique in Europe in this combination. The most important financial institutions and regulatory authorities have settled here in the Main metropolis. As a technology company, Ginmon also relies on IT specialists to constantly optimize existing algorithms. The region can exploit the potential of numerous universities, especially the TU Darmstadt.”

Thomas Schalow, founder of AsiaFundManagers.com, shares this view: “Frankfurt has an established financial ecosystem with many relevant national and international players. Especially for B2B-FinTechs this is a decisive factor. Brexit will further increase the importance of the city as THE financial centre within the EU.”

FinTech cooperates with banks

The results of the EY study also show that FinTech’s links with traditional companies in the financial sector are becoming increasingly close. Christopher Schmitz, author of the study and partner for EMEIA Financial Services at EY, explains, “FinTechs and Incumbents are increasingly working together in digital ecosystems. This creates new opportunities and models for the industry.”

A glance at the partners of the TechQuartier shows this. Deutsche Bank, Frankfurter Sparkasse and Landesbank Hessen-Thüringen are among the handpicked but established partners who round off the diverse mix of the world’s best start-ups. The exchange between the “big ones” and “newcomers” is promoted and desired through various networking events and workshops in the TechQuartier. Here, people work together instead of against each other.

This means that Frankfurt can also hold its own internationally, says Andreas Mang of easyfolio, who offers private customers individual investments on a digital basis, “There is more space than just one or two FinTech hubs in Europe. In addition, the Brexit discussion could also make Frankfurt more interesting for international start-ups.”

Thomas Schalow of AsiaFundManagers.com also draws an international comparison, explaining, “If the strengths of AsiaFundManagers.com are used consistently and quickly, in the long run, Frankfurt can also hold its own internationally. The advantages of the location are obvious: an existing financial ecosystem, the position as the most important financial centre within the EU and the infrastructure. However, I also have a direct comparison with other FinTech ecosystems such as London and Singapore. Unfortunately, Frankfurt is still years away from them.”

Short distances distinguish Frankfurt as a location

Nevertheless, Frankfurt has become home to him. He likes the mixture of Hessian down-to-earthness and internationality and is always looking forward to returning to Frankfurt. The founder of FinTech particularly appreciates the short distances between international investment companies, which can be covered well with Vespa or the subway. It is also the short distances that Lars Reiner of Ginmon at the Mainmetrople enjoys. “Frankfurt is the city of short distances. From our office, we can reach important partners in a few minutes. This makes it possible to work effectively,” Reiner explains. “In addition, a broad network has been established in Frankfurt by promoting and inspiring each other.”

Nevertheless, there are still some things that could be done better in Frankfurt. Lars Reiner von Ginmon wants affordable office space and the expansion of public transport. Thomas Schlaow also has concrete wishes like “networks, low-cost office space, simple regulation, venture capital and easy access to B2B partners. All this should go hand in hand. Andreas Mang from easyfolio sums up what all three FinTechs think, simply stating, “We feel very comfortable in Frankfurt.”

The complete EY study can be found here.

 

EY Start-up Academy – successful round of financing for Frankfurt-based start-up

  • Consortium comprising High-Tech Gründerfonds and lenders from Business Angels FrankfurtRheinMain e.V. invest more than EUR 775,000 in node.energy
  • EY Start-up Academy sets the stage for the round of financing
  • Hessen’s economics minister, Tarek Al-Wazir: Frankfurt/Rhine-Main region has the highest FinTech growth in Germany

The young Frankfurt-based company node.energy, a provider of digital solutions for managing microgrids, secures itself EUR 775,000 in growth capital. This was announced yesterday by the investors, comprising High-Tech Gründerfonds (HTGF) and lenders from Business Angels FrankfurtRheinMain e.V. The investors and node.energy met through the EY Start-up Academy, a three-month program for Tech and FinTech start-ups. The EY Start-up Academy’s closing event, which is staged in cooperation with Deutsche Börse and TechQuartier (TQ), took place on Tuesday at TQ in the West of the city, close to the Frankfurt exhibition center.

Frankfurt establishes itself as a Start-up Tech hub

The fact that node.energy successfully managed to raise this amount of investment capital at the EY Start-up Academy is testimony to Frankfurt establishing itself as a Start-up hub for Tech companies, says Christopher Schmitz, partner at EY and curator of the initiative. The Hessen economics minister, Tarek Al-Wazir, who helped set up TechQuartier and brings it political support, referred to the TQ on its 1st anniversary as “a place where people network.” The Frankfurt/Rhine-Main region exhibits, for example, the highest growth in FinTech companies across Germany. node.energy is a start-up of founders Matthias Karger (35) and Lars Manuel Rinn (30) that specializes in the commercial optimization of local energy supply concepts. The company focuses on housing companies as well as industrial and commercial customers. “The fact that node.energy was able to convince both our Business Angels and HTGF is testimony to the quality of start-ups in Frankfurt. A practicable innovation and an experienced team of founders have come together. The fact that it is a product for improving energy use and making it more efficient pleases us greatly as we are focusing keenly on this sector,” says Dr. Burkhard Bonsels, Managing Director of Business Angels FrankfurtRheinMain e.V., who was also personally involved in the financing round. The fresh capital is to be invested in expanding the team as well as enhancing the platform and financing the market entry in Germany.

Contact with around 40 investors established

Seven selected start-ups – Asteria, Creditlinks, EVANA AG, F ECTIVE AG, MES & DAK, StudySmarter and node.energy – participated in the EY Start-up Academy. They have met various investors, representatives from banks, experienced founders and other start-up experts at approximately 30 events over the past few weeks. At the evening event on Tuesday, seven companies gave a closing presentation and received the EY Start-up Academy Award. “This seal of quality should help the participants on their continued growth course and assist them in dealing with lenders and regulators as well as tax and legal advisors,” comments Christopher Schmitz. “During the EY Start-up Academy we have established many valuable contacts and significantly improved both our business plan and our investment pitch,” explains Tilo Kraus, Co-Founder of CreditLinks, just one example from the founders taking part. Overall, contacts with approximately 40 investors were established during workshops and one-on-ones, some of the participants are currently in negotiations and due diligence phases for further potential seed financing rounds.

Promote the start-up ecosystem

The EY Start-up Academy will be continued in 2018, and potentially expanded to include other hives of founding activity in Germany. “Our aim is to help create highly attractive conditions for Tech and FinTech startups,” explains Christopher Schmitz. “Frankfurt’s contribution to the Germany-wide start-up ecosystem is enormously important.” FinTech expert Schmitz names four agenda points on which cooperation partners from the private, public and educational sector should focus: promote entrepreneurship and entrepreneurial spirit, cut bureaucracy, bring about a business-friendly tax system and ensure the improved availability of risk capital.

TechQuartier-Director Sebastian Schäfer: “We are a community based on innovation”

It is the focal point of the FinTech and start-up community in continental Europe’s biggest financial centre – and it is celebrating its first birthday: TechQuartier in Frankfurt. A discussion with the director Dr. Sebastian Schäfer on the FinTech ecosystem in Frankfurt. In the interview, he discusses the milestones they have reached and the goals that TechQuartier has set for the future. Finally, he discusses the insecurity from Brexit facing FinTech scene.

Mr. Schäfer, You are looking back at one year of TechQuartier. Which milestones have been reached during this period?

First of all, we are really happy about the reception we’ve had from the start-up scene. With around 80 start-ups, we have a full house now. Within the first months, we had already let the first 1,600 square metres with around 110 working spaces. In June, we added another floor with further 114 working spaces. From the very first day, we kept asking ourselves how to create a lively community and how this should look. We know it is not only about a nice place to work but about inspiration, learning from each other and networking. So, we brought together interested parties, members and supporters along with fitting topics – and successfully developed and started interesting formats. For example, Landing Pad, Papillon, Money meets Idea, or the Start-up Academy.

From the experience you have gained – where do you see further potential for TechQuartier, what are its strengths?

You can always improve. Our claim is to become a globally recognised Hub. This includes strengthening engagement on the venture-capital as well as marketing of our success stories in Frankfurt. Obviously our strength is that all participants are pulling in the same direction.

Brexit is occupying the financial sector. Is it a subject-matter for FinTechs as well?

Of course we are talking about Brexit and possible consequences for the FinTech ecosystem. We can see that insecurity levels are huge. Since nobody knows exactly how things will develop you can primarily feel indirect effects. If, for example, a FinTech from Asia wanted to come to Europe, they would probably have chosen London as their location. Now Frankfurt is an option people think of. We can see that by the fact that FinTechs from over 20 different countries applied for our last LandingPad where we offer the possibility to get to know the FinTech-Hub in Frankfurt. This interest bears the possibility for Frankfurt and the region to develop itself into a powerhouse of innovations thanks to systematic measures.

If you look ahead: Which goals has the TechQuartier set for the future?

Our goals are well-defined: More start-ups, more partnerships, more success stories. We want to make a contribution to Frankfurt’s start-up scene becoming internationally recognised.

Thank you very much for the interview.

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.

The EY Start-up Academy: a crash course for start-ups right in the heart of Frankfurt

EY has founded in cooperation with Deutsche Börse and the TechQuartier in Frankfurt the EY Start-up Academy with the aim of supporting Tech- or FinTech start-ups in their founding phase as well as contributing to the growth of the start-up ecosystem.

The 12-week program consists of more than 30 events (about 2 or 3 per week). Founders will receive important information regarding their preparation of founding rounds, as well as other financial, legal and tax-related aspects – basically everything that is relevant for their further growth. Apart from EY experts, start-ups will also benefit from access to investors, businesses, banks and experienced founders. At the end of the 12-week program the best start-up will be rewarded with the EY Start-up Academy Award.

The program is directed to start-ups that have gone through the Alpha-Phase with an existing proof of concept or alternatively a minimum viable product, as well as start-ups that are bootstrapped financed or were able to convince a Business Angel, and are now looking for an investor to initiate further growth. During the 12-week program, the TechQuartier will offer participating start-ups two workstations, allowing them to integrate into the TechQuartier’s dynamic ecosystem.

The application process has already started and the deadline is August 4th, 2017. The program will start in mid-September.

For more information about the EY Start-up Academy and the application process, please visit www.start-up-initiative.ey.com/academy or www.techquartier.com/programs/ey-startup-academy