Will Germany become fintech centre of the world post-Brexit?

By Madhvi Mavadiya | 18 August 2016

According to new figures from KPMG and CB Insights, Germany sped ahead in the fintech race during the second quarter of this year and brought in $186 million in comparison to the $103 million that British businesses pulled in. The report highlighted that funding to venture capital backed fintech companies worldwide has fallen significantly, but despite this decrease, investment is still expected to exceed 2015’s numbers. The fall could be due to the UK’s decision to exit the European Union and the uncertainties associated with the upcoming US presidential election, the report states, and this is why we’re seeing a pause in news of “fintech mega-deals”.

It is expected that this cooling-off period may last through the remainder of the year as investors take a ‘wait and see’ approach expecting market conditions to stabilise over the next few months. While some VC investors are being cautious, many corporates are forging ahead with fintech-related activities. Banks, financial institutions and insurance companies seem to be continuing to shift their view of fintech companies as disruptors and competitors to one where they are viewed as partners and enablers. Over the quarter, many traditional companies, globally, focused on creating opportunities to leverage fintech, whether through direct investment, acquisition or the creation of innovation labs,” the report read.

The report found that Germany outpaced the UK last quarter and saw 80% more funding than the UK did and notable funding rounds went to fintech startups Finanzcheck that raised $46 million, N26, $40 million and AEVI, $34 million. The UK’s top deals were from challengers Tandem Bank which raised $31.7 million and Azimo, $15 million, as well as Transferwise that raised $26 million. In total, Germany brought in $64.9 million from five deals and came in second for payments technology investment activity, under the US that brought in $251 million from 26 deals.

PaymentEye spoke to N26’s CEO Valentin Stalf about their successful funding round and their new banking license, as well as their new products that will be launched in the coming year. On the subject of the Brexit, Stalf said that a move to the UK is still on the cards and will likely go ahead; the fintech currently operates from Austria, France, Italy, Spain and of course, Germany at present. N26 is said to “fly the flag for Berlin fintech” and despite not being the financial capital of the country, there are advantages to being based here.

The advantages you can summarise as: talent is great in London but it’s great here too. There are people not happy with Brexit - especially when it comes to international talent and I think it is likely more people will move to Berlin as a result. We can afford a rooftop here - in London we would be in the basement,” Stalf explained. He continued to describe Berlin as a creative city and distanced from the traditional banking sector, “I see it more as a benefit being away from traditional banks and the finance industry because we approach problems in a much different way and come up with different solutions to old issues. In old finance, there is a danger of getting sucked in by traditional player and just doing things the same way they did.”

The KPMG and CB Insights report described Berlin as a key technology hub in Europe, but Frankfurt is also growing in this space as a promoter of the banking ecosystem. Munich brought in $7.8 million from two deals and in addition to this, Hamburg saw the biggest fintech funding round from Finanzcheck and this “broadening of investment across the country suggests Germany as a whole is well positioned to attract fintech investors that may be hesitant to invest in the UK post-Brexit.” Berlin’s FinLeap incubator was also responsible for bringing together talent, tech and experience in order to reshape finance and in turn, raised $27 million from Hannover Re and other investors.

However, Cameron Stevens, founder of Prodigy Finance, believes that London will continue to be fintech centre of the world. “The EU comfort zone is gone. Stripping this away will mean the loss of easy exporting and undoubtedly the loss of a few startups. But it will also force London’s fintech firms to adopt a new mindset, becoming global in their outlook from inception. At a time when the world’s growth is concentrated in emerging markets on the other side of the world, this could be just the shake-up that the sector needs,” CityAM reported.

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development