Episode 24: Finally Fintech – How Germany Caught On to Digital Finance

Germans may have taken a while to get used to cashless payment systems and other fintech applications, but they’re now rapidly becoming standard in both B2B and B2C. Where are the greatest opportunities and what does the future ho0ld in store? We speak to the head of Berlin’s new fintech hub and the strategy guru at a French neobank that has branched out to Germany.

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Our Guests

2024_09_04_Sebastian-Schäfer_Foto-Caroline-Pitzke_5674_web_1000x1000 | © Caroline Pitzke Photographie 2024

Sebastian Schäfer is an experienced entrepreneur and ecosystem builder and CEO at the newly established HoFT, the House of Finance and Tech in Berlin. Founded in spring 2024, it serves as a central hub within the city’s finance and tech ecosystem.
 

Albertine_Lecointe_800x800 | © Gaelle Daireaux / Ponstyl

Albertine Lecointe is Vice President of Strategy and Head of Strategic Management at French neobank Qonto, which expanded to Germany in 2020.

Transcript of this episode

[Sound effect: coins dropping, automatic cash counting machines…]

Presenter: 
Those were the sounds of banking and finance in days gone by. NOWADAYS this is all you hear.

[Sound effect: mouse clicks]

It’s hard to think of a sector that’s been more changed by digitalization than everything to with daily banking, trading, lending or insurance. Convenience is king – that’s the core promise of fintechs.

No wonder the market has been expanding for quite some time. From 2015 to 2019, the average annual growth rate for German FinTechs was 120 percent! And Covid further boosted the industry. Moreover, the rapid development of artificial intelligence and machine learning is leading to ever new and advanced applications. As of July 2023, the market capitalization of publicly traded fintechs was estimated at USD 550 billion. And Mc Kinsey predicts that revenues in the fintech sector will grow – compared to the traditional banking sector – almost three times faster in the years up to 2028.

Europe’s largest economy is determined not to be left behind. The country’s finance minister Christian Lindner said last year: „I want Germany to become the leading digital financial center. Germany must continue to create attractive framework conditions for innovation in this area and thus position itself for the future.”

Welcome to INTO Germany, the German business podcast, brought to you by the international business promotion agency Germany Trade and Invest. I’m your host Kelly O’Brien. So,

Sebastian Schäfer, HoFT
Germany is certainly EU wide the strongest fintech sector. I think there is a good substance and really a lot of fintech activities, overall 700 fintechs in Germany.

Albertine Lecointe, Qonto
As of today, and especially in the fintech sector, I really believe that Germany boasts a robust network of fintech founders and banking entrepreneurs who also support each other and in some cases can collaborate closely from a strategic standpoint.

Presenter: 
Two voices from the fintech market. The latter was Albertine Lecointe from French company Qonto, which expanded to Germany in 2020. We’ll talk to her in just a bit.

But first let’s get an overview of the German sector from Sebastian Schäfer. Sebastian has been working within the startup scene for more than a decade. In September, he took on the role of CEO at the newly established House of Finance and Tech in Berlin. Sebastian, thanks for joining us on the podcast. What is the House of Finance and Tech, or HoFT as you call it?

Sebastian Schäfer, HoFT
The idea is really to create a focal access point for the finance and tech community in Berlin, enable an open dialog between the public and private sector, and by doing this, also facilitating knowledge exchange and serve as a catalyst for financial innovation. We really try to accelerate growth and support the next generation of scaleups in Berlin and beyond. And with that showcase and promote Berlin as the fintech place to attract further talent and entrepreneurs. It's a diverse group of the stakeholders from the public and private sectors such as banks, neobanks, fintechs. But we have also academia, service and technology providers. And here we try to really create an ecosystem for the entire financial services industry.

Presenter:
The HoFT Berlin was established with the help of the private sector as well as public funds. These days, the industry is getting a lot of attention. How have you experienced its development over the past few years?

Sebastian Schäfer, HoFT
The term fintech, if you google it and see when this term was actually becoming more popular, it's maybe ten years. Before we had a lot of fintech innovation in the space, but the fintech term is actually only since ten years really more popular. So you had some developments pre financial crisis. You had Paypal and other payment firms, some first movers. But the big bunch and like flow of new fintech innovation came into place after the crisis and also due to the fact that banks were highly focused on complying with new regulation and so on and so forth. But that opened up the opportunities for new players and in the beginning… So if you look back ten years, it was all about: fintechs going to disrupt banking, going to disrupt the financial services industry. That didn't play out really. So there are still a few very interesting established fintech firms. But in general, you saw a shift over time to a more collaborative, more B2B approach in the sense of supporting also banks in their digital transformation journey. So I think that is one big trend we saw. You also saw that banks and some of them quite interestingly and convincingly caught up and are now actually providing great digital experiences. So the gap narrowed over time, which means that it's not enough anymore today to create an interesting digital experience for customers because now other banks have caught up. The big techs are in the game. The established firms have caught up, have learned, are offering now superior experiences.

Presenter:
With all the new companies that were founded over the past few years, is there still room for new ideas?

Sebastian Schäfer, HoFT
You see opportunities emerging whenever new technologies emerge. So think of A.I. and in particular the last wave of AI innovation, the generative AI wave. So as long as we will see technological change now, we will see new opportunities for also fintechs. But you also see this when regulation changes or new regulation is enforced. They open up new opportunities and as long as fintechs are fast, they will have a case. And then, of course, it's important that they create a sustainable business model.

Presenter:
The HoFT is located in Berlin and your previous employer, the TechQuartier, was based in Frankfurt. Are these two cities particularly attractive as far as the fintech scene is concerned?

Sebastian Schäfer, HoFT
Frankfurt is THE financial capital of Germany and the EU. So it's quite obvious and straightforward that financial innovation also takes place in Frankfurt. And we have seen also in terms of new players, we have seen a long history of development. So think of, for example 360 T, which was founded early 2000, one of the really very interesting new players on the block, they were acquired by Deutsche Börse in 2015. And back in the days, this was actually one of the stories in Germany. Post financial crisis, you saw that more and more fintechs were founded in Berlin. But here my view is that the reasons for that were more the whole digital ecosystem. You had an interesting environment, you know, for new technology. And this also attracted fintech founders. And then after 2013, 14, you saw more and more fintech founders being also successful. Think of in N26 a bit later, Trade Republic. And these are actually the companies that are now really like showcasing Berlin and giving Berlin this fintech image.
But you have interesting companies in Munich and Hamburg and Stuttgart, Cologne. Germany is a bit different than other countries like France, UK. Here, everything is very concentrated, centered around the capitals, Paris and London. In Germany, it's a bit more spread, it's a bit more decentralized, which has its advantages sometimes. Also disadvantages when it comes to like showcasing certain cities or benchmarking certain cities. But I think if we manage to build bridges between the cities, I think the German fintech ecosystem is super strong and competitive. We just have to make sure that the different skills, the different talent, the infrastructure, the knowledge is connected in the way that we are able to produce actually top notch and state of the art fintech innovation. And here I think, we can do a bit more. There's a potential to close a gap in terms of funding, but also in terms of really leveraging the potential we have.

Presenter:
So in your opinion: How does Germany compare with other markets?

Sebastian Schäfer, HoFT
I would say Germany is certainly EU-wide the strongest fintech sector. If you compare it to other regions like the US, UK and even Brazil, we lack the fintech giants. So really those global category leaders that are shaping an entire industry here, I think we are lacking a bit behind. If you think of Newbank for example or Stripe from the US, Revolut from the UK or Klarna from Sweden. So I think, there is a good substance and really a lot of fintech activities, overall 700 fintechs in Germany. But there are some regions, countries, nations that are catching up. Look at France, where we have now also some really significant players. Think of Qonto or other new banks that have made their impact.

Presenter:
The French fintech startup Qonto is also very successful on the German market. We’ll talk to the company’s strategy guru in a bit. But first, let’s have a look at the entire German fintech sector. You were mentioning  a „gap“ when it comes to funding and „leveraging the potential“.

Sebastian Schäfer, HoFT
We've heard a lot the stories of very promising early stage companies, not only fintech companies. In more general terms, tech startups that were looking for growth capital, didn’t find it and then had to take in either foreign investors, had to relocate, move out of Germany. I think that's something we cannot afford any longer. So we need to find ways to also support and finance the growth stages. We have talent. We have the knowledge, the skills. We need the means and the resources to help them grow. And here also the Startup-Verband is now also continuing to push this agenda towards 2030 that we really make this a big topic in the startup see.

Presenter:
The „Startup-Verband“ was founded in Berlin in 2012 as an interest group for the German startup industry. Are there any other associations supporting this financial transformation?

Sebastian Schäfer, HoFT
There have been already some improvements. There is Wachstumsfond, there is Zukunftsfond. There are many discussions going on. I think it's important to mobilize more institutional capital for startups. If that works out, I think the future is much brighter. Second point: I mean, we are still in an industry-heavy economy. We have a lot of Mittelstand, a lot of established companies. They will need the startups as innovation partners. They will need external innovation. So it's not only venture capital, private or institutional money. It's also by making it easier for startups to interact, collaborate with the established companies. And this is something where also the companies have to do a step. It cannot be only the government.

Presenter:
Mittelstand is the German term for the medium-sized enterprises that are the backbone of the German economy. And of course, there’s the HoFT, ensuring that start ups find good framework conditions in Germany.

Sebastian Schäfer, HoFT
I just want to welcome and invite everybody to check out the new House of Finance and Tech. And if you want to become the next unicorn or scale up, check up our offerings. I think by supporting the next generation of growth companies and scaleups, we indirectly help to create jobs, create an economic healthy environment. And you have seen, I mean in particular the scaleups are the ones responsible for new jobs. So I think that's one part, but also more directly in terms of helping people to think more strategically about their future, help them to become aware of and educate themselves in how to invest, spend and save their money and fortune and having a bit more literacy overall.

Presenter: 
One last question: Germans are said to be a bit… conservative when it comes to financial matters. What’s your experience with this?

Sebastian Schäfer, HoFT
If you compare them with very digital savvy regions and countries that have a much longer history… yes, you could label Germans as laggards. But, there are other countries where there's even less, willingness to use cashless payments, to use this kind of fintech services. I would say in general, there's a clear trend that Germans are more and more buying in to digital services and for several reasons, but mainly for pricing reasons. It's just cheaper. Very often it's easier accessible, it's better speed of access. Sometimes it's even the quality that is better t through the digital solutions. So I would say overall the FinTechs will continue to serve customers and in the future even more.

Presenter:
Many thanks Sebastian for these insights. Affordable, accessible and user-friendly –  that’s also what Qonto promises, a French neobank providing online banking services for SMEs and freelancers. Before with speak with the company’s vice president of strategy, Albertine Lecointe. it’s time for our wrap up of a few interesting recent business stories from Germany.

NEWS

Quantum Leap

American IT giant IBM has selected the southwestern German town of Ehningen as the site for its second quantum computing facility worldwide. The new Quantum System 2 provides a modular utility-scale quantum computer, IBM stated. Each processor is capable of running 5,000 operations within a single quantum circuit. Germany has invested more than 2 billion euros to support quantum computing.

Pumping Up

Fitness specialist EGYM – or e-gym – has joined the ranks of German-based. A successful late-stage financing round took the value of Munich start-up over a billion. Founded in 2010, the company provides hardware and a cloud platform to optimize the experiences of both trainers and fitness club members. It an operative profit last year, doing an estimated 210 million EUROS in business an annual increase of 60 percent.

Money for Autonomy

The German state economic development bank, KfW, is allocating one billion euros to support projects to increase German and European autonomy concerning raw materials. The program comes in conjunction with the EU’s European Critical Raw Materials Act. Meanwhile Dutch company AMG has opened Europe’s first lithium refinery plant in the eastern German area of Bitterfeld-Wolfen. It will have an annual capacity of 20 thousand metric tons.

Win Situation

Germany and a number of high-profile banks and insurers have introduced 12 billion euros of additional support for start-ups. Called the “Win Initiative”, the public-private program is aimed at increasing the venture capital available to fledgling companies. The money is to be doled out between now and the end of the decade.

And finally Help Wanted

If their hiring policies are any indication, fintechs in Germany are optimistic about the future. In early October, the online platform “Finanz-Szene” reported that there were around one thousand advertised job openings in the sector. Among those hiring were heavyweights SumUp, Scalable Capital, Raisin and Trade Republic. Raisin also says that it wants to make an IPO next year.

Presenter:
Raisin is one of more than 700 fintech companies in Germany. Another is French neobank Qonto, which has expanded across the border. Albertine Lecointe is Qonto’s Vice President of Strategy and Head of Strategic management. Bonjour Albertine, thanks for joining us. Before we talk about your business in Germany, tell us about the idea behind Qonto, which was founded back in 2017 by two entrepreneurs Steve Anavi and Alexandre Prot.

Albertine Lecointe, Qonto
[00:00:45] They have realized that their banking needs were really poorly saved by traditional banks. They were super frustrated by the inefficient and time consuming offers from the banks. So in 2016 they decided to create Qonto which is a business finance solution, the business financial solution they would have dreamed of as entrepreneurs. With three main characteristics: The first one is having a very complete offering from everyday banking to business financial tools such as the invoicing and bookkeeping, a very highly responsive customer support. 24/7. And the last thing is a very clear and transparent pricing.

Presenter:
You’re currently active in four countries and we’ve just announced your launch into four further markets. You seem to have hit the bull’s eye with your business model.

Albertine Lecointe, Qonto
We launched in France in 2017, then Spain and Italy in 2019 and Germany in 2020. And the reason was quite simple. They are the four largest markets in the eurozone with more than 20 million SMEs under one regulation, one currency, euro, and under the same payment zone, which is SEPA. It has been a constant growth since the start. And we became a leader in the markets today. We are serving 500,000 SMEs across our four core markets We have more than 1600 people in the team now. And our goal is to become the indisputable European winner in this business finance solution space with 1 million customers by the end of 2026.

Presenter:
You also have offices in Berlin, although your business model is – as with every fintech – focused on digital solutions. What are the advantages of having this physical presence in Germany?

Albertine Lecointe, Qonto
Actually, we didn't have a physical presence from the start in Germany or in the markets. We decided to open offices a bit later in the process. In 2021, we opened our office in Berlin and it was very important for us to help tailor our offering to the German market and also lay down roots in this local ecosystem, especially to foster close partnerships. And having this office in Berlin also helps to recruit local team of specialists and the experts. And it was very instrumental in fostering some partnership such as with DATEV, for instance. And this is, let's say, the key product partnership that we have in place. Then we have a lot of acquisition partnerships in all of our markets. In order to, let's say, bring more businesses and companies into Qonto. And the main type of partnerships that we have are with legal tax and also some with insurance companies. So we are striking partnerships with players that have already a high customer base of SMEs interested into digital solutions.

Presenter:
As a financial service provider you’re under the regulation of the German financial authority BAFIN.

Albertine Lecointe, Qonto
So today we are under the joint supervision of the regulator ACPR for France and BAFIN for Germany. And across all the markets where we are operating, we have the similar joint supervision from both regulators. And we are working very closely with these local regulators. Clearly you need also to spend time to invest in building this relationship with the local regulator.

Presenter:
You said earlier that your local offices in Berlin helped address the needs of German customers. From your experience, what are those needs?

Albertine Lecointe, Qonto
I think the needs are very much global and European. So basically what we offer is a business bank account plus financial tools such as invoicing, bookkeeping, cash flow management to really help small businesses and the founders of these small businesses to save time and energy. So I think this is appealing to the German SME. This value proposition is very common and global across our four markets. Then we are doing say, specificities in order to suit very well to the needs of this country. So for instance, in Germany I already mentioned, that we have a very strong integration with DATEV which make of course our product quite appealing as it is used by a lot of tax advisers in Germany. But we also do smaller improvements. 
So for instance, our invoicing tool is well adapted to the needs of the German clients in terms of how do you personalize the logo and of course the VAT rate and everything. And plus from the start we had a customer service that is local. So it has never been in English for the markets where we have expanded. It has been in German and we really strive in order to offer a very, very good performance of customer support and very local in each of these markets. And I think this as well creates a difference because the fact that we answer super quickly and rapidly to the request of our clients help create this trust with the clients and then expand our presence in the in the market.

Presenter:
Talking about trust, how open are Germans to new financial solutions?

Albertine Lecointe, Qonto
We found that the adoption of digital solution is quite high within German SMEs and actually higher compared to markets in southern Europe, where the adoption of this tool is low and the finance management process a lot more archaic. So we found that digitalization is one of the most important requirements for German businesses because this helps them avoid errors and also save time. And based on the interactions that we had with customer, we know that the companies really rely on digital finance solution for the cost value ratio that they are providing to us. That being said, of course, everyone has a very cautious approach to manage their finances. And resistance can happen, especially towards foreign fintech. And we believe that the way to address this concern is really to enhance the financial literacy, because whenever you need to do financial choices, if you have built a basic knowledge, you will be more and more open and receptive to fintech offering, which will basically help you save time as a business owner.

Presenter:
What role does the German market play for your company?

Albertine Lecointe, Qonto
Germany is our fastest growing market at Qonto for the third year in a row. And there was also a very important milestone for us in Germany, which was in July 2022, when we decided to acquire Penta, to really create this European champion for digital financial management for SME. The outcome of this integration exceeded our expectation and a lot of Penta costumers decided to move to the Qonto platform. We combined both the local expertise from Penta – because Penta has, at that time, a much larger team that was based also in Berlin – with our brand license and our core banking systems that we have built in house and the combination of these two really help us achieve the ambitious goals that we have for Germany. 
So clearly, Germany is recognized as one of the world's leading business locations and it plays a very important role in the global and European economy. So I think as a business location, it has a lot of positive factors, such as a very central location within Europe, excellent transport network and also virtues of punctuality and quality. What makes it a bit more difficult for some companies is high bureaucratic burden, a high tax country and also a shortage of skilled labor. But as of today, and especially in the fintech sector, I really believe that Germany boasts a robust network of fintech founders and banking entrepreneurs who also support each other and in some cases can collaborate closely from a strategic standpoint.

Presenter:
As we heard at the start of the show, Germany's finance minister wants the country to become a world leader in fintech. Sounds like Germany is on its way to achieving that aim.

Albertine Lecointe, Qonto
I think in a way it's only the beginning of fintech in Europe and we will see it through different angles, both the emergence of large and smaller fintech, but also the way the traditional actors will adapt and are already adapting to this movement of innovation coming from new players.

Presenter: 
Says the Vice President of Strategy at Qonto. Many thanks to our guests – Albertine Lecointe in France and Sebastian Schäfer from the Berlin House of Finance and Tech. As usual, before we say goodbye we’ll take a look at HOW GERMANY WORKS.  

HOW GERMANY WORKS

Albertine Lecointe just mentioned the entity BaFin which is short for Bundesanstalt für Finanzdienstleistungsaufsicht or Federal Financial Supervisory Authority. It’s the independent German government agency that monitors the country’s 2,700 banks, 800 financial service institutions and over 700 insurers. It’s responsible for maintaining the viability, integrity and stability of the German financial system. It’s also a law enforcement agency that can initiate legal action. The BaFin employs over 2500 people and is fully funded by the institutions and companies it supervises. It cooperates closely with similar agencies in other EU countries. And THAT’S how Germany works.

Presenter:
We've come to the end of another episode of Into Germany. If your company has a solution that you think would work in Europe’s financial powerhouse, it pays to get in touch with Germany Trade and Invest. We’re be happy to advise you on expanding to Germany… all at no cost because we’re a government agency. Get in touch at gtai.com. We’re also keen on your opinions, suggestions and questions. Please leave a comment in your favorite podcast app or drop us a line. You’ll find all the details in our show notes.

[Sound effect: computer keystrokes, then a digitalized version of a cash register.]

Presenter: 
And with that – till next month, keep your books balanced, “Auf Wiederhören” and remember: Germany means business.