BERLIN -- Fintech is booming in Germany, as attendees of the latest Payments Innovation Alliance meeting discussed last week. During a keynote presentation, Arnulf Keese, partner with German venture capital firm e.ventures, provided insights into how fintech startups in Europe have grown in recent years.
Keese began by noting that the reason fintech startups have made so much headway is because they listen to the customer and cater to their needs. “Why is Uber such a compelling experience versus taking a cab in New York?” he asked. “Taking an existing use case and improving the customer experience goes a long way.”
Germany and Europe
Berlin has gradually become the epicenter for fintech activity in Germany, over the past 10 years, and there is currently $480 million invested 70 local startups. Berlin appeals to startups because the cost of living is still low, and with 19 languages in use, it’s a very multicultural area. “Berlin has the perfect environment for startups,” Keese said.
Broadening the scope a bit, Keese noted that there is currently $1.5 billion invested in 233 fintech startups in Germany. In addition to Berlin, Hamburg has also become a fintech hub, with significant activity brewing in Frankfurt and Munich as well.
Keese explained that German companies like Berlin-based WebID and Munich-based IDNow have developed instant KYC verification through mobile apps. While this solution is geared towards consumers, Keese sees no reason why a similar application couldn’t be developed for banks’ corporate clients, thus easing a major headache for today’s treasurers. “Obviously there would still have to be some paperwork involved but it could make that whole process easier,” he told AFP.
As for Europe as a whole, there is $14 billion invested in 2,900 startups. London is still the biggest hub for fintech, but France and Germany aren’t far behind. Additionally, with Brexit looming, mainland Europe could begin to see more startup activity. “Brexit might actually be good for distributing the VC infrastructure across Europe,” Keese said.
Keese provided some key learnings that Europe’s fintech revolution has revealed.
Disruption wins, especially when it’s customer driven. “There is no reason, right or need for any incumbent to survive,” Keese said. “We don’t know who was the biggest provider of carriages before cars were invented. We don’t know who was the biggest provider of candles before the lightbulb.” Thus if banks and corporates insist on sticking to the old ways of doing things, they’ll eventually lose out.
Innovative cultures do not grow by command. Nothing is harder to change than a culture. “A lot of companies today would like to digitize like startups and they think, ‘We've got all these people and all this money, why doesn’t it work?’ Because it’s more of a cultural topic than anything else,” Keese said.
Solving consumer problems gets anyone into the market. As many fintech startups have proven, companies that address a specific customer need can become major players. “You can earn something, but you have to earn it every single day from the consumer,” Keese said. “And you have to listen to them.”
Regulation is an entry barrier and a competitive advantage. Fintech startups have both benefited and run into issues due to regulation. On one hand, they don’t necessarily have to contend with a lot of the regulations that banks do (yet). Additionally, as banks have been forced to comply with stricter regulations in recent years, they have turned to fintechs to help improve their overall customer experience. On the other hand, not being a tightly regulated entity causes some fintechs to be met with skepticism from potential customers.
Banks denied digital transformation for far too long. Keese concluded by saying that many bankers he’s spoken with over the years actually believed that digitization couldn’t happen in their sector. “The phrase, ‘It can’t happen to us’ is probably going to be the most common R.I.P. quote on tombstones,” he said. “Everyone will get disrupted. That’s why we’ve seen so many industries being taken apart and incumbent players disappearing. Any industry that’s been the focus of technological innovation, sooner or later, gets disrupted.”