The growth in German fintech makes for some jaw-dropping reading. The German fintech market size in 2016 reached €2.4b and attracted investments in the same year worth €524m. It’s also estimated that around 13,000 individuals work in the fintech sector in this European powerhouse.
It shouldn’t come as a surprise as the German economy is the strongest in Europe and 4th in the world (only behind US, China and Japan), with a GDP of $3.3 trillion. This is even more remarkable if you take into account the population of Germany, which is 80m compared to the 326m of the strongest economy, the US.
Behind this phenomenal growth in the German fintech industry, is Berlin, seen as the leading force for tech and startup innovation. When Germany’s fintech ventures grew by 84% between 2014 and 2015, Berlin’s investment increased by 200% over the same period.
So how is Berlin on its way to become the no.1 financial technology hub in Europe?
For starters, there’s already a healthy fintech market in Berlin, with over 100 fintech companies calling this city home. And according to Stefan Franzke, CEO of Berlin Partner, this number is expected to double by 2018.
This number includes some major players. Raisin, “Europe’s number #1 deposit marketplace”, attracted £1.7 billion of customer investment at the start of this year. Finanzcheck raised $46 million in the second quarter of 2016, and N26, a mobile-only bank with a full banking license, has processed over €3 billion in transaction volume.
Talking about banking, it’s perhaps Berlin’s unique banking environment that spurred the growth in fintech startups. Unlike other major fintech hubs (New York, London, etc.), Berlin is not home to any major banks or stock exchanges. This has lowered the barrier to entry and levelled the playing field, giving startups the room to expand by providing innovative and frictionless financial solutions to the eagerly-awaiting, Berlin customer base. Even giant Deutsche Bank, has stated that “Berlin is the leading fintech city in Germany”. And they have reason to say this. According to a 2015 report produced by the bank, half of Germany’s fintech companies are located in Berlin, compared to only 11 startups in Frankfurt, Germany’s financial capital.
But fintech startups in Berlin have much larger ambitions than to just conquer the local market. Their reach stretches into neighbouring Europe and beyond. solarisBank raised €26m earlier this year to expand into the Asian markets, with former Deutsche Bank CFO, Roland Folz, at the helm.
Similarly, AEVI, a payments platform, raised €30m in funding last year and manage billions of transactions globally. Berlin-based startup Spotcap, empower SME’s to embrace growth opportunities through funding solutions, not just in Germany but also in UK, Spain, Netherlands, even as far afield as Australia and New Zeeland.
This expansive reach is what has allowed Berlin to grow into a true, international fintech hub. And the only way to sustain this surge is by attracting top talent from around the world on a continual basis. This is just what Berlin is doing. The startup industry here provides access to an extensive selection of specialist labour.
A third of employees (33%) working for startups are foreign with most Berliners speaking another language other than German. Berlin is also a big draw for web entrepreneurs, with a new digital company being born here every 20 hours.
Some of the factors that add to Berlin’s attraction prowess are its cosmopolitan vibe, energetic nightlife, high-quality of life and affordable rents. This low cost of living means you can comfortably get by on a €1,000 per month. There are not a lot of other international cities that can say the same.
Just as important as attracting some of the globe’s most talented tech employees, is support from local initiatives.
The Axel Springer Plug and Play Accelerator was launched in 2013 and is a Berlin-based program that provides financing and coaching to digital startups. One of their most noteworthy alumni includes N26, who we mentioned earlier and has gone on to achieve great success.
FinLeap, Berlin’s dedicated fintech incubator, create the perfect mix of entrepreneurial execution, technological capabilities and industry expertise to build companies that reshape finance. FinLeap raised €21m in additional funding last year, including from the world’s 3rd largest reinsurer, Hannover Re. The platform also launched solarisBank (mentioned earlier).
The government is getting involved as well, providing programs through the state-owned investment bank, IBB. The bank is known as the business development bank of the Federal Land of Berlin, and some of the programs it supports include Berlin Innovation, Berlin Start and Innovation assistant (a program focused on successfully positioning startups in the marketplace).
Although Berlin has built a great foundation for fintech startups to flourish and, in doing so, rightfully earned its position as an international fintech hub, it is the UK’s decision to leave the EU that could push it to the no.1 spot in Europe.
These days, if you enter a conversation about Brexit, it won’t be long before someone will bring up the topic of which city will take over from London as the next fintech leader. And many experts believe Berlin brings some serious competition.
During the London Fintech Week 2016, Berlin’s Senator for Economics and Technology, Cornelia Yzer, stated that over a 100 fintech startups have approached her office regarding the prospect of relocating to Berlin and that every time she talks publicly about Berlin and the effects of Brexit, more London companies get in touch.
According to the Financial Times, money transfer giant, TransferWise, is looking at the option of moving its 100 members of staff in London to Berlin. Revolut, a global money app, is looking at potentially doing the same, relocating its 40 members of staff in London to Berlin.
These are only two examples but many more companies might follow suit, especially after Ms. Yzer included a guaranteed “soft landing” for fintech companies that are interested in relocating to Berlin in her earlier statement.
There’s no doubt that Berlin has got what it takes to become the #1 fintech hub in Europe. With a strong economy, encouraging marketplace, good support systems, and talent-attraction capabilities, Berlin can be summed up in a nutshell with the three T’s of economic development: talent, technology, and tolerance.