On the Move - the Future of Finance - EN by Frankfurt Main Finance e.V.

Yearbook 2016

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ON THE MOVE The Future of Finance

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FMF YEARBOOK 2016

FRANKFURT MAIN FINANCE

WE REPRESENT THE FINANCIAL CENTRE FRANKFURT

REGULAR MEMBERS

SUSTAINING MEMBERS

I N S E L N D E R AU F M E R K S A M K E I T

ICF BANK

Kompetenznetzwerk Versicherungswirtschaft

WM Gruppe

VERSION: APRIL 2016

FMF YEARBOOK 2016

FRANKFURT MAIN FINANCE

FR ANKFURT MAIN FINANCE WITH ONE VOICE FOR GERMANY’S LEADING FINANCIAL CENTRE

rankfurt Main Finance is the voice of the

in particular, both partners have managed to empha-

Frankfurt ﬁnancial centre. In addition to the

sise Frankfurt’s importance as a centre for ﬁnancial

state of Hessen and the cities of Frankfurt am

market stability and bank regulation in the eurozone.

Main and Eschborn, its more than 40 members in-

Today, the Frankfurt Finance Summit has become an

clude many well-known ﬁnancial market players and

indispensable platform for dialogue and an important

their service providers, as well as private and public

voice in shaping the terms of the current debate on

universities. With their membership, they each give

regulation.

voice to their close ties to the ﬁnancial centre and their desire to position Frankfurt am Main as a national and

In addition, Frankfurt Main Finance pools and coor-

international ﬁnancial centre of the ﬁrst rank.

dinates the strengths of the state, city and ﬁnancial sector when international decisions on location are

Founded in August 2008, Frankfurt Main Finance

being made. In 2014, this led to the choice of this

has achieved much in recent years. Since last year,

ﬁnancial centre as the location of the renminbi clear-

the Frankfurt Main Finance Dialogue Forum has

ing house. And when ﬁnancial service providers or in-

set the course for the development of the FinTech

ternational institutions are planning to open ofﬁces in

centre. Many institutions have come together in the

Europe, we work together with Hessen Trade & Invest

forum to establish a sustainable FinTech ecosystem

GmbH, FrankfurtRheinMain GmbH and the Frankfurt

in Frankfurt. Frankfurt Main Finance also supports lo-

and Eschborn economic development initiatives to

cal service providers in establishing international busi-

draw the attention of decision-makers to the city.

ness relationships, and helps to shape outside perceptions of the ﬁnancial centre, for example among

One important role that Frankfurt Main Finance sees

delegations from our partner cities of Busan, Istanbul,

for itself is that of an observer of events affecting the

Moscow and Beijing. In addition, it was on the initia-

ﬁnancial sector, creating platforms for dialogue. These

tive of Frankfurt Main Finance that the foundation

include events such as the renminbi conference, the

of the Frankfurt Institute for Risk Management and

Financial Centre Breakfast, panel discussions and this

Regulation (FIRM) was advanced, a company that

yearbook on the subject of FinTech. International com-

in a short time has established itself in its ﬁeld as a

petition between ﬁnancial centres will continue to grow,

respected authority for research and education.

and new competitors will gain strength. This will make it all the more important in the future to speak with

One essential tool for marketing Frankfurt as a ﬁnan-

one voice for this ﬁnancial centre – and that voice is

cial centre is the Frankfurt Finance Summit, a con-

Frankfurt Main Finance.

ference jointly hosted since March 2011 by Frankfurt Main Finance and FIRM, which since its inception has established itself as a meeting place for the global risk and regulatory community. Here, central bank governors, regulators, representatives of the supervisory bodies, ﬁnancial policymakers, academics and practitioners come together once a year to discuss current issues in ﬁnancial market stability. With this event

FOR MORE ON THE FINANCIAL CENTRE

INITIATIVE,

VISIT WWW.FRANKFURT-MAIN-FINANCE.COM

ON THE MOVE 4

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FMF YEARBOOK 2016

CONTENTS

The Future of Finance GREETINGS

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2 | FINTECH & REGULATION

VOLKER BOUFFIER UWE BECKER

6 7

ISSUES AND PERSPECTIVES OF TECHNOLOGICAL CHANGE Uwe Neumann

“THE SECOND FINTECH WAVE STARTS IN THE ENGINE ROOM OF THE FINANCIAL SECTOR” Round-table discussion with Sebastian Glock, Manuel Lorenz and Hassan Sohbi

ON THE MOVE

The Future of Finance

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3 | FINTECH IN PR ACTICE

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INVOICE

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Lutz Raettig on innovation and change in the banking sector

1 | ON THE MOVE

A NEW IMPETUS FOR THE FINANCIAL SECTOR Lutz Raettig

HESSEN PROMOTES FINTECH Tarek Al-Wazir

RHINE-MAIN-NECKAR IS GERMANY’S MOST DYNAMIC FINTECH REGION Christopher Schmitz and Jan-Erik Behrens

FINTECH CENTRE FRANKFURT AM MAIN Oliver Schwebel and Olaf Atja Lemmingson

FINTECH COMPANIES – NEW PLAYERS, NEW CHALLENGES Andreas Dombret

GERMANY’S FINTECH CENTRE IS TAKING SHAPE An ecosystem is evolving – info graphic

FINANCIAL TECHNOLOGY – EVOLUTION OR REVOLUTION OF THE MARKETS? Round-table discussion with Adrian Braun, Christopher Oster, Gernot A. Overbeck, Timur Peters and Jochen Siegert

GERMAN FINTECHS PROMOTE WORLDWIDE FINANCIAL INCLUSION An overview

360T – FROM START-UP TO GLOBAL PLAYER A portrait

THE DIGITISATION OF THE FINANCIAL SECTOR Guest contributions from Thomas-Frank Dapp and Markus Pertlwieser, Franz Sebastian Welter, Robert Restani and Michael Reckhard

TRADITION MEETS FINTECH Interview with Martin Gijssel, CEO of vwd group

CASE STUDIES ❙❙ paydirekt – easy and secure online payment, Niklas Bartelt ❙❙ IT infrastructures are facing massive change, Alexander Deuss ❙❙ Getting to grips with innovation, GFT ❙❙ Trends – Identify, participate, set, main incubator ❙❙ FinTech Forum as nucleus of a FinTech ecosystem in Frankfurt, Pankhuri Srivastava

FMF YEARBOOK 2016

CONTENTS

54 The academic community can come to the aid of private

Representatives of the ﬁrms White & Case, Baker & McKenzie and Taylor Wessing

enterprise, as explained by representatives of renowned

discuss the opportunities and risks presented by regulation.

universities.

5 | FINTECH IN THE ACADEMIC WORLD

52 “We have a discrepancy between private investment and exciting new business ideas,” says Andreas Lukic.

4 | FINTECH & FINA NCE

WHERE CAN A FINTECH FIND FINANCING? An overview

EXCITING NEW BUSINESS IDEAS + PRIVATE INVESTORS Interview with Andreas Lukic, CEO of Business Angels Frankfurt Rhein-Main e.V.

HOW SCHOLARSHIP SUPPORTS THE DEVELOPMENT OF FINTECH COMPANIES Round-table discussion with professors Peter Buxmann, Lutz Johanning, Wolfgang König and Christoph Schalast

IMPRINT Facts, dates, events, portals

The content of contributions identiﬁed by name reﬂect the views of the respective authors and do not necessarily correspond to the views of the publisher or other authors.

carbon neutral natureOffice.com | DE-140-135567

Representatives of the FinTech sector discuss technological development and the consequences for the banking landscape.

print production

FMF YEARBOOK 2016

GREETINGS

One very topical buzzword at the moment is FinTech …

Ladies and Gentlemen, In the seven decades since the founding of the state of Hessen, Frankfurt am Main has risen to become the most important financial centre in Germany and indeed the most important financial centre in continental Europe. A centre combining tradition and innovation with a strong dynamic that makes a substantial contribution to its future viability. The Frankfurt-based companies and institutions in the financial sector establish essential foundations for successful economic life, while at the same time offering employment to many people. Frankfurt is home to the Bundesbank and the European Central Bank, Deutsche Börse and many well-known banks. With the European Insurance and Occupational Pensions Authority (EIOPA), the city is also the supervisory and stability centre for the European insurance industry. On this basis, the region offers ideal conditions for ensuring further development in the financial world and for taking advantage of new opportunities in the future. One very topical buzzword at the moment is FinTech, a sector dedicated to solid and successful development, characterised by responsibility and long-term sustainability, of the Frankfurt financial centre and the state of Hessen as a business location. The Hessian state government is pursuing this goal with great determination. After all, as the centre of the financial economy, Frankfurt is of crucial importance to our state and far beyond. I believe that Frankfurt Main Finance will continue to be an attentive follower and supporter of these developments, and that this yearbook is a multifaceted reflection of that fact.

Volker Boufﬁer Minister President of Hessen

FMF YEARBOOK 2016

GREETINGS

For the creative FinTech scene, Frankfurt has a lot to offer …

Ladies and Gentlemen, The 2016 Yearbook addresses the challenges the financial sector must face in the future, with a particular focus on the implications of developments in the FinTech sector for the Frankfurt financial centre. For the creative FinTech scene, Frankfurt has a lot to offer. As an international and cosmopolitan city with short travel distances, a wide range of high-quality care facilities and educational institutions as well as many cultural and leisure activities, the metropolis on the River Main is, on the one hand, an attractive location for employers and employees alike. The high quality of its infrastructure is also a decisive competitive advantage. On the other hand, the proximity to the existing banking sector is valuable and attractive, particularly for FinTech companies. The Frankfurt financial centre offers access to pooled resources and is home to a great deal of talent with extensive financial knowledge. Last year, there was much discussion both in Frankfurt and elsewhere about the FinTech scene and its support structure. For example, the establishment of a central contact point for everyone involved in the sector – a FinTech centre so to speak – would be an important step in supporting and networking the scene. A platform is required to bring the fragmented scene together. In strengthening the Frankfurt FinTech ecosystem, Frankfurt Economic Development is doing valuable work. It is certainly encouraging that the Frankfurt FinTech and start-up events have developed dynamically and with a multilateral approach, driven by people who think outside the box. I was able to experience this in the autumn of last year at the “Tech Ecosystem Dialogue”, a forum for the exchange of ideas and networking between German and Israeli FinTech start-ups in Frankfurt and Tel Aviv in cooperation with Frankfurt’s Goethe University. Together with the state of Hessen, Frankfurt has taken a decisive step forward. Frankfurt is “On the Move”, on the right track to becoming an attractive and innovative location and therefore a global player in the start-up scene. As Europe’s financial capital, Frankfurt is a natural choice as the future European FinTech hub.

Uwe Becker Frankfurt am Main City Treasurer

FMF YEARBOOK 2016

On the Move

A NEW IMPETUS FINANCIAL SECTOR for the

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The financial sector is on the move: FinTech companies are g enerating innovation and change. Traditional financial institutions can benefit from their momentum, and their many years of experience in banking and regulation can in turn help the young start-ups clear the way for more development. The Frankfurt financial centre offers the ideal conditions for successful collaboration. by Dr Lutz Raettig

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n the past few years, FinTech companies with innovative ideas have moved into all areas of banking, from payment transactions with mobile payment and traditional investment management to securities trading, online insurance and crowdfunding. The fact that confidence in the sector was seriously damaged in the wake

of the outbreak of the financial crisis has benefited the rise of these new players enormously. With a total of 23.5 billion US dollars of venture capital investment –

27 percent in the consumer credit business, 23 percent in payment transactions and 16 percent in the area of lending to companies – the years 2013/14 alone saw an enormous inflow of capital into the FinTech sector (Oliver Wyman: FinTech 2.0: New opportunities for financial service providers, 2015, p. 4). In Germany, investment in FinTech in 2013 was still at 80 million euros, rising to up to 576 million euros in 2015 (Ernst & Young: German FinTech landscape: opportunity for Rhein-MainNeckar, 2016, p. 4). Today, many established banks have also added digitisation to their agenda and are bridging the gap, albeit still hesitantly, between traditional and technologically innovative models. Collaboration with FinTech companies appears promising – and with benefits for both sides.

SYNERGIES OFFER POTENTIAL In most cases, traditional financial service providers have to make allowance for the existing infrastructure, which means that they can often only act slowly. At the same time, the banking sector is curbed in its creative freedom because a large part of its IT capacity is used for the implementation of regulatory and security requirements or the annual tax amendment law. Compared to traditional financial institutions, the young start-ups can compete with none of the c oncerns

FMF YEARBOOK 2016

On the Move

associated with the legacy of the financial crisis. The

In its 2015 position paper on the regulation of FinTech

strength of FinTech companies is in combining finan-

companies, for example, the Association of German

cial services with the latest technologies. They are ex-

Banks argues clearly in favour of the same business

tremely versatile and adapt quickly to the needs of the

being subject to the same rules and, consequently, of

market. The goal of FinTech companies is to enhance

independent FinTech companies being regulated in

and improve the customer benefit.

accordance with the services they offer.

But the existing structure of the established institutions also offers extensive competitive advantages, giving banks a high level of expertise in the various business areas based on their history and decades of experience. In addition, they have also established a very broad and loyal customer base. Many of these customers currently view the young FinTech companies with a great deal of scepticism. According to one representative survey, 40 percent of people do not want to use mobile payment, now or in the future (PwC:

IN GERMANY, INVESTMENT IN FINTECH IN 2013 WAS STILL AT 80 MILLION EUROS, RISING TO UP TO 576 MILLION EUROS IN 2015 . Er nst & Young: Ger man FinTech landscape: opportunity for Rhein-Main-Neckar, 2016, p. 4

WHAT IS FINTECH?

Mobile Payment, 2015, p. 3). If the strengths and weaknesses of banks and FinTech

While the policy makers, competition authorities and

Organisations combin-

companies are brought together, there is enormous

institutions responsible for regulation in Europe and

ing innovative business

potential in the collaboration. The fresh, positive im-

Germany adapt to the requirements and specifics of

models and technology

age of FinTech companies can for example help to

FinTech companies in their efforts to set standards and

to enable, enhance and

improve the tarnished image of banks as perceived

create transparency, Frankfurt is using its enormous ad-

disrupt financial services.

by the p ublic. And the financial institutions can also

vantages. The financial centre combines regulatory and

benefit significantly from the innovative strength of the

industry expertise on the financial side (Fin), while also

FinTech companies, who with their simple structures

offering technological expertise (Tech). As a FinTech

can quickly cope with the ever faster pace of innova-

centre, Frankfurt can also boast an improvement in the

tion. Because the decision-making processes in man-

legal advice available from specialist lawyers. Another

agement and IT at the banks are sluggish by compari-

advantage in Frankfurt is the direct proximity of estab-

son, it pays to wait and acquire new, proven business

lished financial institutions and regulatory bodies.

models on the market. To date, however, the banks are

RELATED LINKS FinTech 2.0: New opportunities for financial service providers http://bit.ly/1P6fQz4

still very hesitant in this area. The FinTech companies

TRADITION AND INNOVATION ARE

Mobile Payment

for their part can use the banking licences of estab-

GROWING TOGETHER

http://pwc.to/1SLrQvN

lished institutions and benefit from their expertise con-

There is clearly movement in the sector and in the

Association of German

cerning the issue of regulation. Were they to attempt

Frankfurt financial centre, but it is not only in the

Banks position paper on

to deal with the extensive legal requirements alone, it

confluence of traditional and new models or with

the regulation of FinTech

would take time, money and expertise, which would

respect to regulatory issues. Other interesting issues

companies

also first have to be established.

include, for example, how the necessary infrastruc-

http://bit.ly/1Pp0F4s

tural environment will be established, how new FinTech

REGULATION CREATES TRUST

ideas can be financed, and what the academic world

In terms of regulation, however, little attention has as

can contribute. With the motto “On the Move”, the 2016

yet been given to FinTech companies that operate in-

Frankfurt Main Finance Yearbook focuses on digitisa-

dependently of a bank. This is a possible scenario in

tion and its consequences, offering a comprehensive

which the young companies offer banking services

insight into its theory and practice. n

but do not actually want to be a bank. This approach is risky, because banking without supervision and reli

Dr Lutz Raettig is the Spokesperson of the E xecutive

able rules will once again ruin the confidence of con-

Committee of Frankfurt Main Finance and Chairman

sumers and the public, and the calls for more regulation

of the Supervisory Board at Morgan Stanley Bank AG

of FinTech companies are getting louder accordingly.

in Frankfurt am Main.

German FinTech landscape: opportunity for Rhein-Main-Neckar http://bit.ly/1TLiDpx

FMF YEARBOOK 2016

ON THE MOVE

Hessen ENCOURAGES FinTech by Tarek Al-Wazir Minister of Economics, Energy, Transport and Regional Development of the State of Hessen

How the state of Hessen is helping to create a vibrant FinTech ecosystem in the region.

Online identification procedures that allow customers to open accounts online; fully automated account and insurance exchange services with subsequent termination of existing agreements; bank-free payment systems, crypto currencies and block chain – digitisation is sweeping through the financial sector and is presenting banks, stock exchanges and insurance companies in particular with new challenges in ever shorter succession. Historically evolved and proven business models are being called into question with an enormous amount of dynamism and becoming subject to fundamental change. Key areas are being affected by this development, including payment transactions, asset management, lending, capital market financing, the trading and management of securities, and the insurance business. At the same time, the new technological possibilities are fundamentally changing the requirements and behaviour of customers. Many customers are now extremely well networked and can access the Internet from almost any location. Therefore, the younger generation rightly expects the financial sector to keep pace with technological progress.

The financial sector cannot and must not close its eyes to the coming together of modern technology with financial services. Existing structures, processes and products must be continually reviewed with respect to technological innovations and technical possibilities, and developed accordingly. Investment in new products, processes, technologies and security will be necessary. But this transformation also opens up significant opportunities. Because efficiency improvements in conjunction with the still high margins in the financial services industry are providing new competitors with great incentives to enter the market and leading to massive growth in this sector. In 2015, the amount of such investments tripled. The number of young financial technology companies has also increased considerably. The Annual Review of Global Banking recently published by McKinsey presents an impressive illustration of the importance of new financial technology. In the next decade, according to the report, FinTechs could acquire up to 60 percent of the profit of traditional banks in retail banking and 40 percent of their turnover. These are changes that the Frankfurt financial centre also needs to face. Here as elsewhere, the rule applies: “Either move with the times,

or the times will move on without you.” As the state government of Hessen, we therefore have a strong interest in embracing this change and helping to ensure that the potential in place here is exploited to develop the ﬁnancial centre into a leading international FinTech hub. Our actions in this area are governed by the premise that the objectives and the process are not imposed from above, but driven from below – pushed by the FinTech scene itself.

Setting standards The metropolitan region of Frankfurt enjoys ideal conditions to evolve into an international FinTech hub. No other region in Germany or Europe offers a comparable geographical link between information and communications technology and ﬁnancial services. This applies to both training and research – the source of innovation – and to the industries themselves. The region is home to renowned, internationally recognised economic science faculties such as Goethe University and the Frankfurt School of Finance & Management, as well as outstanding IT think tanks with the TU Darmstadt and the Darmstadt University of Applied Sciences. Add to that research centres, which set global standards

FMF YEARBOOK 2016

ON THE MOVE

Frankfurt is where the innovative power of FinTechs meets the ﬁnancial strength and expertise of the most important ﬁnancial centre in continental Europe and the euro-zone.

in the area of IT security – a key issue in the age of digital financial services. This academic expertise within the financial centre ensures direct access to an enormous amount of investment capital and the financial strength of banks and investors. But the financial centre is much more than a potential financial backer and promoter of growth for FinTechs. The demand for innovative financial services is also growing – whether for the use of innovative B2B solutions that simplify and optimise business processes, or for B2C solutions that adapt business processes to the changing needs of customers and make them fit for the future. There is business to be done here. In a word: Frankfurt is where the innovative power of FinTechs meets the financial strength and expertise of the most important financial centre in continental Europe and the eurozone. On the industry side, in addition to global market leaders such as Software AG and SAP, there are also numerous highly specialised and successful IT service providers in the immediate vicinity of the financial centre. The IT infrastructure is also very good. With the DE-CIX, Frankfurt is home to the world’s largest Internet hub, with data traffic of up to 5 terabits per second. 40 percent of Germany’s major data centres are in Frankfurt. For big data technologies, these are hard advantages in terms of the attractiveness of the location. More and more global players in the cloud computing market are building their data centres in Frankfurt. In the central global operating unit of the Global Legal Entity Identifier System (GLEIS), the digital barcodes of the market participants in financial transactions around the world are coming together – and the headquarters of the project initiated by the G 20 here in Frankfurt also constitute financial technology in the material sense.

These location advantages provide enormous opportunities, particularly for new financial technologies. And these opportunities are already being fully exploited. In contrast to typical founder cities, innovative financial technologies have been developed in Frankfurt less by startup companies and more by established financial or IT service providers. Any attempt to isolate the subject of FinTech to start-ups would fall short and not do justice to it, particularly in material terms.

Encouraging founders In the interests of the further development of the Frankfurt financial centre, the Hessian state government must and will make a greater contribution to promoting the start-up sector and the founder scene in order to keep talent from the universities and highly-skilled employees in the financial sector with their own business idea in the Frankfurt financial centre. Together with all of the players in the financial centre – in particular the FinTechs, the incubators, the city of Frankfurt and the universities, as well as the established financial service providers and Frankfurt Main Finance – it is already working to develop Frankfurt into a FinTech hub. Thanks to the large number of highly committed players, the ecosystem has evolved considerably in recent years. The Frankfurt FinTechs, organisers of FinTech events and university and private incubators are doing excellent work. The task now is to get to know the needs of the highly dynamic FinTech sector and to find out how the state of Hessen can best support the FinTech hub. The state can also make a major contribution to coordinating and pooling the wide variety of activities already taking place in order to further advance the dynamically developing FinTech ecosystem. In the discussions to date, one point has emerged with particular clarity: The establishment and organisation of a central

location that offers FinTechs amenities such as affordable and attractive ofﬁce space, opportunities for networking and the exchange of ideas, and access to consultants and investors. The state possesses a wide range of tools to contribute to the further development of companies and the FinTech location. We encourage startups and spin-offs in particular through loans at preferential interest rates, founder funds, investments and guarantees. With appropriate programmes, the establishment and operation of a FinTech cluster can also be supported. We will also strengthen research and cooperation between universities at the point of intersection between ﬁnance and IT. Of singular importance, especially for young FinTech companies, is the issue of regulation. Initial discussions are now taking place between the regulators, the public sector and start-ups which will contribute to a positive development.

Marketing strengths Overall, the intention is to encourage the evolution of a vibrant ecosystem containing various start-up centres, driven by players in the financial centre and with different approaches and profiles and the ability to provide each other with inspiration and motivation. The state has many tools at its disposal to actively support this process. Beyond that, the state will also help strengthen the networking of FinTech activities in the region by promoting research and cooperation between universities and research centres at the point of intersection between finance and IT and by supporting the establishment and operation of a FinTech cluster through programmes in the Rhine-Main region. In addition, the state will play its part in improving the marketing of the strengths and advantages the region already offers today at the national and international levels.

FMF YEARBOOK 2016

On The Move

Rhine-Main-Neckar is Germany’s most dynamic FinTech region

by Christopher Schmitz and Jan-Erik Behrens

The German FinTech market has grown significantly, and the Rhine-Main-Neckar region has a strong foundation to d evelop into a leading European FinTech hub. These are the findings of a study conducted by the auditing and consulting firm Ernst & Young (EY) and launched by Frankfurt Main Finance (FMF). The study examines the German FinTech industry and identifies potential areas for advancement. The analysis was based on interviews with German and international FinTech companies, investors, market experts, regulators and public institutions.

International FinTech hubs London Silicon Valley Number 1 location for start-ups globally, with a highly-developed landscape of FinTechs across all segments and levels of maturity with excellent access to capital

Europe´s number 1 hub with strong growth through an excellent environment as one of the two major global financial centres

Singapore

Frankfurt New York Number 1 global financial centre with the highest number of employees (followed by London) working in the FinTech industry

Large continental European Hub within Europe’s leading economy catching up fast

Largest hub in Asia with strong government support in promoting an innovative FinTech eco-system through direct investment, tax incentives and measures to attract entrepreneurs

FMF YEARBOOK 2016

ON THE MOVE

German FinTech hubs Germany’s FinTech Universe by city in %

28% Berlin: “Hip and trendy”

With 22%, the Rhine-MainNeckar region experienced a higher growth rate than the rest of Germany in 2015.

22%

14% Munich: “High living standards”

Frankfurt: “Gateway to the world”

The signiﬁcant growth in FinTech is being observed

among the top 8 global FinTech regions benchmarked

globally and is currently one of the items with high-

in the ﬁeld of the followers, with a clear gap behind the

est attention in the Financial Services (FS) industry. It

leading regions London, Silicon Valley and New York,

is expected that FinTechs will be a major driver for the

but only brieﬂy behind Singapore. In the mid-term

transformation of the Financial Services industry going

however it is prospected that Germany will catch up

forward and in turn will attract talent and capital and

based on its economic strengths and market potential

create incremental employment opportunities.

compared to today´s leading regions.

The German FinTech market has developed somewhat

The Study shows that in Germany, the number of per-

later and initially at a slower pace than other international

sons employed by FinTech companies in 2015 already

FinTech markets, but has been perceived in the mean-

amounted to 13,000. The strongest indicator for the

time as a market with strong growth potential. This is

German FinTech growth however is the size of invest-

evidenced through a signiﬁcant upswing in FinTech deal

ments in 2015, where all over Europe, the amount of

volumes, from 80 million EUR in 2013 to 200 – 250 million

576 million EUR FinTech investments in Germany was

EUR in 2014 and to 576 million EUR in 2015, even

only surpassed by the UK, with 778 million EUR. This

without counting the prominent 725 millionEUR sale of

gap seems not large, given the relative maturity of the

Frankfurt’s 360T to Deutsche Börse in 2015.

London FinTech ecosystem.

million

Aside from the major global FinTech hubs, other cities

The German FinTech market in global context

such as Stockholm and Tel Aviv have already successfully developed their own respective proﬁles and footprints in this sector. Recently, locations in Germany

In the global EY FinTech Benchmarking study commis-

as well as neighboring countries, e.g., Luxembourg

sioned by UK HM Treasury, Germany was ranked #5

and Switzerland, have appeared to be very active

FMF YEARBOOK 2016

ON THE MOVE

in terms of generating attention to be recognized as

O Insurance (InsurTech): has only recently started

potential FinTech hubs of the future. In our analysis,

to be addressed by FinTechs. Similar to the B2B

we identiﬁed that the German FinTech market has key

FinTech trend, signiﬁcant growth of FinTechs in

strengths in the general availability of capital, a stable

the insurance sector is expected. Germany is in a

ﬁnancial market and a prosperous society.

leading position globally in that area. O Regulation (RegTech): Again, Germany plays a

German FinTech landscape

leading role at the forefront of keeping up regulation being technologically supported

The German FinTech landscape is a very dynamic universe of companies, which has some domestic spe-

In general we identiﬁed two major business models

ciﬁcs but the business models in general have major

for FinTechs: A cooperative (strategic partnership be-

similarities with the landscape of other European and

tween ﬁnancial institutions and FinTechs) and a stand-

global FinTech markets. It is to be observed that the

alone model (substitute traditional bank products with

German landscape is currently still in its early develop-

ﬁnancial products of FinTechs). Our analysis reveals

ment stage, the FinTech market has been growing by

that FinTech business models, which are based on

more than 70% since 2013 and currently consists of

cooperation with other partners (other FinTechs or FS

about 250 companies.

providers) are expected to grow signiﬁcantly, to enrich

In recent years, the payments and lending segment has

services and / or share capabilities.

dominated activity both in the global FinTech industry as well as in Germany. This is documented in particu-

FinTech locations in Germany

lar through the number of transactions and investment volumes in both segments. A variety of less complex

The FinTech landscape in Germany is spread across

solutions exist such as aggregators or simple platform

the country and no single “FinTech hub” has been

solutions. These segments are not assumed to have

established. This is often seen as a comparative dis-

strong further growth potential.

advantage against other international FinTech hubs.

Based on the interviews conducted, future growth in the

Within Germany, Berlin, Rhine-Main-Neckar, Munich

FinTech industry is anticipated in segments with high

and Hamburg are the hubs with the strongest FinTech

prospects for B2B efﬁciency improvements, mone-

concentrations.

tisation of data and increased consumer transparency.

Rhine-Main-Neckar is the region in Germany with the

Speciﬁc areas of expected growth are personal ﬁnance,

most dynamic growth in the last 3 years. In 2015 the

blockchain and analytical solutions. Another anticipat-

number of FinTechs has grown by 22% and is now

ed growth area is the insurance sub-segment, which is

the base for 22% of all German FinTechs. In addition

currently only starting to be addressed by the FinTech

the Rhine-Main-Neckar region is seen as the most

community in Germany.

professional location with access to critical Financial Services skills and B2B know-how.

O Cryptocurrency and blockchain: The usage of the

Berlin is still the largest German FinTech hub with 28%

blockchain concept in general ﬁnancial contexts is

FinTechs. It is perceived as the hip and trendy startup

expected to become wide spread in all ecosystems

hub with considerable know-how in the ﬁeld of e-com-

and application scenarios that incorporate asset

merce and generally a highly vivid start-up environment.

transfers vs. payments (not only in a cryptocurrency

Munich hosts 14% of the German FinTech base and is

context), e.g. a digital ledger for payment transac-

perceived as the hub for innovative technological solu-

tions, trade ﬁnance or securities trading, clearing &

tions and location of investors and is appreciated as an

settlement.

attractive city for living in general.

O B2B servicing: Demand for B2B products and ser-

A key challenge: The varied distribution of know-

vices is expected to be considerably stronger than

how is leading to a fragmented FinTech industry in

for B2C products, e.g. ﬁnancial infrastructure, etc.

Germany and is seen as a challenge compared to

FMF YEARBOOK 2016

ON THE MOVE

highly centralised hubs like London or the Silicon

Dialogforum FinTech Rhine-Main

Valley. However, based on the interviews conducted and analysis performed, Rhine-Main-Neckar has

FMF initiated the “Dialogforum FinTech Rhine-Main”

the natural potential to become “the German FinTech

in late summer 2015 as a platform to speed up and

Hub” given the proximity to the established Financial

to coordinate supporting activities in the Rhine-Main-

Services industry.

Neckar Region. The overall targets of the initiative are:

FinTech opportunity in the Rhine-Main-Neckar region

O Development of a target picture for the “RhineMain-Neckar FinTech Hub“, including an activity plan derived from the FinTech study and the

In our interviews, we received feedback that a suc-

working results of the initiative

cessful development of the Rhine-Main-Neckar Re-

O Incorporation of all major local and regional stake-

gion as a FinTech hub will require a clear FinTech

holders and multipliers of the FinTech segment

market proposition which will be recognised globally.

and public / political sector

Interviewees propagated the opinion of not just simply

O Creating a broad local and regional commitment

re-creating other locations (i.e. trying to re-construct

by market participants and public administration

the “hip” ecosystem in Berlin), rather a proposition

to drive the target picture and the implementation

needs to be developed which is credible, sustainable

of the identiﬁed actions

and which complements the existing strengths and FinTech character of Frankfurt and the Rhine-Main-

The initiative is supported by more than 50 pri-

Neckar Region. Therefore a sustainable position-

vate and public institutions on a voluntary basis to

ing should focus on services which are compatible

strengthen the Rhine-Main-Neckar FinTech region.

with / building on its natural strengths and should not

These institutions include leading banks and ﬁnancial

“duplicate” other FinTech Hubs:

service providers, legal and consulting ﬁrms, associations, investors, incubators and accelerators, public

O International FinTech

institutions and universities, as well as other FinTech

gateway in Germany:

market participants and stakeholders.

Develop strong collaboration and network with

The initiative is structured into 11 working groups.

other international FinTech hubs (e.g. Tel Aviv,

Those groups cover activities such as the identiﬁca-

Singapore, South Korea), based on University

tion and development of a FinTech Center in Frankfurt,

projects, joint conferences and events and sup-

local and regional services for FinTechs and regional

port them in Germany.

education and science offerings of universities. The

O Focus on B2B business

results of the initiative will be agreed in the working

models including RegTech:

groups and presented to the initiative’s steering com-

Focus on B2B business models, such as infra-

mittee, which is attended by senior representatives of

structure innovations and data analytical improve-

major regional ﬁnancial and public institutions.

ments which combine Technology and Financial

The steering committee will recommend a target pic-

Services expertise.

ture to develop the Frankfurt FinTech hub and will

O Use of proximity to

support at the same time regional activities for build-

ﬁnancial services:

ing the FinTech ecosystem.

Close collaboration between traditional ﬁnancial services institutions and FinTech corporations,

For more, go to: http://bit.ly/1TLiDpx

based on integrated business models, support of show case projects, and direct support and

Christopher Schmitz is Partner and Jan-Erik

mentoring of start-ups to contribute to improving

Behrens Executive Director at EY Transaction

the customer journey.

Advisory Services.

FMF YEARBOOK 2016

On the Move

FinTech Centre Frankfurt am Main New technologies related to alternative financial services are revolutionising the world of finance – globally and in Frankfurt am Main. by Oliver Schwebel and Olaf Atja Lemmingson

The term “FinTech” stands for “financial technologies” – and the fact that companies in the financial sector have found a good home in Frankfurt is beyond question. The technologies related to alternative financial services covered by this collective term have grown explosively around the world since 2009, and they are revolutionising the global financial world. Since the end of 2014, the hype surrounding them has swept through Frankfurt. As a continental European financial centre, Frankfurt has evolved into a focal point for FinTech start-ups. Compared to international FinTech hubs such as London, Tel Aviv or, at the national level, Berlin, where the FinTech landscape focuses primarily on B2C solutions, the local scene in the Frankfurt-Rhine-Main region has a very pronounced focus on the B2B sector due to its dense concentration of banks. As a location, Frankfurt offers FinTech start-ups a highly qualified pool of expertise, proximity to regulators, IT skills and know-how, and more and more office space in the form of “co-working offices”. Cost disadvantages compared to the often less expensive office space in Berlin or a lower salary level are offset in Frankfurt by a highly efficient infrastructure. With the DE-CIX, Frankfurt not only has the most important Internet exchange in Europe, but also offers short travel distances within the city with its comparatively small area and can ensure an international perspective with its proximity to the airport. English is part of the everyday life of the city. As a result, FinTech start-ups can benefit from Frankfurt as an international fi nancial centre and “key enabler”. Although established players do make market entry for alternative financial services from young FinTechs more difficult, success stories

FMF YEARBOOK 2016

ON THE MOVE

lion euros by Deutsche Börse AG show nevertheless that collabora-

FinTech centre to be established in Frankfurt

tion between the FinTech sector and the “old economy” is an obvious

From November 2015, there was an increase in momentum in the

such as the 2015 purchase of 360 Treasury Systems AG for 750 mil-

choice, and that the proximity to banks opens up new opportuni-

Frankfurt FinTech landscape, with Frankfurt Main Finance staging

ties for the market as a whole. In addition, the FinTech segment also

the FinTech Dialogue Forum. Under the leadership of Minister Tarek

has great potential to become an independent alternative market for

Al-Wazir, the Hessian Ministry of Economics, Energy, Transport and

traditional ﬁnancial services.

Regional Development moved to the forefront of those actively pro-

Events support the development of the scene

on 21 November 2015. One particular focus is on the rapid estab-

The dynamic development of the scene, as well as the close local

needs of the FinTech community. Given that the FinTech centre pro-

moting the FinTech scene with the Euro Finance Tech conference lishment of a high-quality FinTech centre in Frankfurt that meets the

contact with established companies in the ﬁnancial sector and other

jects vary widely and that the market is still fragmented to some extent,

FinTech start-ups, is obvious looking at the increasing number of

Al-Wazir’s initiative represents an important basis for the creation of a

series of events held locally. Frankfurt Economic Development GmbH

neutral platform. A letter of invitation from the Hessian Ministry called

not only supports the scene ﬁnancially, but also promotes an inten-

for the submission of project ideas for a FinTech/start-up centre by

sive dialogue with the city of Frankfurt am Main, the state of Hes-

20 January 2016. On 27 January 2016, the ﬁrst public presentation of

sen and Frankfurt Main Finance e.V. in order to create a common

the concepts submitted for a FinTech centre in Frankfurt took place

neutral platform. In addition, main incubator GmbH with its Between the Towers event series and Maleki Group GmbH with its organisation of EURO Finance Tech play an active role in the networking of the scene. Goethe University also shows great commitment through its organisation of various events such as the Tech Ecosystems Dialogue with the involvement of the Tel Aviv tech scene, the Unibator, and the creation of an Innovation Map designed to provide a better understanding of the FinTech landscape. The scene itself is particularly active in various meet-ups of FinTechs for FinTech start-ups, which

“Collaboration between the FinTech sector and the ‘old economy‘ is an obvious choice, and the proximity to banks in Frankfurt opens up new opportunities for the market as a whole.“

since the summer of 2015 have regularly invigorated the scene with

in the Presidium building at Goethe University. In the interests of the

rapidly growing numbers of participants. The initiators here are the

aforementioned neutrality, a working group made up of seven repre-

FinTech companies Savedroid and endava.

sentatives from different areas was established. It is now the task of

At a roundtable meeting on 30 September 2015, at Frankfurt

comparable and to encourage partnerships, in order to accelerate the

Economic Development GmbH, representatives of FinTech start-ups,

process of implementing a suitable concept. The mayor and the eco-

the members of the working group to render the concepts presented

incubators, universities, the city of Frankfurt and the state of Hessen

nomic department head of the city of Frankfurt also support this pro-

had the opportunity to conduct some initial discussions about the

cess, stressing the importance of FinTech development at a FinTech

current FinTech situation in Frankfurt. The results and requirements

roundtable discussion held in city hall on 2 February 2016. Mayor

identiﬁed in the meeting, being transmitted to the following events

Peter Feldmann sees a big opportunity for Frankfurt: a FinTech cen-

and forums, were the following:

tre would be a major boost to the appeal of Frankfurt as a FinTech

• Creation of a central contact point (FinTech centre) • Frankfurt FinTech and founder events have evolved dynamically

for the right framework conditions: “The active participation of the

location. Economic department head Markus Frank supports the call

and are well-rounded in conceptual terms

• Frankfurt has excellent, high-quality infrastructure and expertise. It needs to use its quality to set itself apart from Berlin’s quantity

political institutions, and in particular the state of Hessen and the city of Frankfurt am Main, is something the FinTech landscape would like to see. This calls for the provision of resources to develop both the infrastructure and image of Frankfurt FinTech.” Q

• Need for a single platform to bring the fragmented scene together, preferably through a public and neutral point of contact

• Urgent need for PR and image improvement for Frankfurt as a FinTech location

Oliver Schwebel is Managing Director and Olaf Atja Lemmingson Head of International Business Communities at Frankfurt Economic Development.

FMF YEARBOOK 2016

On The Move

FINTECH COMPANIES –

Technological innovations are advancing into the world of banking and finance. How can the right framework conditions be put in place in response to this development? by Dr Andreas Dombret

NEW PLAYERS, NEW CHALLENGES Everyone seems to be talking about Fintech com

others offer software solutions for smart data appli-

panies at the moment. What these companies

cations in banks and financial institutions. Indeed, the

have in common is that they are penetrating

range and diversity of such apps is boundless.

the market with innovative, IT-based busi-

Frankfurt as a financial centre has already generated

ness ideas that promise their customers

much hype about Fintech companies on a number of

significant time and cost savings. Always avail-

occasions. The potential for innovation offered by these

able and consistently tailoring these ideas to

businesses has given rise to legitimate hopes that it is

those customers’ individual needs, they have now

possible to satisfy customer requirements more con-

advanced into almost every area of the banking

sistently, improve performance in the financial sector

and financial sector. For example, the finance

and promote new growth. This has in turn raised ques-

and investment business segments are

tions regarding the extent to which this development should be promoted as well as the need to provide of a strong ecosystem in order to effectively compete with other financial centres and attract these young entrepreneurs. Fintech companies are putting indi vidual credit and financial services institutions under considerable pressure to rethink their strategies or justify their existing ones.

Competitors or partners? The challenges presented by Fintech companies to established

financial

institutions

cannot easily be reduced to a single seeing the growth of platforms for credit

common denominator. Provided they actually succeed

brokerage, for the financing of start-ups and

in establishing their business models in the industry,

SMEs and for “social trading”, where invest-

new players clearly lead to increased competition for

ment tips and recommendations are shared

customers and as regards terms and conditions. At the

within the network community. And the area of

same time, it is often difficult for a bank to strategically

payment transactions is also seeing the rise of

assess whether such “newcomers” should be regarded

technology-driven business models, for example

as competitors or as future partners since their key

in the form of mobile payment methods or inter-

selling point is offering a plethora of different business

national money transfers. There are a raft of useful

models. After all, the competition that occurs is not

applications that assist customers with certain

just between them and the established banks, but also

tasks, for instance keeping track of their vari-

among the new financial market players themselves.

ous bank accounts at any given time using

Moreover, there is uncertainty about the general di-

their smartphone, while

rection in which the banking sector is evolving. What

FMF YEARBOOK 2016

On The Move

might Banking 4.0 look like in 2025? Fintech com

service, are subject to errors ands and misuse. Height-

panies may prove to be competitors, partners in co-

ened cyber risks are just one of the side effects, while

operation or disruptors – providers of new and superior

other issues include the handling of confidential data or

business models that the established banks and finan-

unforeseen consequences of algorithm-based banking

cial institutions will struggle to respond to effectively on

services, for instance. There is therefore no regulatory

the market using their traditional services and existing

justification for systematically giving preference to new

infrastructure. This undoubtedly presents the banks

technologies. On the contrary, I am of the firm belief

and financial institutions with a challenging business

that we require a system of regulation that treats tech-

environment, and it is already forcing them to make

nologies neutrally and intervenes at exactly the point

strategic decisions that prepare them for dealing with

when instruments and institutions produce dispropor-

Fintech companies in the future. One aspect of this

tionate risks.

effort is to devise and consistently implement the nec-

Regulators are therefore faced with the challenge of

essary adjustment processes, for example with respect

reinventing the wheel only where it no longer has any

to IT infrastructure, product range, branch and location

traction in its existing form, including with respect to

strategy or staff recruitment, and this is something the

seemingly new forms of financial intermediation and

banking regulators are paying particular attention to at

of banking and financial services. The time-honoured

the moment.

distinction between regulated credit, financial services

In addition, the financial regulators are also faced with a

and payment institutions and unregulated players is a

fundamental question: Given the many and sometimes

risk-based model that establishes a level playing field

profound innovations, are the right framework condi-

for competition among the various market participants.

tions in place? The answer to this question depends

Taking into account the risks associated with a given

The risks taken must set the benchmark for fair competition. largely on the objectives that the overseers have set.

business model, it is possible to assess the circum-

Notwithstanding the aforementioned and certainly

stances under which a licence requirement and other

seminal question of the economic impact Fintechs can

regulatory and supervisory consequences are need-

and will have, the overriding objective of financial super

ed for a credit brokering platform, a payment service

vision has remained unchanged – to ensure a stable

provider or any other concrete business idea. A special

financial system. The framework conditions must be

regulatory treatment of Fintech companies is there-

determined in such a manner that any risks taken also

fore neither desirable nor legally compliant. Fintech

set the benchmark for fair competition between all mar-

companies that have given their innovative business

ket participants. The principle of “same business, same

idea concrete detailed structure may consult the

risk, same rules” is the tenet on which the international

Bundesbank and its offices as a regional contact point

regulators already base their actions today and I, for my

for questions relating to licensing and authorisation.

part, follow it to the letter.

Financial supervisors must focus their attention on innovations entailing risks that are not yet adequately

Pay careful attention to risks

covered by the existing supervisory system. Only if they

From a banking regulator’s perspective, innovations

do this, regulators will be in a position to exercise their

should on no account be viewed solely in terms of

mandate to identify risks to the financial system at the

their benefits. The financial crisis has made us acutely

earliest possible juncture and to supervise all market

Dr Andreas Dombret is

aware of the need to be particularly alert to risks and

players in a risk-appropriate manner, thus ultimately

a member of the

side effects arising from products and services that

contributing to an appropriate and sustainable level of

Executive Board of the

have yet to stand the test of time. This applies not least

economic growth and prosperity for all.

Deutsche Bundesbank.

also to IT-based services which, as with other forms of

FMF YEARBOOK 2016

FINTECH & REGULATION

Issues and perspectives of technological change by Dr Uwe Neumann

The fact that digitisation can shake up an entire industry has already been shown very clearly in the print and music industries. Now it’s the ﬁnancial sector’s turn to face technological change.

The term FinTech has already made big waves. But the changes it is bringing affect not only FinTechs and established ﬁnancial service providers, they also affect regulators. BaFin has been

to the entrepreneur for the commencement of business in terms

facing the new challenges for some time now. However, there

they can understand. And the second issue relates to modern,

are some questions still to be answered. Three aspects char-

service-oriented communication between entrepreneurs and

acterise the framework for BaFin’s future work with FinTechs.

BaFin, an area in which it is self-evident that the dynamism in the FinTech market also requires a certain speed of reaction

First, the goal of BaFin is to accommodate the needs of young

from BaFin.

companies as best it can. In the past, BaFin was used to a clientele that already had comprehensive legal support and

Specifying rules

regulatory expertise to offer. FinTechs by contrast put the cart before the horse. They have the technical know-how and offer

However, this does not mean – and this is the second key mes-

creative solutions along the customer’s requirement proﬁle.

sage – that BaFin can or is allowed to change the rules of the

They identify segments of the traditional business that they

game for FinTechs. If a FinTech’s business model concerns ac-

then replace with customer-friendly solutions or complement

tivities for which a licence is required, BaFin in turn expects the

with smart applications. However, FinTechs were not generally

relevant rules to be respected. Communication in the appro-

focused on regulatory requirements, and BaFin did not until

priate terms should therefore not be equated with a guarantee

now focus on the approaches and requirements of often young

of any exemption from licensing requirements that might be

FinTech companies. That means that both parties now have

desired. But where a business model requires licensing, and

work to do. Within BaFin, procedures have been developed that

therefore also the ongoing supervision of BaFin, BaFin is of

allow a more tailored response to the needs of FinTechs. On the

course also there to help the company – whether FinTech or

one hand, it is particularly important for entrepreneurs to have

not – with any questions and uncertainties they might have. At

access to information about possible regulatory obligations be-

the same time, the quality of answers to questions concerning

fore there is any personal contact with BaFin. Without a law de-

licensing should not suffer from the expectations of entrepre-

gree, the issue here is to prepare the information that is relevant

neurs in terms of speed. The market in which FinTechs operate

FMF YEARBOOK 2016

FINTECH & REGULATION

is fast-paced and highly competitive. And BaFin knows that.

on the future products and services, sources of income and

Nevertheless, every decision made under the existing regula-

business models of ﬁnancial service providers, which means

tory requirements must be examined carefully, and often case-

that BaFin’s responsibilities also include caring for companies

by-case, in order to ensure a full and proper response.

under supervision while in equal measure adapting the under-

In this context, BaFin is often measured against the work of the

standing of regulatory requirements to the ongoing changes.

British Financial Conduct Authority (FCA), which is currently

The important thing here is to stay abreast of current trends

exploring some interesting avenues. For example, under the

and to gauge their relevance for the supervision of banking,

banner of economic development, the FCA is implementing

insurance companies and securities service providers.

a “sandbox”, in which selected start-ups can test their business models under less stringent supervisory standards. In

Ultimately, technological change is accompanied by new ques-

this area, BaFin is currently coming in for much criticism that

tions and perspectives, which have to be faced not only by

it is preventing innovation at home with its strict requirements.

young and established companies. BaFin is also moving with

BaFin’s response to this is relatively clear and inescapable:

the times by adapting both its supervisory perspective and the

BaFin has no mandate for economic development, and a

authority as an “administrative apparatus” to these challenges.

“supervision light” for FinTechs would infringe its legal obliga-

There are already in-house initiatives concerning each of the

tions. This applies to all companies, regardless of where they

three aspects discussed. The goal is to keep a close eye on

are in their life cycle. Potential conﬂicts of interest between the promotion of enterprise and collective consumer protection are also possible in this area. However, gradations in relation to regulatory requirements are

“It can be considered a sign of quality to obtain a business licence under the supervision of BaFin.”

already provided for under German regulatory law. Because not every business model requires a so-called full banking licence under the German Banking Act, which, under the

developments in the ﬁnancial markets and to be there as a

“modular principle” enshrined there, also provides a frame-

contact for companies, with modern tools and communication

work of legal options for licences for individual banking trans-

in terms that are comprehensible, and using clear rules that

actions and ﬁnancial services. While these do on the one hand

ensure continued compliance with supervisory standards. Be-

imply limits on the activities of companies, they also go hand

cause these rules create conﬁdence in the German ﬁnancial

in hand with a graduated catalogue of requirements. Some of

system, for both businesses and consumers. This means that

these rules are ﬁxed and inﬂexible. But in areas in which the

obtaining a business licence in accordance with regulatory re-

legislature provides only the framework, one of the supervisory

quirements and being subject to ongoing supervision by BaFin

standards at BaFin is to make requirements on companies de-

can be understood as a sign of quality.

pendent on risk and complexity, thereby making allowance for the concept of proportionality.

Dr Uwe Neumann is Head of Strategy and Risk in the President’s Ofﬁce at BaFin, the German Federal Financial Supervisory Authority.

Keeping trends in mind Third, it is becoming apparent that as catalysts, FinTechs will drive the process of digitisation, automation and personalisation in the ﬁnancial sector forward in the long term. On the one hand, the services offered by FinTechs are changing the expectations that consumers have of the established companies. On the other, they are opening up new ways to make processes more efﬁcient and cost-effective. This may well have an impact

FMF YEARBOOK 2016

FINTECH & REGULATION

A culture of short distances doesn’t hurt, especially in such a fast-paced business. DR SEBASTI AN GLOCK, LOCAL PARTNER AT WHITE & CASE

o m oo

ancia n i f e th

l sector”

ig ne

“The second FinTech wav

e st

art

s in

the

The regulation of FinTechs is currently a topic of concern for the relevant authorities and the players in the ﬁnancial and technology sectors. Dr Sebastian Glock, Dr Manuel Lorenz and Hassan Sohbi from the ﬁrms White & Case, Baker & McKenzie and Taylor Wessing had a round-table meeting with the FMF editorial team to discuss opportunities and risks.

How do things stand at the moment with respect to the regulation of FinTechs in Germany?

SEBASTIAN GLOCK: There is no special regulation for

FinTechs. These are innovative start-up companies

that often provide new services. These services may be

covered by speciﬁc existing regulations. When FinTechs

provide services in the ﬁnancial sector, they are regulated

as any other ﬁnancial service provider.

MANUEL LORENZ: It can also be said that FinTechs come within

the ambit of the regulators when they address themselves to the market – and to a lesser extent when they provide internal services to banks, for example. This is an important distinction. And then you have to work through the existing licensable activities regulated in the EU directives one by one. At the moment, we see primarily FinTech business models that fall within the ambit of the Markets in Financial Instruments Directive, because the models are based on securities or ﬁnancial instruments. These include, for example, robo-advisors or trading platforms for fund shares.

What happens in practice if an activity is regulated? LORENZ: There are a number of models that work from a practical per-

spective. One possibility is for a FinTech company to use a so-called fronting bank or white label bank. These banks have a licence, which means that the FinTech is no longer subject to regulation. But there are many FinTechs who do not wish to avoid regulation in this way. HASSAN SOHBI: What we are seeing at the moment is that the

ﬁrst FinTechs subject to regulation are

FMF YEARBOOK 2016

FINTECH & REGULATION

Ofﬁce hours for consultations or information events could begin a dialogue between FinTechs and BaFin. DR MANUEL LORENZ, PARTNER AT BAKER & MCKENZIE

applying, for example, for a banking licence. Others are still somewhat reluctant. As I see it, this is mainly a question of attitude. There is a concern that regulation will hinder the ability to be innovative. Second, there may be a tendency to shy away from the effort associated with it, without knowing exactly how much effort is involved. In the early stages in particular, this is an important issue, and one that could be addressed in order to help young companies take this hurdle with an adapted form of regulation.

Is it more difﬁcult to start up FinTech companies here than in other countries? LORENZ: Basically, regulation in Europe is largely harmonised.

Still, there are differences. In the ﬁrst place, I believe that the German regulators do not see themselves as a factor in the attractiveness of Germany as a good place to do business and therefore do not perceive regulated companies as their “customers”. Secondly, BaFin rejects any advisory role. This means that there is no dialogue with the FinTechs. And thirdly, there is extensive interpretation of any given rule. That is different in the United Kingdom, for example, where all consumer-friendly features are promoted as part of a consumer protection mandate. That includes FinTechs, because they offer consumer-friendly solutions. GLOCK: We should not forget that regulation, among other

location factors, has an accelerating effect. In the early stages, entrepreneurs think long and hard about where they can ﬁnd an environment that is conducive to start-ups. Our regulation is based on a legal system established at a time when there were no FinTechs. One response to this might be to interpret the regulatory mandate accordingly or – if you come to the conclusion that it does not provide sufﬁcient leeway – to implement legal measures to open it up.

Would the sandbox model be a solution? LORENZ: With the sandbox model, you would refrain

from subjecting a regulated business model to direct regulation right from the outset. This means that the regulator dispenses with the licence application in the early stages. In return, the company promises to pursue its business model within a very limited framework and under the informal

An adapted form of regulation could help young companies to get over the ﬁrst hurdle. HASSAN SOHBI, HEAD OF MIDDLE EAST PRACTICE GROUP AT TAYLOR WESSING IN GERMANY

FMF YEARBOOK 2016

FINTECH & REGULATION

Robo-Advisors are tools for online-based investment.

TER

The terms fronting bank or white label bank are used where a FinTech works together with a credit institution that is already licensed. supervision of the regulator. The customers must be informed

BaFin is the abbreviation of the Bundesanstalt für Finanzdienstleistungsaufsicht (Federal Financial Services Supervisory Authority).

about this arrangement and agree to it. In the early stages, when it is not at all clear whether the busi-

Crowdfunding is a way of raising money from a large number of people, usually Internet users.

ness model is successful, this avoids the major effort associated with obtaining a licence. In Germany, the processing time at BaFin is six months after all documentation has been submitted.

BaFin. But the bank must impose compliance with regulation applicable to the bank unto the FinTech.

Would a gradual increase in regulation be an alternative? GLOCK: A regulatory “ladder” would be com-

plicated, in part because the FinTech business models vary widely. But it would be possible to deﬁne speciﬁc

FinTechs could use this time to test their model on the market.

levels of protection in terms of consumer protection, as is the

Regulation would come later, when the model has proven to be

case with the Small Investors Protection Act. When a FinTech has

successful.

reached a certain size, it would then be subject to full regulation.

SOHBI: Basically, I think that “light” regulation for FinTechs in the

LORENZ: The Small Investors Protection Act, by the way, is also the

early stages is a sensible idea. However, I cannot imagine a

ﬁrst example we have seen of FinTech actually being reﬂected in

ﬁnancial sector that remains unregulated, now or in the future.

the regulatory system, namely in the special rules implemented

But FinTechs should be able to expect fast processing times. It

for crowdfunding. In the course of any further tightening of the

would also be good to see more and clearer information. Be-

regulations for ﬁnancial service providers and banks, we would

cause with many FinTechs, it’s not so much a lack of money,

otherwise have obstructed business models that in themselves

but rather the time component and the uncertainty leading them

are considered worthy of support.

to seek out a white label bank. This is why I would favour an active exchange of information with BaFin, with the assurance of a green light within two months, provided everything is in order.

Consumer protection with respect to crowdfunding is controversial. Am I actually without any protection as an investor here? LORENZ: First and foremost, there were transparency requirements

GLOCK: At the beginning, there is always the question of effort.

applicable to crowdfunding that are actually intended for other

This also applies where a FinTech is looking for a fronting bank

purposes. The prospectus in particular is not required for this type

for regulatory reasons. In the ﬁrst place, a fronting bank has to

of business. This is why BaFin stepped in to provide clariﬁcation,

be found, then agreements have to be concluded, the model has

at least with respect to the acquisition of relatively small receiv-

to be implemented, and so on. However, with a fronting bank or

ables. Interestingly, however, the Small Investors Protection Act

with a license: there are signiﬁcant hurdles in both cases to sim-

now deﬁnes ranges, which in some cases are tied in with per-

ply testing whether the business model can actually be marketed

sonal income. This means that one of the factors in determining

as is or whether it still needs to be changed.

the need for protection is the percentage of disposable income invested by an investor.

What is the risk for a fronting bank? LORENZ: From a strictly legal perspective, the bank continues to be

As a FinTech, how can I achieve legal certainty for my business idea?

responsible for the business model and must provide the appropriate

LORENZ: The ofﬁcial way is to submit a license inquiry to BaFin.

safeguards. It must therefore understand the business model. It is a

But this can take a long time, which is why it was appropriate to

misconception that regulation can actually be circumvented with a

point out that the processing period should not be so long, par-

fronting bank. It avoids the licensing issues and direct supervision by

ticularly for licence inquiries. Staff at BaFin who are thoroughly

FMF YEARBOOK 2016

FINTECH & REGULATION

dedicated FinTech representative who can provide information

Given the many authorities located here, Frankfurt is often called the regulatory capital of the European Union. Is that an advantage for FinTechs?

quickly, and perhaps informally sometimes. Other possibilities

LORENZ: Of course it’s good to have the regulator close at hand.

would be regular ofﬁce hours for consultations or BaFin informa-

One might also hope for a mutually beneﬁcial exchange of ideas.

tion events in order to create a dialogue and provide quick and

But there are also a whole range of other advantageous factors

binding answers. The other approach would be an initial consul-

that make Frankfurt an attractive location for FinTechs, includ-

tation with a lawyer, which can clarify a lot of issues at the outset.

ing the proximity to customers and potential business partners,

familiar with the FinTech business models could help here. Or a

especially for business models that are aimed primarily at other

Data protection is another much-discussed topic. Do the rules restrict FinTechs in Germany excessively?

ﬁnancial service providers. And then, of course, there are the colleges and universities in the Rhine-Main region.

LORENZ: Some FinTechs have very naive ideas about what you are

allowed to do with data. It is also questionable whether this issue

GLOCK: I also believe that a culture of short distances doesn’t hurt,

will resolve itself in the future, because the younger generation will

especially in such a fast-paced business.

allegedly no longer value data protection. It is therefore quite right to say that data protection is the second job to be done, and a very big one that will certainly be difﬁcult to tackle.

ENZ

, HA

BAS

TIA

SOHBI: I would go so far as to make a

distinction here. In the ﬁrst wave, FinTechs initially took relatively

T: D

L UE

R LO

SSAN SOHBI, DR SE

FRO

tomer simply has to agree.

Or perhaps it is solvable: The cus-

basic ﬁnancial services functions and upgraded them into a more modern form.

SOHBI: That’s exactly the point.

Examples of this include

On the one hand, FinTechs

lending, payment or cur-

or e-commerce companies

rent account platforms.

do have a strong interest

Some of these ideas

in data but less interest in

were developed at other

asking consumers for con-

locations in Germany.

sent. On the other hand, In-

But the second wave

ternet-savvy customers are

of FinTechs, with B2B

now more careful about man-

or B2C business mod-

aging their own information. There is a new awareness of this issue emerging at the moment, and I would suggest that you will actually be paid for disclosing data in the future.

els, begins in the engine room of the ﬁnancial sector. Frankfurt should have a location advantage here, because this is where the engine room of this industry is. Nevertheless, additional market-

GLOCK: The logic of protecting data makes sense, except where

ing activities for Frankfurt as a FinTech location would

individuals agree to a lower level of protection of their data when

be helpful. And we should also provide a framework into which

they want to use a speciﬁc service. This puts the decision into

venture capital funds that invest in FinTech can integrate.

the hands of the consumer.

Thank you very much for the interview.

FMF YEARBOOK 2016

FINTECH IN PRACTICE

Germany’s FinTech centre is taking shape Essen

Frankfurt is closely associated with the traditional ﬁnancial world. Now it is also attracting more and more start-ups. The Rhine-Main-Neckar region combines tradition and innovation, ﬁnancial expertise and new technologies, practice and theory. Little by little, a new ecosystem is evolving

Dortmund

Duisburg Düsseldorf Cologne Bonn Rhine Frankfurt am Main Aschaffenburg

Mainz

Main

Würzburg Mannheim

Karlsruhe Stuttgart Neckar

Munich

152 Start-ups

Networks

... in the FinTech sector are bringing a breath of

… are used to exchange knowledge and experience

fresh air into the world of ﬁnance. They are develop-

and make important contacts, goals pursued for

ing mobile payment tools for the ﬁnancial inclusion

example by Entrepreneurship Cluster Mittelhessen

of people in developing countries (pages 32 – 33),

at Giessen University and House of IT in Darmstadt.

intelligent software for pre-completed transfers (page 45), or payment services – new payment platforms and ﬁnancing models for technology

Ampliﬁers

products (pages 46 – 47).

The Unibator is considered a “breeding ground for innovation” at Frankfurt’s Goethe University. It promotes

the transformation of academic ﬁndings into marketable

Research and scholarship

products and services. Other examples include the

With excellent, practical research and teaching in the

Digital Innovation Lab, gruendermaschine.com and the

ﬁelds of economics and ﬁnance, new technology and

incubator HIGHEST at TU Darmstadt. Ampliﬁers can

entrepreneurship is establishing the basis for high

also be in the form of events, such as the EBSpreneur-

potentials. Read more on pages 54 – 59.

ship Forum 2015.

FMF YEARBOOK 2016

FINTECH IN PRACTICE

Cooperative banks Savings banks and Landesbanken

Building societies

Real estate and mortgage financing

Private banks

Foreign banks

Insurance industry

Investment banking and capital markets

Consumer protection

152

Investors Start-ups

Bundesbank

Asset management

IT infrastructure Networks Private customer business Regulation Government and development financing

Depositaries

Rating agencies

Institutional business

Amplifiers

Research & scholarship Consultancies Stock exchange

Source: Unibator Innovation Map, IHK-Forum Rhein-Main

FMF YEARBOOK 2016

FINTECH IN PRACTICE

Financial technology – evolution or revolution of the markets? Can the development of ﬁnancial technologies continue in its present form? Will disruptive technologies fundamentally change consumer behaviour and what will be the consequences for the banking landscape? The FMF editorial team discussed these questions with Adrian Braun, Dr Christopher Oster, Dr Gernot A. Overbeck, Timur Peters and Jochen Siegert.

The FinTech sector is growing sustainably. What impact does this have on the traditional ﬁnancial services industry?

companies before the realisation of their entrepreneurial ideas,

Adrian Braun: The outlook is not necessarily bad. I see it as

services for hosting and professional design of software and

something like 15 to 20 years ago, when retailers recognised

database models to expert advice on issues related to banking

the possibilities opened up by the Internet. Some providers

and the stock markets. The ICF Group hopes and expects that

back then were able to position themselves, perhaps even

this approach will lead to new collaborations in the FinTech

better than before, while others failed to do so. Some traditional

environment that produce innovative business models in the

ﬁnancial service providers and banks are already working in-

long term.

including everything from ﬂexible and modular data centre

tensively with new technologies. ICF Bank has been adapting to changes for years. As a commercial bank, there are certain

How are the various FinTech segments currently evolving?

structures that in some circumstances make it easier for us

Jochen Siegert: The ﬁrst FinTech wave was very much driven

than for large banks to respond ﬂexibly to changing operating

by business models from the United States, namely payments

conditions.

and lending. The hope was either to scale the business model to the German market or to be snapped up by the American

Do you position yourself speciﬁcally for FinTech companies?

model companies. But we are now seeing second or third gen-

Braun: The ICF Group is currently working on a concept we call

eration solutions that focus more clearly on local markets. I ﬁnd

“FinTech Hub” for start-up companies in this environment. The

these companies much more exciting.

available support covers all relevant areas faced by FinTech

We hope that this approach will lead to new collaborations in the FinTech environment that produce innovative business models in the long term. A DR IA N B R A U N , ME MB E R O F T H E B O A R D O F IC F BAN K

The willingness of banks and SMEs to adapt to ﬁnancial technology has grown in recent years.

The volumes moved in the international markets are on a completely different level.

TIMU R PETERS, MAN AG ING PARTNER OF DEBI TOS

DR CHRI STOPHER OSTER, CEO OF CLARK

FMF YEARBOOK 2016

FINTECH IN PRACTICE

For more, go to www.frankfurt-main-ﬁnance.com/ﬁntec_praxis

Christopher Oster: Insurance is an exciting area. It’s a subject

insurance online? This concerns almost half of the people in

I’ve looked into extensively. This is a huge market of around

Germany and the demand is encouraging in all age groups.

200 billion euros in Germany, and up to 95 percent of it is off-

This has disproved our original hypothesis that we should

line. At the same time, customer satisfaction, which is at about

initially focus our efforts on people between the ages of 20

33 percent, is incredibly low. The conditions for a start-up could

and 40.

hardly be better, which is why Clark has applied the business model in this area.

What are the factors a FinTech must consider in order to survive?

Gernot A. Overbeck: Fintura has very consciously focused on the

Overbeck: The right business model counts. The question is

lending segment, which has a portfolio volume of 1.4 billion euros

whether and how a FinTech really creates value for the custom-

in Germany. However, the business model we have developed is

er. And of course it needs a team that adapts extremely quickly

completely different to American companies, because we have

to the needs of the customer and the market requirements.

found that small and medium-sized enterprises want to borrow from banks, not from alternative sources, and because the terms

What about the issue of regulation?

and conditions we can offer with our banking partners are bet-

Oster: This is an issue where FinTechs are most underestimated,

ter than those available from peer-to-peer lenders. Our solution

because there is a lot more going on here than you might think.

is therefore a platform for comparing terms and conditions and

We can get a licence very quickly, but that’s also because we

products. We estimate the volume of new business in this area in

compile the documentation very quickly and keep on top of it

Germany to be 120 billion euros annually. But that’s only the ﬁrst

to ensure that everything is okay. Apart from that, the response

step. We are now comparing banking products such as loans,

of start-ups to feedback is incredibly fast, because processes

and we intend to broker customer products such as the ﬁnanc-

can be adapted and security standards improved overnight.

ing of machinery in the future.

Timur Peters: As a matter of fact, there’s a certain momentum in

the population that we can carry along and use as a branding

So the traditional advisor is still important for FinTech customers?

advantage. Because we have a product in accordance with

Oster: Our target group are people who already manage their

German compliance standards that we can also roll out in

main current account online. The question behind this is that

other European countries or internationally.

if someone is already managing their banking transactions and cash ﬂows online, why are they not also managing their

Many European start-ups are very successful because their thinking was international right from the outset.

Some thinking about how to establish an environment in which start-ups can grow faster would be welcome in view of the regulation.

J O C H E N S I EG ERT, M E M B E R OF TH E MAN AG EMEN T BO ARD A N D C O O AT TRAXPAY

DR GERNOT A. OVERBECK, CEO AND FOUNDER OF FI NTURA

FMF YEARBOOK 2016

FINTECH IN PRACTICE

INFO COLUMN

to FinTechs in the press. But we have to continue to persuade Advantages of the FinTech hub Frankfurt Proximity to capital market activity Broad spectrum of ﬁnancial service providers as partners and key knowledge carriers Stable companies in the region Higher education network and high potentials Enormous data centre infrastructure Access to important institutions

the participants to break down established structures. It is often the case that it is not necessarily the best service provider that is used, but the one that the company currently happens to use. Making processes leaner and more effective might mean having to cut jobs under some circumstances. And that’s still the biggest obstacle. Braun: For quite some time now, we have been seeing that

the traditional and often long-term relationships between Overbeck: Nevertheless, some thinking about how to establish

customers and service providers in the ﬁnancial sector are in-

an overall environment in which start-ups can grow faster would

creasingly breaking down. Products have become much more

be welcome in view of the regulation. We need less regulation

interchangeable, and with declining margins, the cost pres-

in the areas of labour law and data protection provisions. There

sure is immense. Additional services, downstream services

is a legal problem with employing a regular student who is will-

and intelligent forms of processing that contribute to reducing

ing to get properly involved with a start-up. Writing to interest-

transaction costs can create real added value in this area that

ed customer groups with a cold e-mail results in warnings from

is also appreciated by traditional banks.

lawyers who have been engaged by customers who want to

Siegert: The B2C market is certainly easier. You invest in search

get their revenge for their own warnings in the past.

engine optimisation, for example, and can acquire a few customers immediately. In Germany, 100,000 customers calls for

Germany is not an easy market for digital services. How difﬁcult is it to reach customers and scale up the number of customers?

a big celebration, but that’s peanuts in the US. This shows that

Peters: In the B2B market, both acquisition and scalability are

to the technology. They take longer, but once the threshold is

much more difﬁcult than with end customers. Because the

exceeded, scaling goes faster. FinTechs need to have a lot of

product from Debitos, an online debt exchange on which com-

staying power here.

people in Germany have a fundamental problem with adapting

panies can sell their receivables in a transparent auction process, is more difﬁcult to place. Nevertheless, the willingness of

What other differences are there compared to international FinTech markets?

banks and SMEs to adapt to ﬁnancial technology has grown in

Oster: The volumes moved in the markets are on a completely differ-

recent years, to some extent thanks to the attention now given

ent level. But the approach to ﬁnancing is also different. Right from

FinTech founders (from left): Timur Peters and Dr. Gernot A. Overbeck after the roundtable discussion

FMF YEARBOOK 2016

FINTECH IN PRACTICE

TERMS

the first round of financing, when all you have is an idea, a team and a PowerPoint presentation, sums are flowing that a FinTech company in Germany only gets when the full product is on the market and the acquisition channels have already proved themselves. Another advantage is that in the United States, you can basically cater to a market of 300 million consumers with a single product and a single license. In Europe, you need a license, an office, language support for each country. Siegert: That doesn’t necessarily have to be a competitive disadvantage. In the e-commerce

sector, there have been many start-ups from Europe who went to the US and were very successful there because their thinking was international right from the outset. In Germany, we make our own lives difﬁcult because we want to crack the German market ﬁrst, then we go to Austria, France and so on. Maybe our thinking is simply too German.

What are the advantages of Frankfurt as a FinTech location? Siegert: In the FinTech sector, a very important role is played by the fact that in Frankfurt, we are

A technology is termed disruptive if it largely or completely displaces an established technology, an existing product or an existing service.

at the heart of capital market activity and we have the banks and the German stock exchange close by. We also have many stable companies in the region. Overbeck: One potential advantage is an environment for start-ups that allows the exchange of

The term business-to-business is abbreviated as “B2B”. It denotes business relationships between at least two companies.

ideas and experiences. Another advantage is a higher education network that provides high potentials who would like to come to a start-up and who facilitate collaboration with the colleges

“B2C” is the abbreviation for business-to-cus-

and universities. The third point is that venture capital should also be available in the region. This

tomer and denotes business relationships between companies and consumers or end customers.

needs to be developed. Braun: Frankfurt also offers invaluable beneﬁts with its data centre infrastructure.

What role will the FinTech sector be playing in ten years? Peters: In the German FinTech industry, there will certainly be some consolidation, as well as busi-

ness models that fail to gain acceptance. There may also be some blending of banks, FinTechs

In the economic system, scaling means that companies are expanding. Demand increases, they receive more orders, generate higher profits and can hire more staff.

and IT companies, something already becoming apparent in the area of cloud services. I do hope, of course, that some German providers manage to create a Europe-wide market and ultimately establish themselves throughout the world. Braun: We intend to explore a range of distribution channels and strategies with our products and

services, with a focus on the issues of both price leadership and quality leadership. Given the various customer requirements in terms of the nature and extent of the quality of service needed, we see potential for both approaches. Siegert: There are many things we cannot foresee at all. A smartphone for example is not just

a phone, it’s a new technology that has changed our entire behaviour. When this occurs in the FinTech sector, the entire coordinate system will be completely displaced. Thank you very much for the interview.

Peer-to-peer lending is the term used to

denote loans granted directly from one individual to another as personal loans with no ﬁnancial institution acting as an intermediary.

FMF YEARBOOK 2016

FINTECH IN PRACTICE

Germany and other EU countries are well supplied with ﬁnancial services. For 2014, the statistics of Deutsche Bundesbank reveal over 100 million current

GERMAN FINTECHS PROMOTE WORLDWIDE FINANCIAL INCLUSION

accounts. More than half of these are already available as online accounts. In addition, there are nearly 57,000

The new technologies developed by

ATMs and over 10,000 bank branches with advisory

FinTech companies now play an impor-

and other services available to the public in Germany.

tant role in the pursuit of ﬁnancial inclu-

This means that the further development of ﬁnancial

sion. These companies beneﬁt from the

services for private individuals in this country will focus

fact that access to the Internet and tele-

primarily on efﬁciency, convenience and cost beneﬁts.

communications services has improved

So-called “ﬁnancial inclusion”, which allows people

signiﬁcantly in many developing coun-

without bank accounts to open an account and gain

tries and the online channel is becom-

access to payment and borrowing services, therefore

ing increasingly attractive as a platform

tends to play a rather minor role in EU countries.

for banking services. According to the Internet and Mobile Association of India

“Financial illiteracy” widespread

(IAMAI), India had 400 million Internet users in December 2015, with some 94

The global situation looks very different. According to

percent also using their mobile phone to

the World Bank Group, only 62 percent of people over

access it. The situation in Africa is very

15 years old worldwide have a bank account. This means that around two billion people are excluded from ﬁnancial processes. In the developing countries of Africa and Southeast Asia in particular, large sections of the population

Unlike in Germany and the European Union (EU), large sections of the population in developing countries have no access to payment transactions. FinTech companies are developing new technologies to integrate these people into financial processes.

FinTechs are opening access to the financial system

must be considered ﬁnancially illiterate. Almost half

In sub-Saharan Africa, 58 percent of mobile phone users express great interest in the use of mobile banking and electronic wallets.

of all adults in India, for example, do not have a bank account. Only 6 percent of the population make use

similar, where mobile penetration has

of regulated credit processes. These problems are

been the cause of disruptive change.

typical of many developing countries: The low density

Africa is now considered the “mobile

of bank branches, especially in rural areas, protracted

continent” – despite difﬁcult technical

and bureaucratic account opening procedures and a

conditions, especially in rural areas. To-

lack of ﬁnancial education prevent access to payment

day, sub-Saharan Africa has more than

transactions.

600 million mobile phone users, a num-

Experts at the World Bank Group see an urgent need

ity Report is expected to rise to around

ber that according to the Ericsson Mobilfor the ﬁnancial inclusion of these people in order to

930 million by the end of 2019. 58 per-

promote economic growth in these countries and re-

cent of mobile phone users in the region

duce levels of poverty among their populations. Par-

already express great interest in the use

ticipation in the ﬁnancial system is a prerequisite for

of mobile banking and electronic wallets.

starting and developing businesses, investing in the

In Kenya for example, the mobile pay-

education of children and recovering from ﬁnancial

ment system M-Pesa is already used by

setbacks.

more than two thirds of the population.

FMF YEARBOOK 2016

FINTECH IN PRACTICE

Many people around the world do not have a bank account

New processes for opening accounts and lending

paper-based, there are problems – for example with

The starting points for FinTech companies are many

and are reﬂected in correspondingly high interest rates

and varied. Using modern ﬁnancial technology, impor-

of over 60 percent. awamo supports MFIs with a solu-

tant business processes such as legitimation, proof of

tion for the digitisation of lending that provides a mobile,

identity and contract conclusion can be redesigned.

robust and affordable all-in solution consisting of both

Since 2012, WebID Solutions has been offering legally

hardware and software components. The technology

compliant contract conclusion and identiﬁcation prod-

can identify borrowers using their ﬁngerprint. Custom-

ucts throughout Europe that can be managed entirely

er information and loan applications are entered digi-

online. As part of a joint venture with one of the biggest

tally, which means the loan portfolio can be managed

retail banks, the company is introducing a face-to-face

with real-time data. The central analysis of customer

online identiﬁcation process in India, revolutionising the

data makes it easier to assess the creditworthiness

account opening process generally used to date. The

of potential borrowers. As a result, everyone beneﬁts

initiative is part of the national “Swabhimaan” cam-

from lower transaction costs, a more transparent lend-

paign, which aims to provide large sections of the

ing process and fair lending policies.

institutions (MFIs). But because the procedures are proof of identity – that lead to high loan default rates

population with basic ﬁnancial services. These examples show how German FinTech compaIn the area of lending, too, German FinTech com-

nies are using the digital structures in place in devel-

panies are showing an international commitment.

oping countries to make existing ﬁnancial processes

Frankfurt-based company awamo GmbH has set itself

more secure, more efﬁcient and easier. In doing so,

the goal of signiﬁcantly improving and expanding ac-

they are making a valuable contribution to ﬁnancial

cess to microﬁnance in developing countries, particu-

inclusion and to improving the provision of tradition-

larly in Africa. Given the low branch density, farmers and

al ﬁnancial services to the populations of developing

small businesses generally borrow from microﬁnance

countries. Q

No information 0.4 – 20 20 – 39 39 – 63.2 63.2 – 87.5 87.5 – 100 Account at a ﬁnancial institution (% age 15+) Year: 2014 Source: The World Bank, 2016

FMF YEARBOOK 2016

FINTECH IN PRACTICE

CLEARING* is the term used to denote the procedure used for the transmission, reconciliation ERH GSR½VQEXMSR SJ TE]QIRX SVders prior to settlement. COLLATERAL MANAGE-

360T FROM START-UP

MENT** describes the process of the reduction of counter TEV X] VMWO XLVSYKL XLI HITSWMX of collateral.

TO GLOBAL PLAYER

The market is shrinking and competition is stagnant, but the foreign exchange trading platform 360 Treasury Systems AG (360T) is reporting steady growth. With an average daily trading volume of 70 billion euros, 360T is ranked third among the world’s largest forex trading platforms. A portrait.

Further growth is planned, both geographically and through the development of additional products for existing and new target groups. The potential and quality of the company was also recognised by Deutsche Börse, which acquired 360T for 725 million euros in October 2015. This acquisition provides the opportunity to be the only provider in the foreign exchange sector that can offer everything from illiquid forex instruments

hen the “Dot-Com Bubble” burst in 2000, Carlo Kölzer

to highly liquid futures in and outside regular trading centres.

founded the internet-based foreign exchange trad-

The goal is to provide the full range of trading mechanisms as

ing platform 360T in Frankfurt’s ﬁnancial district.

well as the clearing* and collateral management** behind them.

The founder’s idea was to tailor FinTech not only to the needs of banks, but also to the needs of corporations. 360T facilitates

Internationally Positioned

transparent and secure electronic trading of foreign currencies, money market products and currency as well as interest

360T is deeply rooted in the economy, with 29 of the 30 DAX-

rate derivatives at the highest technical level.

listed companies using the platform for their foreign exchange transactions. The company currently employs about

With a liquidity pool of more than 200 banks, the platform is

215 people worldwide. In addition to its headquarters in

now used by about 1,500 customers in more than 75 countries around the world, including institutional customers, brokers, banks and international corporate groups, who are provided

Today, some 70 billion euros

with full transparency during all phases of the trading pro-

are traded daily through 360T in

cess, giving them absolute control over their transactions.

a wide range of currencies.

The prices requested can be made available and compared at a much higher speed than it was previously possible with telephone trading. Overall, this results in signiﬁcant cost and

Frankfurt and its other European ofﬁces, 360T has estab-

time savings, while also meeting all regulatory requirements.

lished locations in America, Asia-Paciﬁc and India. At the FX

Today, some 70 billion euros are traded daily through 360T in a

Week Best Banks Awards 2015, one of the most important

wide range of currencies.

international awards in the foreign exchange market, 360T was named best Professional E-Trading Venue and Best

Continued Growth Turnover at 360T has grown every year since its founding in 2000. A digital global player established itself in Frankfurt’s financial centre and remains competitive despite marketrelated difficulties since its founding. While competitors struggled with decreasing trading revenues after the attacks of 9/11, 360T reached the profit threshold in October 2004.

Vendor for Trading Technology.

FMF YEARBOOK 2016

FINTECH IN PRACTICE

THE DIGITISATION

of the financial sector

The hallmarks of traditional, longestablished ﬁnancial institutions are years of experience in the banking business and a loyal customer base. New technologies are, however, gradually ﬁnding their way into these institutions, as examples like Deutsche Bank, DZ BANK, Frankfurter Sparkasse and WIBank in Hessen show. Deutsche Bank: New ways of networking........................ P 36 DZ BANK is committed to innovation management and networking with FinTechs ......................................... P 37 Frankfurter Sparkasse: Modern retailing – at the intersection of experience and innovation ............. P 38 Wirtschafts- und Infrastrukturbank Hessen: Established players and FinTechs are coming together ... P 39

FMF YEARBOOK 2016

FINTECH IN PRACTICE

New ways OF NETWORKING by Thomas-Frank Dapp and Dr Markus Pertlwieser

reathtaking – the only adjective that can adequately char-

Providing financial services as apps

acterise the revolution in business models across all sectors

A new digital banking ecosystem would lead to a platform with a

triggered by digitisation. Compared to analogue innovation

wide range of in-house and third-party ﬁnancial services obtained

cycles, the dynamic has been accelerated enormously. Many

securely and conveniently as banking apps in an openly acces-

people underestimated this initially – with the ﬁnancial sector

sible app store. Customers would not have to leave the ﬁnancial

being no exception.

platform and would get many ﬁnancial services as apps tailored speciﬁcally to their own IT environment.

In response to the highly dynamic pace of innovation, more and more international digital platforms are positioning them-

Banks are working intensively on digitisation strategies covering all

selves in many markets. The monetisation strategy of these

business segments and providing appropriate internal and exter-

so-called digital ecosystems is based primarily on the principle

nal interfaces. Two parameters are important in this process: ﬁrst,

of the “walled garden”. Walled gardens keep their users in a

the banks want to integrate the new technologies cost-effectively

closed, self-contained online world, the data is stored in the

and quickly, and second, they have an interest in being able to

in-house cloud, there are dedicated browsers and hardware.

work alongside potential competitors. Digitisation also offers banks

The company-owned hardware and operating systems guar-

the opportunity to secure a pioneering international role in data

antee users a very high level of convenience. The equation is

protection if they provide a permanent guarantee that they will not

as follows: The longer consumers spend on the platform, the

sell personal data to third parties or make use of it for other pro-

easier it is to translate sales strategies into attractive proﬁts.

jects. Digitisation is therefore an opportunity for banks to do better

Therefore, these platforms overcome traditional hierarchical

what they are meant to do – maintain a good, trusting relationship

limits and explore new ways of networking. In addition to dig-

with their customers and serve their ﬁnancial needs and wishes to

ital platforms, many FinTechs are also pushing into this market,

the best of their ability.

with strategies that are also based on the harmonious interplay of hardware and software. These FinTechs are latching onto the added value created by digital ecosystems by using compatible technologies and convenient programming interfaces

Thomas-Frank Dapp works as Senior Economist

and dovetailing them perfectly. The crucial question is whether

for DB Research and Dr Markus Pertlwieser is

this might not also be a strategy for the banking sector.

Chief Digital Ofﬁcer at Deutsche Bank AG.

FMF YEARBOOK 2016

FINTECH IN PRACTICE

DZ BANK is committed to innovation management AND NETWORKING WITH FINTECHS by Franz Sebastian Welter

he curiosity about new business models associated with

example: The ﬁrst GENOHackathon, organised by DZ BANK,

ﬁnancial technology has well and truly reached the ﬁnancial

Fiducia & GAD IT and ADG, will be held in the coming spring.

sector. After many years in which the sector was dominated

It will bring together various specialists from the cooperative

by the issues of regulatory requirements, innovation and digiti-

ﬁnancial group, including software developers, product spe-

sation have now assumed a much higher priority.

cialists, users and consultants, to work in teams on the development of concepts and initial prototypes. In order to continue

In this area, banks are pursuing a multi-pronged strategy. On

developing the innovative approaches arising from efforts like

the one hand, they are ﬁnding inspiration in the ideas of many

these, the bank is also currently considering an innovation lab.

globally active start-ups. Where products or technologies are considered suitable for their own target groups, there are now

Another approach is networking with the FinTech scene. For

a wide range of options for working together with FinTechs,

example, DZ BANK is cooperating with iZettle with a view to

ranging from pure service agreements and more comprehen-

allowing small businesses to accept card payments. Through

sive collaboration to minority holdings and the acquisition of

our cooperation with the Axel Springer Plug and Play Acceler-

whole companies.

ator, innovative business ideas are being developed with startups. And our own FinTech – paydirekt, the German banking

Recognising creative potential

industry’s online payment system – was launched successfully

On the other hand, many banks are recognising the creative

at the end of 2015.

potential of their own employees. DZ BANK AG supports this development with their strategic innovation management, which places a particular focus on monitoring innovation activities within the group, trend scouting for the systematic assessment

Franz Sebastian Welter is Director of Innovation &

of new market activities and new forms of innovation work. An

Digitisation at DZ BANK AG.

FMF YEARBOOK 2016

FINTECH IN PRACTICE

Modern retailing – AT THE INTERSECTION OF EXPERIENCE AND INNOVATION by Robert Restani

ash is king. A proverb that sounds like something from

another era. In many areas of life, virtual reality is gaining in

sometimes pursue similar business models. When this changes, their scope for ﬂexibility will narrow signiﬁcantly.

importance – including those where the issue is money. Moving huge amounts of money from one end of the world

Third, traditional credit institutions are linking the real and digi-

to the other with just a click, contactless payment, account

tal worlds with increasing success. The online chat team whose

management with smartphone apps: almost seems like yes-

advisors can be contacted by our customers by text and video

terday’s news. The new stars of the ﬁnancial markets are the

chat, or video proof of identity, which allows an account to be

FinTechs, revolutionaries on the road to domination in the

opened by holding up an ID card to a PC’s camera, are al-

world of ﬁnance. And with innovative, often bold ideas, the

ready becoming part of everyday working life at Frankfurter

FinTechs can in fact often kick-start productive developments,

Sparkasse. We are improving our services continuously, for ex-

enriching competition.

ample in online marketing or the development of new product lines.

Linking the real and digital worlds However, the road from instigator to market leader is a long

We reach our customers exactly where they are – on the verge

one. In the retail business in particular, the traditional credit

between the real and virtual worlds. We combine digital inno-

institution with a network of branches and ﬂesh and blood ad-

vation with decades of experience. But not everything that is

visors is a central component of the ﬁnancial market – and will

digitally possible has to make sense. When it comes to money,

remain so for the foreseeable future. First of all, most FinTechs

what counts is competence and trust – from one person to

don’t want to be full banks anyway – their hallmark is ﬂexibility

another.

and they don’t work in ﬁxed structures. Second, the work of banks is governed by regulatory requirements. For the most

Robert Restani is Chairman of the Board

part, FinTechs are not subject to these rules, although they do

of Frankfurter Sparkasse.

FMF YEARBOOK 2016

FINTECH IN PRACTICE

Established players and FINTECHS ARE COMING TOGETHER by Dr Michael Reckhard

ith ﬁnancial technology companies, new participants

among the distinctive features and success factors that char-

are entering the market in the banking sector. They combine

acterise FinTechs is a willingness to develop many parallel

speed with innovation, have already developed many busi-

business approaches and let customers decide for themselves

ness ideas in recent years and have established themselves

which solution they prefer. This may cost more than pursuing

successfully on the market. FinTechs are now positioning

a single approach, but it also doesn’t carry the risk of a com-

themselves as competitors, but also as potential new business

prehensive failure of that approach.

partners for the established players in the ﬁnancial sector – and the idea of convergence certainly has its appeal for

If they want to take the deﬁnitive step towards successfully

both sides.

establishing Frankfurt as FinTech city, all of the stakeholders involved must pull together and face the international FinTech

Hessen offers good conditions

scene and potential investors with a cohesive and uniﬁed

In the worlds of politics and business, the number of voices in

image. A start has been made: Frankfurt and the Rhine-Main

favour of continuing to develop Frankfurt as the central FinTech

region are well on the way to developing a symbiotic relation-

city in Germany and Europe is growing. And the conditions

ship with the FinTechs. Ultimately, everyone will proﬁt from this:

are extremely positive: as a magnet for start-ups among the

start-ups and entrepreneurs, customers and Hessen as a busi-

German states, Hessen offers good conditions for cooperation

ness location.

on the basis of sheer proximity to the established providers. With the world’s most efﬁcient Internet hub, Frankfurt also offers the best conditions in technical terms. And last but not least: Hessen has immense ﬁnancial power –

Dr Michael Reckhard is Senior Vice President and Managing

another plus for entrepreneurs looking for investors, because

Director Wirtschafts- und Infrastrukturbank Hessen.

FMF YEARBOOK 2016

FINTECH IN PRACTICE

h c e T n i F s t e e m n o i t i d a Tr Traditional financial services can be revolutionised with innovative technology solutions – this is the creed of many FinTechs, who are bringing a breath of fresh air to the financial sector. Accompanied by a great deal of media attention, the FinTech train is picking up steam. Established suppliers benefit as well. In an interview with the FMF editorial team, CEO of vwd group Martin Gijssel explains how experience and the spirit of innovation complement each other ideally.

How much FinTech is in vwd?

stable processes that can be integrated into the existing systems our

Martin Gijssel: 100 percent. We offer technology for the ﬁnancial

customers have in place. When customers decide how they are will-

industry, and we’ve been doing that since 1949. As a company, we

ing to spend money, stability and security are always important fac-

have changed repeatedly – from news agency to provider of ﬁnan-

tors. To ensure that we can cover everything as a provider, we have

cial information to technology partner. That’s part of our history.

around 150 developers with very different skills working with us.

Today, we beneﬁt from the fact that very different characteristics are associated with FinTech. The catchword is digitisation. For us,

But do the FinTechs not exacerbate the competition among

this means digitising processes for our customers in order to make

technology providers?

them more efﬁcient.

Gijssel: Yes, certainly, but that doesn’t have to be a disadvantage for us. More and more, we are seeing the phenomenon of a FinTech

On which processes do you focus?

coming to market with a very speciﬁc solution, which is then reported

Gijssel: The focus is on the traditional advisory process, as well

as an innovative tool. The response of our product managers is to

as the entire range of upstream and downstream processes. Efficient implementation of regulatory requirements is another important field. We see it as our role to support our customers along the value chain with sophisticated technology solutions, allowing them to concentrate on their core business. We offer a wide range of products along the value chain and from a single source, which distinguishes us from many other FinTechs. Start-ups are small, and are therefore fast and creative in implementing new ideas. How can you keep up with that? Gijssel: At first glance, this seems to be an advantage - the development of new technological ideas goes very well with a start-up mentality. But having an idea and implementing it are two different things. The real work begins when you get down to developing

Martin Gijssel, CEO of vwd group, in an interview with the FMF editorial team.

FMF YEARBOOK 2016

FINTECH IN PRACTICE

It is a balancing act, being fast and innovative but at the same time offering a lot of functionality and security. Again and again, it is a matter of finding the right balance.

shake their heads, because we have long since integrated exactly this kind of tool into one of our solutions, but no one has ever showcased it. So is your leverage in better marketing?

Martin Gijssel became CEO of vwd group in September 2015.

Gijssel: That is part of it, but it only helps if the product is good. For

Previously, he spent more than 18 years in management posi-

example, we have developed a robo-advisor that we market under

tions at FactSet Research Systems Inc., most recently as Manag-

the name vwd ﬁnance guide. This is an online tool that our cus-

ing Director of International Investment Management Sales.

tomers – banks, portfolio managers and asset managers – can use in their advisory business. So we offer exactly the solution our customers need to prepare for the increasing demand of the end-cus-

vwd group is one of Europe’s leading providers of information

tomer in the online advisory segment. In terms of marketing, it helps

and technology solutions, specialising in individual customer

that this issue is currently trending. But that is only the door opener.

requirements in asset management, retail and private banking

We then have to win people over with the performance we pack into

and wealth management.

products like these. We simply have to deliver more than the many start-ups trying to court the favour of the end investor. Because more is expected of you as an experienced tech-

Does that not make your solutions somewhat more

nology provider?

cumbersome?

Gijssel: Yes, many of our customers have been working with us for

Gijssel: Our customers are professional market participants, usu-

a long time now, and they expect us to be able to implement their

ally positioned in the market for some time now, so it is almost in

speciﬁc requirements. The vwd ﬁnance guide is designed to ensure

the nature of things that solutions need to be more complex than

that all asset classes can be covered, not just a few, and that the

required for most end investor tools. We combine the proven busi-

product range can be tailored to individual needs. The basis for this

ness models with innovative solutions. Of course it’s a balancing

is the indicator logic combined with the asset allocation strategy of

act, being fast and innovative but at the same time offering a lot

our customers, which also supports efﬁcient and ongoing subse-

of functionality and security. Again, it’s a matter of ﬁnding the right

quent support, so the regulatory requirements can be more easily

balance. The important thing for us is to be able to do both and

met. In competition with the young FinTechs, we can set ourselves

to harness our experience for the changes the young FinTechs are

apart with more functionality and more service, because we have

bringing to the ﬁnancial sector.

the expertise, the experience, and also the internal structures and processes required to do so.

Thank you very much for the interview.

FMF YEARBOOK 2016

FinTech in Practice

PAYDIREKT – EASY AND SECURE ONLINE PAYMENT by Dr Niklas Bartelt

Launched in August 2015, paydirekt is the new online payment method of the German banking industry.

For most Germans, shopping online has become part of everyday

into the retailer’s account – without any detours. All sensitive data,

life. Sales in e-commerce are increasing year by year - in 2015 the

such as the account number, remain in the secure banking environ-

online sale of goods once again showed an above average growth of

ment – the strict rules of German banking secrecy apply. Moreover,

around 12 percent. Experts predict that this upward trend in e-com-

it goes without saying that neither shopping cart data nor the buyer

merce will continue in the coming years.

profiles are passed on to third parties.

For the buyer, the question that comes with every purchase decision

Even registration for paydirekt is offered in the familiar online bank-

is: “And how do I pay?” It is not unusual for the purchase process

ing environment of the customer’s own bank. It is easy, fast and

to be cancelled at this point because the buyer feels uncomfortable

works without additional identification procedures. Customers enter

with the payment options on offer. After all, simply abandoning a

their own user name and password and confirm all data with their

full shopping cart is not a problem in the virtual space. The reasons

usual TAN procedure. Payment can generally be completed with

for this are as varied as the range of payment methods available to

two clicks: select paydirekt in the online shop, enter user name and

customers and operators of online shops.

password – done.

One key point for the acceptance of an online payment option is sein Germany, people continue to attribute the highest level of exper-

Spending control and buyer protection

tise in terms of data protection and banking secrecy to their own

The direct connection with the current account means that it is easy

bank. According to the Steinbeis Research Center, the lion’s share

for users to maintain a transparent overview of their spending. Every

of respondents, about 80%, wants to see their own bank provide a

payment made with paydirekt is clearly recognisable in the user’s

mobile payment system.

normal bank statement. The paydirekt app includes an option to

curity. While several online payment methods are already established

receive information on all account activity via push notifications. In

An online payment method from German banks

the current version, the app displays all transactions and offers an “emergency button” in the event that a transaction was not initiated

The German banking industry has responded to this wish: a fter a

by the user.

goods In the event that goods are not ays for ent p r e y u m b y a a p n t delivered, customers can assert their “Whe ydirekt, the eir c urren with pa ectly from th iler’s buyer protection rights through the ir goes d into the reta y detours.” t n n a paydirekt customer portal. If the reout accou t – with accoun

13-month design and development period, the banks’ own online payment system – paydirekt – was launched in August 2015. In the initial pilot phase, participating institutions were brought on board step by step. At the same time, paydirekt was tested thoroughly. After all, customers had been promised no less than a system that meets the quality requirements of German banks. A system, in other words, that lives up to online banking standards in terms of security and data protection.

tailer cannot prove that the ordered

goods were shipped, the customer is credited the purchase price and any shipping costs directly to their current account. The paydirekt system also offers

Unlike many other online payment methods, no third parties

an additional significant security aspect: as

are involved in paydirekt. When a buyer pays for goods with

customers of a German bank, all retailers who

paydirekt, the payment goes directly from their current account

offer or intend to offer paydirekt as a payment

FMF YEARBOOK 2016

FinTech in Practice

CLICK

Paying with paydirekt in just two clicks

Buyer chooses paydirekt as the p ayment method in the retailer’s webshop

2 method in their shops have already gone through the appropriate Webshop/retailer starts payment process and provides paydirekt invoice data

CLICK

identification process under German law.

Simple development through a modern platform design With its modern and flexible IT platform, paydirekt will be attractive to customers and retailers. Thanks to its microservice architecture and event-driven data management, the underlying IT platform is distin-

Buyer logs in to paydirekt and confirms the payment indicated. paydirekt requests payment authorisation from buyer’s bank

guished by a high level of flexibility and agility. This offers additional functionality and allows new services to be implemented quickly. Thanks to a continuous delivery concept, updates can be rolled out to customers very efficiently. Particularly in a dynamic market like online payments, it is key to ensure that new or enhanced features are

delivered quickly and efficiently. By the end of 2015, already some 1,000 institutions had made paydirekt available to their customers, among them the cooperative

Buyer’s bank authorises payment and sends confirmation to paydirekt. Second safety factor requested from buyer if required

banks and big private banks such as Commerzbank, comdirect, Deutsche Bank, HVB, Postbank and many others. The start-up phase will be completed in April 2016, when the Sparkassen come on board and several million additional customers gain access to paydirekt.

Despite the fact that the system has only just been launched, the initial experience demonstrates a high level of system stability, as well as fast and easy transactions. The feedback from the first retailers and buyers is positive.

Webshop/retailer receives payment guarantee

Looking to the future Since the system is up and running with all features adequately test-

ed, the focus in 2016 will be on growing the number of retailers in order to provide users with an attractive retailing portfolio. One mea sure that will facilitate access, for smaller retailers in particular, is the

Buyer receives confirmation of purchase

introduction of the retailer concentrator model. A retailer concentrator

takes care of negotiations with the participating banks for smaller providers. This allows retailers to integrate paydirekt more easily and offers a one-stop shop where prices can be compared and adminis-

paydirekt prepares data for processing of payment transaction and sends it to retailer and buyer’s bank

tered. Further developments are also envisaged for buyers, ranging from new features at the buyer portal to mobile payments. Prioritizing the selection of features to be implemented will be chiefly driven by customer demands. With its modern and flexible platform, paydirekt can be quickly tailored to the needs of its users and thus

offers German banks the conditions required to remain competitive as providers of online payment methods in the medium and long term. n Retailer’s bank lodges a paydirekt payment in retailer’s account

Dr Niklas Bartelt is Managing Director of paydirekt GmbH

FMF YEARBOOK 2016

FINTECH IN PRACTICE

In the next few years, all participants in the ﬁnancial market will be forced to invest even more heavily in Technological progress is

new technologies and the IT infrastructure they

leading to increasing demands

IT infrastructures

on securities trading systems

are facing

study from ICF BANK AG.

require. The drivers here are not only the rapidly

and IT infrastructure – a case

expanding regulatory environment and the pressure to increase cost efﬁciency. More importantly, the highly innovative young FinTech companies are

massive change

creating a growing number of new challenges for the “traditional” market participants.

BY ALEXANDER DEUSS

Identifying opportunities in the digital revolution There can be no doubt that one of these technological challenges is the digitisation of securities trading that is already taking ased in Frankfurt, ICF BANK AG offers direct

place. In particular, the blockchain technology underlying the

market access to 55 international stock ex-

Bitcoin could lead to massive upheavals in the ﬁnancial sec-

changes and more than ten OTC platforms to its

tor. “The “blockchain”, as it is perhaps most clearly described

institutional client base. The entire order routing

in the Süddeutsche Zeitung on 12 January 2015, “is a digital

infrastructure is based on ICFOMS , an order

bank statement for transactions between computers that rec-

management system which has been developed

ords each change exactly and distributes and stores them

in-house to meet the speciﬁc needs and require-

on many computers in a de-

ments of ICF’s sophisticated business partners. The

centralised and transpar-

system features fully automated order transmission

ent process.” This allows

and monitoring, as well as straight-through-pro-

peer-to-peer* securities

cessing in transaction conﬁrmation and securities

transactions to be car-

settlement. One of the basic prerequisites for the

ried out without inter-

success of ICFOMS and comparable products is the

mediaries, including

availability of an appropriate IT infrastructure, which

banks and brokers,

from the perspective of the customer should meet the

who

following requirements:

simply be super-

would

quite

The term peer-to-peer* denotes connections from computer to computer in networks. In a pure peer-to-peer network, all computers have equal rights and can both receive and provide services. The term smart bonds** is used to denote fully automated bonds where the issuer and buyer are in direct contact without the intervention of an intermediary. Coupon and redemption payments are also made automatically.

ﬂuous. The same apDynamic and automated scaling

plies to exchange operators and

Time-to-market

depositaries.

Guaranteed high availability and individual service level

Last year, both UBS and Deutsche Bank AG con-

Cost efﬁciency through budgetable and

ducted successful internal testing of the issue of a

transparent IT costs

bond based on the blockchain, a so-called smart

Multi-market capability

bond**. The arguments against the widespread

Fulﬁlment of maximum technical standards and

use of this technology at present are ﬁrst the un-

security requirements

resolved regulatory and legal environment, and

Flexible contract drafting – no commitment

second the lack of scalability and speed. And

periods for the user

this is exactly where the big opportunity for innovative securities brokers lies: in making the ap-

Of course, this list is not exhaustive and is constantly chang-

propriate products and IT infrastructures avail-

ing. For example, while a few years ago a point-to-point

able to the market.

connectivity had to be established for almost every single market, multi-market access based on interfaces and technical hubs is now standard. The implementation time or realisation phase for individual IT infrastructure projects has been

Alexander Deuss is

reduced from an average of six months to just a few weeks.

Head of Institutional Sales

At the same time, the cost pressure for the provider has in-

at ICF BANK AG.

creased signiﬁcantly.

FMF YEARBOOK 2016

FINTECH IN PRACTICE

As ﬁt for change as a FinTech – to ensure that we always remain close to new technological developments and keep our ﬁnger on the pulse of the times, GFT Technologies SE relies on CODE_n, a global innovation platform, and supports start-ups from both practical and theoretical experience.

Tackling _INNOVATION Since 1987, GFT has been combining technological know-how

GFT. The company had developed intelligent software: when

and industry expertise. At times, the company has re-invented

documents are scanned or photographed, it extracts structured

itself every ten years. Started as an expert in the development

information such as account number, IBAN and payment refer-

of graphic user interfaces, the company positioned itself as an

ence in real-time and transfers it semantically to a digital transfer

Internet specialist at the turn of the millennium, and today its

form. “WE RECOGNISED THE BENEFITS OF THIS TECHNOL-

people develop and operate customised IT solutions for the

OGY FOR THE FINANCIAL SECTOR AND THEN SET ABOUT

ﬁnancial industry. Transformation has become the norm for GFT

MAKING CONTACT WITH VARIOUS BANKS. WE ALSO RELY

and innovation is an absolute must. “WE RECOGNISED EARLY

ON IT IN THE BANKING APPS WE PROGRAMMED,” says Kohl.

ON THAT OUR CUSTOMERS OFTEN DON’T KNOW EXACTLY HOW TO TACKLE INNOVATION, SO WE INTEGRATED THIS

GFT’s open approach to the issue of innovation is also reﬂected in

SKILL INTO OUR RANGE OF SERVICES,” explains Bernd-

its support of a spin-off at the University of Tübingen. In this case,

Josef Kohl, Executive Director at GFT.

the company advises on the development of a multifunctional bank card, which upgrades conventional cash cards or credit

Practically speaking, this led to the establishment of CODE_n,

cards with a TAN generator. The newly developed display TAN

short for “code of the new” as a source of innovation. Initiated

procedure is secured against Trojans and simpliﬁes payment by

in 2011 by CEO Ulrich Dietz as a competition for start-ups

smartphone. The bank card that people generally carry around

as part of CeBIT, CODE_n has grown into a global innova-

in their wallet creates the required security codes (TAN) and dis-

tion platform for ambitious start-ups and leading companies.

plays them and other banking information such as account num-

In addition to the annual competition, it also involves regular

bers on a display built into the card. The upgraded bank card

events, a web-based “matchmaking” platform and the innova-

communicates with the smartphone via a Bluetooth wireless con-

tion campus CODE_n SPACES in Stuttgart. “THE IDEA IS TO

nection, and is therefore protected against virus attacks.

NETWORK BOTH INNOVATORS AND EXPERIENCED ENTERPRISES,” says Kohl.

“TESTS HAVE SHOWN THAT USERS LIKE THE MULTIFUNCTIONAL BANK CARD – PRECISELY BECAUSE IT IS BOTH

UNIQUE MARKET ACCESS

SECURE AND CONVENIENT. NOW IT’S THE BANKS’ TURN: THEY NEED TO DECIDE ON

The commitment to CODE_n opened up unique market access to GFT. “WE’RE AWARE OF THE NEW DEVELOPMENTS PEOPLE ARE WORKING ON FROM AN EARLY STAGE, AND WE BRING THIS KNOWLEDGE TO THE INNOVATION CONSULTING WE OFFER OUR CUSTOMERS,” explains Kohl. It was through CODE_n that Gini, for example, came to the attention of

CODE_n SPACES in Stuttgart offers start-ups a professional work environment 2.0 at low rental charges surrounded by creative spaces and access to a living network. Any established companies can apply – the only requirement is a digital approach to business. www.code-n.org/spaces.html

THE INTRODUCTION OF NEW TECH NOLOGIES SO THAT CUSTOMERS CAN BENEFIT FROM THEM,” says Kohl. Practical experience shows that in the ﬁnancial sector in particular, innovation is gaining increasing acceptance. Those who recognise the change and understand its drivers can provide the best support to their customers.

Identify

Participate

Set

TRENDS Ensuring that Commerzbank customers and

Main Incubator GmbH, in brief main incubator, is a wholly-

the bank itself benefit from technological inno-

Main. Since its founding in October 2013 and its operational

vations in the banking sector as early as possi-

owned subsidiary of Commerzbank based in Frankfurt am launch in March 2014, the company has pursued three objectives: to identify trends, to participate in trends and to set

ble, the main incubator was founded to support

trends. “The team is small and operates like a start-up, very

promising FinTechs through market entry and

sciously,” explains Christian Hoppe, Founder Director and

straightforwardly and down-to-earth, and above all cost-con-

beyond. The incubator has also launched the

CEO of main incubator.

event series “Between the Towers” in order to

Back then main incubator was the first one for FinTech startups in continental Europe by a major bank. “The investment

develop a FinTech ecosystem.

committee decides on financial commitments and is set up largely with external people, which is extremely rare, because it guarantees that the team and its product are at the centre of the decision making process,” says Hoppe. If a FinTech offers a suitable solution, main incubator strategically invests

Between the Towers. FinTechCity_Frankfurt

and accompanies the start-up to, through and beyond market

An initiative launched in October 2014 to strengthen the FinTech ecosystem. A series of monthly evening sessions, held on the first Tuesday of each month, connect and inform FinTech start-ups, investors, corporates and academics in order to evolve the scene

mise their potential” says Hoppe. In addition, main incubator

entrance. Herewith the incubator claims neither majority nor exclusivity. “FinTechs going from entrepreneurs to becoming employees is the last thing we want, because it would compro-

www.between-the-towers.com

TUESDAY OF EACH MONTH

also operates as a company builder. SUPPORTING THROUGH STRATEGIC INVESTMENTS main incubator’s advantage is that it conveys digital banking innovations to Commerzbank and its customers at an early stage through examining the concepts of start-ups and d eciding whether their innovative banking products and solutions offer added value to Commerzbank customers or the bank itself. “We are mostly looking out for solutions in the B2B sector,”

FMF YEARBOOK 2016

FinTech in Practice

Incubator

says Hoppe. “If a FinTech has a suitable solution, we enter into

equip their employees

a long-term partnership with a strategic investment.”

with iPhones, cameras

A term originating in the field of medicine: An enclosed apparatus providing a controlled environment for the care and protection of premature or unusually small babies. Incubators provide an environment with the ideal conditions for giving start-ups a successful start in the business world.

or tablets – for a fixed FinTechs benefit from this, because main incubator provides

monthly

capital with leverage: access to Commerzbank’s business and

minimum contract dura

corporate customers, venture capital, banking know-how and

tions or prepayments –

– if needed – office space and infrastructure in the incubator’s

according to project re

building. “This proximity has the advantage that start-ups can

quirements.

sum

without

immediately interchange with us or get connected to experts. Hence problems can be quickly solved,” says Hoppe confidently. The time-to-market for FinTechs is hereby shortened.

REGULAR EXCHANGE REQUIRED

The terms of each investment and a joint cooperation are indi-

The experience of main incubator revealed that while capital and

vidually defined case-by-case.

strategic support is important, FinTechs also need a networking platform, in order to exchange knowledge, know-how and experi-

Since launch, the incubator has looked at around 340 FinTechs,

ence concerning current issues. “We took a close look at all play-

and has made four strategic investments so far. These include

ers who are needed for an active FinTech ecosystem – FinTechs,

Traxpay, a payment service provider planning to enable com-

banks, IT, corporates, academics, politics, the media – and then

panies to a real-time access of all synchronously held transac-

launched ‘Between the Towers. FinTechCity_Frankfurt’, explains

tion-related data any time and anywhere in the world. Meaning,

Dr. Solveig Köbernick, Marketing Manager at main incubator. “The

additional information such as documents can be attached

monthly exchange of information between these players is creat-

and connected to any transferals and the accounting system

ing fertile soil for a thriving FinTech ecosystem. This event format of

for instance. Another FinTech supported by main incubator

close and regular networking didn’t exist until then.” Frankfurt as the

is Gini, a young B2B software start-up that offers companies

location was deliberately chosen, adds Hoppe, because the

semantic document analysis. Even unstructured documents

financial metropolis mediates expertise in business, bank-

such as scans or photos of invoices, receipts or contracts can

ing, IT and the academic world with potential investors, as well

be analysed in real-time as inherent data is extracted. Today

as the proximity to the press, policy makers and regulatory

Gini with its innovative solution is a leading company in this

bodies. “These are excellent conditions for ensuring that

field. In February 2016 Gini was awarded “FinTech of the Year

Frankfurt evolves into continental Europe’s center for the innova-

2015”.

tive start-up scene in the financial services industry and with it towards Banking 2.0,” says Hoppe in conclusion.

Other strategic partnerships are in place with OptioPay and ByeBuy. OptioPay’s new innovative platform processes pay-

The success of “Between the Towers” is a pleasant confirmation

ments from companies to their customers and employees by

of this: since the event series’ start in October 2014, 18 events

increasing the value, flexibility and transparency of payments

have been organised – with growing numbers of visitors and a

through offering higher-value vouchers from numerous well-

total of 2,300 participants at present. Since October 2015, the Be-

known retailers and service providers as a payout option.

tween the Towers has also been on tour in the German-speaking

ByeBuy offers private and corporate customers a new financ-

area, with events already held in Munich and Berlin. Other events

ing model for technology products. It primarily focuses on its

are yet to follow.

customers’ requirements, in order to be more flexible than traditional leasing or purchasing of products. Companies can

FMF YEARBOOK 2016

FINTECH IN PRACTICE

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FMF YEARBOOK 2016

FINTECH IN PRACTICE

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FMF YEARBOOK 2016

FINTECH & FINANCE

Where can a FinTech ﬁnd ﬁnancing? There are very few cases where founders have suf-

require private collateral and an adequate level of

ﬁcient capital of their own, so that they can manage

creditworthiness.

without external funds. However, where there is the

Depending on the development stage of the com-

option of bootstrapping, as the independently ﬁnanced

pany, the amount of capital required varies. These

foundation of a company without borrowing is known,

varying needs can be met in different ﬁnancing rounds

it has both advantages and disadvantages. Among the

in which founders can ﬁnd support from interested in-

strengths is the level of motivation. If you have put a lot

vestors. The ﬁrst round of ﬁnancing for a company is

of your own money into the company, you will want to

generally in the range of 100,000 to 1 million euros.

achieve the best results and a sense of pride in hav-

This is known as seed ﬁnancing, and is often pro-

ing made the breakthrough on your own. This option

vided by “business angels” or similar backers (see

also ensures the greatest possible freedom for the

interview page 52) who support founders not only with

entrepreneur in terms of decision-making, because

their capital, but also with their expertise. Young en-

the company’s shares remain under his control with-

trepreneurs can share in the experience of business

out being passed into the hands of investors. At the

angels and make use of their networks and contacts,

same time, entrepreneurial freedom entails risks, be-

something which in the early stage of the company

cause bootstrapping founders often have to rely on

can often prove more valuable than the capital itself.

themselves and work without the expertise of others.

Financing through crowdfunding is enjoying growing popularity. Crowdfunding means that the ﬁnancial bur-

Anyone founding a FinTech is quickly faced with the question of ﬁnancing. Depending on the development stage of the company, there are several options available.

Taking advantage of funding programmes

den is spread across many shoulders. As a rule, the investors are Internet users, because crowdfunding is generally initiated online. A distinction is made be-

Where outside capital is required to found a com-

tween several different types of crowdfunding.

pany, there are many ways to ﬁnd funding. In many

Traditional crowdfunding is particularly widespread in

cases, there are time limits to be observed, and found-

the creative economy. Backers receive a thank you

ers should ﬁnd out the details of all offered options

for their ﬁnancial support that varies in accordance

before setting up their company. Many state-funded

with the amount they put up. This might be anything

programmes are based on loans on favourable terms.

from a small thank you card to a version of the ﬁn-

Somewhat less frequent are loans that need not be

ished product.

repaid. The Federal Ministry for Economic Affairs and

This is in contrast to “crowdinvesting”, or equity-based

Energy offers an overview of important funding pro-

crowdfunding, where backers become investors and

grammes. Entrepreneurs looking to take advantage

receive a share of the company or a share of proﬁts.

of funding opportunities can beneﬁt for example from

The goal of the investors is usually a later exit. This is

the StartGeld funding option for start-up projects avail-

again in contrast to “crowdlending”, where backers

able from the Kreditanstalt für Wiederaufbau (KfW).

offer loans with a ﬁxed interest rate and a ﬁxed term.

The federal government, states, municipalities and the

For entrepreneurs, the big advantage here is that they

European Union also offer funding opportunities or loan

do not have to persuade banks to grant them a loan.

guarantees. A free consultation on the various funding programmes is available to founders from for example Wirtschafts- und Infrastrukturbank Hessen.

Getting advice on the business idea

Another method of raising the necessary capital for a start-up is a bank loan. This requires a comprehen-

It is also possible to seek the support of an incubator

sive business plan. If the business idea is well pre-

or accelerator. An incubator supports a start-up with

pared and promising, the chances that the loan will

venture capital, and often provides the required of-

be approved are good. The bank will however always

ﬁce infrastructure. Incubators also provide advice on

FMF YEARBOOK 2016

FINTECH & FINANCE

Active support

Active support and capital requirements in the start-up phase

Support requirements

Capital requirement

Above EUR 3 million

EUR 500,000 – 3 million

EUR 100,000 – 1 million EUR 10,000 – 200,000 Time Founding

Seed

Series

Overview of funding programmes:

developing the business idea. Accelerator programmes by contrast are usually found at universities, in venture capital companies or in

B http://bit.ly/1oThv6l

Creating favourable conditions for investors

the industrial sector, with the young entrepreneur receiving targeted funding and support from a mentor. In return, the accelerator gener-

There is much discussion at the moment about the possibility of cre-

ally receives shares in the start-up.

ating more favourable conditions for investors who fund start-ups.

Other ﬁnancing options are provided by professional venture capital

The primary focus is on improving the legal and ﬁscal framework for

investors. This is known as series ﬁnancing, where investors provide

venture capital investors.

founders with the appropriate capital depending on the development

If the company is in a steep growth phase with broad market

stage of their product or service. Series A ﬁnancing ranges roughly

acceptance and a sharp increase in demand, an IPO or exit is

between 500,000 and 3 million euros. In many cases, investors also

possible. An IPO is one way to provide the company with new

act in an advisory capacity in addition to acquiring shares in the com-

ﬁnancial resources through the issue of shares, and therefore to

pany. This gradually expands the ﬁnancial ﬂexibility of the company.

ﬁnance further growth. An exit means that the investors or original

In return, the founder assumes responsibility for the investors, who

founders sell their shares in the company with the highest possible

want to stay abreast of the ongoing development of the company.

proﬁt at a time when the company is highly valued, thus ceasing to

As a rule, venture capitalists only get involved in later stages of de-

be shareholders in the company. Q

velopment, when the level of risk has declined.

FMF YEARBOOK 2016

FinTech & Finance

Exciting new business ideas private + investors

Apart from expertise and contacts, capital is the most important factor in establishing a FinTech company. Here, private investors play an important role. The FMF editorial team spoke to Andreas Lukic, CEO of Business Angels Frankfurt Rhein-Main e.V., about these so-called “business angels”.

Mr Lukic, can anyone become a business angel?

War were financed by this kind of private founder. Since then, unfortu-

Andreas Lukic: Any individual who can and wants to invest an amount

nately, we have forgotten this culture in Germany.

in the tens or hundreds of thousands of euros or more can become a business angel. Ideally, that person should also have time, relevant

But aren’t there also other sources of financing for young

knowledge and contacts to support young entrepreneurs. This might

companies …

be someone who already knows something about financing and es-

Lukic: For a young entrepreneur who does not own or has not inher-

tablishing companies or a wealthy individual who requires our advice

ited property, the typical bank loan is not an option because of the

on implementation.

lack of collateral. Financing on this scale through the stock market or bond market also doesn’t work. The same applies to venture capital,

“Johannes Gutenberg in his day had someone who f inanced his printing press as a private entrepreneur.”

because we are talking these days about volumes of two to five million euros and upwards, which would require you to have a very good reputation as an entrepreneur. What’s left is your own capital, which also gets eaten up relatively quickly. That is why private investors – who we call business angels – are so important. How can the business angel model be promoted?

Why should start-ups be supported with private capital?

Lukic: We have a discrepancy between private investment and ex-

Lukic: An investment in start-ups can be a good alternative to stocks

citing new business ideas that are scalable and have an exit strategy

and bonds. It is also a form of investment with a long tradition in

after the years of building the company. This could be remedied by

Germany. Johannes Gutenberg in his day had someone who financed

making the business angel idea better known and familiarising people

his printing press as a private entrepreneur. Siemens or Zeppelin too,

with the model. We explain to those interested, for example, what a

and in fact about 90 percent of German industry until the Second World

participation agreement is and how to protect their own interests. And

FMF YEARBOOK 2016

FinTech & Finance

of course you have to create a platform

tial founders come to us. In 2015, we had

and demeanour, which we then pass on to the com-

where founders and investors can get to

about 950 applications, and we are ex-

pany together with questions asked by investors directly

know each other and see if the chemistry

pecting more in 2016. We have a form

after the presentation. We believe that this is immensely

works. That is why we regularly organise

on our website applicants must com-

valuable to young companies as a means of assessing

the FinTech business angel gatherings at

plete and send to us. We also organise

their situation.

the Frankfurt financial centre and in other

public consultation days at universities

sectors. We are also currently working on

or lectures at colleges, research cen-

What needs to be done to ensure that successful

establishing a Gründerhaus as a place for

tres and business incubators. Our selec-

FinTechs remain in the Rhine-Main area and do

new entrepreneurs.

tion committee then completes a thor-

not move abroad?

ough screening process before we bring

Lukic: In addition to access to capital and appropri-

founders and investors together.

ate regulation, we need a central location in Frankfurt

What are the criteria you use to select interested private investors?

where the threads and contacts converge. However,

Lukic: To join us as a member and pri-

What happens then?

this location also needs to have suitable living and work-

vate investor, you first apply, and go

Lukic: Approximately 10 percent of the

ing spaces. The current situation is much better in the

through a series of personal interviews

companies who do presentations at our

United States or in London. Most founders do in fact

and participate in events. Our goal is to

matching event, or about 1 percent of ap-

want to stay where they were born or where they went

find business angels who want to do this

plicants as a whole, find an investor with

to college. If we react quickly now, we can prevent fur-

not only for reasons of marketing or tax

us. This may sound like very little at first,

ther emigration, and perhaps even reverse it.

relief, but out of genuine interest. There

but it is very much a normal rate. Even

is also a code of conduct to be signed.

without investment, a presentation often

This filter works.

yields valuable contacts or tips. We also always ask for feedback from those pres-

And the potential founders?

ent on the persuasiveness of the con-

Lukic: We are now established as a

cepts presented, the quality of the pres-

business angel network, so the poten-

entation, and on personal appearance

Business angels are people who make c apital, expertise and contacts available to teams of founders or growth companies in return for a stake in the success of the company. As a rule, b usiness angels invest manageable sums in innovative companies if they are interested in the concept and convinced by the team. Business Angels Frankfurt Rhein-Main e.V. has a network of more than 100 members. Its goal is to mobilise and support business angels in the Rhine-Main region and bring them together with exciting companies. http://bit.ly/23YSQwX An exit is the pullout of investors and/or founders from the company with the highest possible profit.

Thank you very much for the interview.

With FinTech, there is something of an “industrial revolution” under way in the financial sector.

Prof Dr Christoph Schalast

If we pool the policy, economic and academic skills available in the Rhine-Main region, we can become a top location for FinTechs in Europe.

Prof Dr Peter Buxmann

How

SCHOLARSHIPS support the development of FinTech

The Frankfurt financial centre now requires more cooperation, more interaction and more consolidation.

Prof Dr Wolfgang König

We need a culture of failure acceptance in which we have the courage to give new things a try. Even if they sometimes don’t work out.

Prof Dr Lutz Johanning

FMF YEARBOOK 2016

FINTECH IN THE ACADEMIC WORLD

For more, go to www.frankfurt-main-finance.com/fintec_science

Bringing financial technology successfully to market requires expertise in many areas. Here, the academic community can support private enterprise, as professors Peter Buxmann, Lutz Johanning, Wolfgang König and Christoph Schalast demonstrate in a round-table discussion with the FMF editorial team.

The hallmarks of your universities are new technologies, financial knowledge, management and entrepreneurship. Why is FinTech interesting for the academic community?

for financial companies does not become too high. The academic community can offer support here, because it can suggest alternative regulatory requirements that can be implemented efficiently. However, it is particularly important

Christoph Schalast: In the past, intensive regulation in Germany

for the changes as such to be driven very forcibly by the

has often acted as a shield against new technologies, but

industry.

that is changing now. FinTech will fundamentally change the banking landscape in the coming years, because digitisation is unstoppable. From an academic and practical point of view,

FinTech companies can help make processes leaner. But with their disruptive ideas, they are also in competition with the banks...

this is very exciting. Schalast: I don’t see any destructive competition, because the

But the intensity of regulation in Germany is still a major challenge for FinTech companies. Can universities prepare their students for that challenge?

banks have to modernise and accommodate and integrate the new technologies. This is already happening at the Frankfurt financial centre. We just need to make sure good ideas can continue to develop without being snapped up too quickly.

Peter Buxmann: Our students are interested in innovative

Buxmann: I actually do see a certain amount of competition.

technology, good ideas and the development of new business

But perhaps it is doing the traditional banks some good. In

models. In my experience, their interest in regulatory issues is

the course of many discussions, I have learned that they are

less intense.

giving a lot of thought to how they can become more innovative and how they might develop new business models – data-

Is support for FinTech start-ups with an eye towards regulation sensible and feasible?

based, for example. It will be fascinating to see how banks and FinTechs position themselves and work together in the future. Schalast: From a legal perspective, there are of course a

Wolfgang König: At Goethe University, there are courses and

number of points to be considered with respect to the cloud,

meetings designed specifically for this purpose, some with

such as confidentiality obligations and, most importantly,

international participants. But regulation is a difficult issue.

banking secrecy. But solutions could be found for this problem.

Lutz Johanning: It’s a big challenge to implement regulatory

These legal barriers do exist in the United States and the United

requirements efficiently in terms of technology. But efficient

Kingdom, but they are perceived to be less of a problem there.

processes are necessary to ensure that the cost burden

FMF YEARBOOK 2016

FINTECH IN THE ACADEMIC WORLD

Are the authorities abroad less stringent?

Will FinTech revolutionise the financial sector?

Johanning: London or Luxembourg are not less stringent,

Johanning: The financial sector is the next industry to become

but the decision-makers at the supervisory authorities see

the focus of new technologies. The question is what the options

themselves also partially as service providers to the industry.

are for making processes easier and building on innovation.

The result may be that many companies might migrate their

The academic community can provide support here.

business to Luxembourg, for example, where they also have, I might add, a more open think tank mentality. The super visory authorities and companies

Are crypto currencies like bitcoin or block chain technology relevant in academic terms?

together make a much greater effort to plan ahead. By com-

König: While we do now have crypto currencies, their

parison, we are still very conser

development is not quite as consistently positive as was

vative here in Germany.

envisaged by the initiators. With block chain technology too, I

König: Experience shows that

tend to be cautious – as things stand today, although there is

institutions such as the European

still much to be learned. I do not believe that we can go even

Central Bank or the Federal

half way towards managing the communication requirements

(Home of Innovation, Growth,

Financial Services Supervisory

associated with this technology in the foreseeable future,

Entrepreneurship and Tech

Authority have a very strong focus

because the communication capabilities that would be

on their structuring mandate. One

required to get the system up and running properly are simply

option that would actually be

gigantic.

Prof Dr Peter Buxmann is holder of the Chair of Busi ness Informatics at the Tech nical University of Darmstadt. He is also Head of the Busi ness Incubator HIGHEST

nology Management).

possible is for us as academics to have a much more intense

What is the next development step?

discussion of the competitive as pects of regulation with these authorities. This applies to both

König: The next step will be database systems that work

start-ups and established market participants. After all, it must

according to the traditional model but are more distributed.

be understood that banks can often no longer manage the

Block chain still seems to be far from any actual practical

regulatory density in place today.

implementation in a relevant application environment.

Johanning: An exchange in this area would be very useful. After

Johanning: Even without block chain, the new technologies

all, the goal of the regulators is basically good. They promote

offer many new possibilities. We only have to look at the

standards and transparency to ensure that the market works

infinitely long process chain associated with the purchase of a

and that cooperation between providers and consumers on an

security fund. We can be much, much faster here, and create

equal footing is possible. The issue is the implementation of

greater transparency. Changes are coming that will bring

regulation and supervisory practices.

about a transformation of the entire sector. New standards will be introduced, and when young consumers learn how to work

How might that work in terms of implementation?

with them, we will quickly have a new infrastructure and market structure.

Johanning: Why, to take a global example here, does each bank

Schalast: In Korea, for example, about 50 percent of FinTechs

have to calculate the risk associated with its portfolios on its own?

already rely on block chain. These kinds of technologies raise

Risk management is an issue for the banks, but this calculation

regulatory questions, of course, and we are still a long way

could be a standardised service across the entire banking sector.

from implementation. But they do nonetheless show us what

This would allow an incredible rise in efficiency levels while at

it means to make the leap into digitisation and that there is

the same time accommodating the regulators, because the risks

something of an “industrial revolution” under way in the

taken by banks and asset managers would be much easier to

financial sector at the moment.

compare. FinTech and standardisation can help enormously.

FMF YEARBOOK 2016

FINTECH IN THE ACADEMIC WORLD

Since 2007, Prof Dr Lutz Johanning has held the Chair

König: Germany has thus far closed its mind to the rapid pace

HIGHEST, which made us one of

of Empirical Capital Market

of digitisation in many areas, not only in the financial sector. We

the 12 winners of the nationwide

Research at the WHU – Otto

in the higher education sector therefore need to highlight the

“EXIST” competition run by the

Beisheim School of Manage

role digitisation plays in international competition.

Federal Ministry for Economic

ment in Vallendar, Germany.

Affairs and Energy. One of the

He is also a member of the

What other options do colleges and universities have to promote the transfer of expertise in general from FinTechs into the economy?

jobs of the incubator is to work together with the departments to

raise

awareness

Advisory Board of the European Finance Forum (EFF).

among

students of the idea that in Schalast: In the early stages of start-ups, mentoring is very

addition to starting their career

important. For example, we try to support our students with

in a company or doing a PhD, there is a third way – starting a

their forays into entrepreneurship.

company. This is why we want to offer the subjects of start-ups

Buxmann: At TU Darmstadt, we have established the incubator

and entrepreneurship as options for all courses in the future.

WHU – Otto Beisheim School of Management – Learning entrepreneurship and experiencing founder spirit WHU – Otto Beisheim School of Management offers study programmes and regular events relating to the topics of founding, innovation management, corporate financing, bank management and capital markets. The research conducted at WHU also has a strong focus on these areas. As well as acquiring an excellent theoretical knowledge of founding and entrepreneurship, students at WHU can also experience a unique founder spirit. After all, many WHU students start their own business or work as interns in start-ups. WHU graduates have access to a unique alumni network that is very much marked by a start-up and entrepreneurial mentality. www.whu.edu/

Frankfurt School of Finance & Management – leading and internationally accredited The Frankfurt School of Finance & Management is a leading, internationally accredited business school based in the financial centre of Frankfurt am Main. All teaching, research and advisory services offered are positioned between the poles of finance and management. For many years now, Frankfurt School professors, students and alumni have been working as teachers, researchers and consultants on the digitisation of the banking sector and the innovations that go with it, also contributing their strong management skills, in particular in relation to all aspects of corporate finance. At Frankfurt School, founders receive help and support at every stage – from preparation of the business plan and the approach to financing to founding the company and financing growth – all skills that are particularly in demand among FinTechs and that are crucial to their success. www.frankfurt-school.de

FMF YEARBOOK 2016

FINTECH IN THE ACADEMIC WORLD

Prof Dr Wolfgang König holds the Chair of Business Administration, Business Informatics and Information Management at Goethe

Johanning: At WHU, the start-up rate among graduates is already very high. WHU is an entrepreneurial business school, so that is already part of our culture, but this is certainly something of an exception in Germany, which is why forums for dialogue with the relevant players and mentoring programmes

What contribution can the universities make to strength ening Frankfurt and the Rhine-Main region as a FinTech location?

specifically aimed at building networks are important. Beyond that, we should be trying to create a culture of failure

König: More cooperation,

acceptance.

interaction,

University Frankfurt. He is also executive director of House of Finance and chairman of the interdisciplinary research institute in public-private partnership E-Finance Lab.

consolidation, an extension

Because failure is always seen as negative?

of value chains – these are the substantive challenges facing us at the Frankfurt financial centre.

Johanning: We Germans are very conservative that way – if you

Schalast: And we should definitely work together. The density

fail, you are quickly stigmatised. We need to have the courage

of top research institutes in the Rhine-Main region is unique. If

to give new things a try, even if they sometimes don’t work out.

we pool these strengths, we open up a great many possibilities.

That’s something we can teach in our courses.

Buxmann: It makes a lot of sense for the universities in the

König: We are embedded in a so-

Rhine-Main region to band together – and the responsibilities

cial environment that is not con-

are relatively clear. Goethe University and the House of

sistently pro-entrepreneur. On the

Finance have a large number of chairs and relevant expertise

contrary, our basic mentality is

in finance, WHU focuses primarily on entrepreneurship, and

guarded, conservative. Where it

TU Darmstadt contributes its expertise in areas such as IT and

Business Law and European

is really necessary, we can also

digitisation. They complement each other extremely well.

Law at Frankfurt School. He

be daring, and then we see that it

Johanning: It is good to have a location like Frankfurt, where the

is also Academic Director

works. But it sometimes takes a

threads come together. This also includes a stronger international

of FS’ Master of Mergers

long time before we get to that

perspective. In Germany, we have traditionally had a good level

& Acquisitions (LL.M.) and

point.

of technical education and the quality of our financial services

Prof Dr Christoph Schalast is Professor for Mergers & Acquisitions,

chairs the annual conferences NPL Forum and M&A/Private Equity hosted by Frankfurt School’s publishing house. He is a lawyer and notary.

In the conversation (from right to left): Prof Dr Christoph Schalast, Prof Dr Peter Buxmann, Prof Dr Lutz Johanning and Prof Dr Wolfgang König

FMF YEARBOOK 2016

FINTECH IN THE ACADEMIC WORLD

Goethe University – Comprehensive understanding of the financial markets is frequently better than abroad, but that is often not recognised there. In international bodies and committees, for example, the German voice is too quiet. This is a pity, because it is a good, substantive voice. I believe that this is something we can improve.

Where will FinTech and the Frankfurt financial centre be in ten years’ time? Buxmann: I‘m very optimistic. We have excellent conditions for attracting many FinTech companies to Frankfurt and the surrounding area. If we pool the policy, economic and academic skills available in the Rhine-Main region, we can become a top location for FinTechs in Europe. With its focus on the financial sector, no other location is better suited to doing so. Schalast: In ten years’ time, FinTechs will be normal. The crucial point is to create a positive ecosystem and networks of regulators, universities, banks and companies. If we succeed in that, Frankfurt has a chance as a FinTech centre.

Until now, FinTechs were supported within the framework of the Unibator, the incubator and founder centre at Goethe University. In 2015, a FinTech programme with modern infrastructure was established, which is also open to FinTech founders outside the university. FinTechs are also supported in particular by the professional mentor and partner network. At Goethe University, founders receive the analytical tools they need to acquire a comprehensive understanding of the financial markets. With the House of Finance, the E-Finance Lab and numerous PhD, master and bachelor degree programmes, Goethe is one of Germany’s leading universities. It now offers specific course formats and FinTech applications in entrepreneurship studies for more than 600 students per year. www.uni-frankfurt.de

Johanning: What we lack is a clear commitment to the location and the financial sector in terms of federal policy. Germany does not yet provide this, tending instead towards technically oriented sectors. But without a functioning financial sector, there is no functioning economy. It must therefore be made very clear just how important a financial centre such as Frankfurt is.

Thank you very much for the interview.

Technical University of Darmstadt – Excellent technology-oriented courses The technology-oriented courses available at TU Darmstadt, such as computer science, mechanical en gineering, electrical engineering and information tech nology, as well as interdisciplinary courses in business informatics and industrial engineering, have an excellent reputation – as shown by the many top rankings it achieves. In the future, students will be able to attend courses in entrepreneurship and start-ups, regardless of the course of studies they have chosen. The incubator HIGHEST (Home of Innovation, GrowtH, Entrep reneurShip and Technology Management) supports p otential founders with the aim of promoting entrepreneurial activity and innovation in order to make Germany, and the Rhine-Main region in particular, internationally compet itive and fit for the future in the areas of high-tech and digitisation – including the FinTech sector. www.tu-darmstadt.de

13,000 250

In 2015, around people worked at German FinTech companies, ranking Germany in fourth place worldwide. http://bit.ly/1nt7cEf

2.4

billion euros

was the FinTech market volume in 2015, ranking Germany in ﬁfth place worldwide.

1.2

billion euros

were invested in FinTech companies in Germany in 2015, allowing for the purchase of 360T by Deutsche Börse, ranking Germany in third place worldwide in terms of investment volume. http://bit.ly/1nt7cEf

73%

of millennials would find a financial service from Google, Amazon, Apple or PayPal more exciting than one from their own bank. Millennials are the first generation to have grown up with the computer. For more on this topic, go to http://bit.ly/1gp93Q9

IMPRINT Published by Frankfurt Main Finance e.V. Zum Laurenburger Hof 76 60594 Frankfurt am Main Phone: +49 69 9441 80 31 Telefax: +49 69 9441 80 19 www.frankfurt-main-ﬁnance.com Person in charge Hubertus Väth Editorial team / art direction NewMark Finanzkommunikation GmbH, Frankfurt am Main

Let‘s Talk Payments A knowledge platform with the latest studies and white papers on the subject of payment services. http://bit.ly/1ROX97t

Printed by Druck- und Verlagshaus Zarbock GmbH & Co. KG, Print run: 2,000 copies Frankfurt, March 2016

22 %, 56

Rising by was the number of FinTech companies in 2015 in the RhineMain-Neckar region, the fastest growing of the major regions in Germany – Berlin, Frankfurt, Munich.

FinTech special edition

The FinTech Brieﬁng

at gruenderszene.de with news from the industry.

A daily newsletter from BI Intelligence offering facts and insights and the latest news and trends. http://bit.ly/1QBWJ52

http://bit.ly/1pb6gGr

FinTech Industry Outlook 2016 The ﬁnancial world is changing constantly. An overview in info graphics. http://bit.ly/1QbXWli

Image credits Dreamstime.com: P. 53 (Cacaroot); d-map.com: P. 26–27; Fotolia.com: Cover (majivecka), P. 10–11 (Alex, Nmedia), P. 18 (iko), P. 34 (henriklundgren), P. 47 (Tisskananat); Axel Gaube: P. 4–5, 22–25, 28–31, 40–41, 52, 54–59; Getty Images International: P. 37–39 (Image Source, jayk7, Colin Anderson); GFT: P. 45; Victor Hsu: P. 42–43; Noun Project: Cover (Shahriar Emil, Marc Anderson, Roberto Chiaveri, Martha Ormiston, Yamini Ahluwalia, Elizabeth Lopez, Daniel Liamas Soto, Mani Amini, Rory Macrae, Ecogex, Scott Lewis), P. 12–15 (Adrian de la Natividad, Haridass, Austin Condiff, Gregor Crešnar, Samuel Q. Green), P. 50–51 (Haridass, Wilson Joseph, mcarranza, Gregor Crešnar); Swetlana Stametow: Cover, P. 3–5, 8–9, 20, 60–61; Borut Trdina: P. 32; Veer.com: P. 36 (Kheng Ho Toh), P. 48 (Oleg Rodionov); Wikipedia: P. 12 + 33 (map of the world), P. 13 (map of Germany), P. 16 (Bembel)

is the rank Germany holds among the world’s biggest FinTech locations. In Europe, it is in second place behind the United Kingdom.

BLOGS http://www.ﬁnmeetstech.com/blog http://www.ﬁnancezweinull.de/blog http://bankstil.blogspot.de http://paymentandbanking.com

Events in 2016 RETHINKING BANKING – reloaded, Euroforum, 13 and 14 October 2016 http://bit.ly/1RlYkYX DVFA FINTECH FORUM 10 October 2016 http://bit.ly/1VoUqRK BETWEEN THE TOWERS. FINTECHCITY_FRANKFURT every ﬁrst Tuesday of the month http://bit.ly/16svDKs

15.5 % is the current EY FinTech Adoption Index, which shows the level of use of FinTech products among digitally active customers.

http://bit.ly/1SafcpO