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History and Trends of Fintech in Germany, Austria and Switzerland

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History and Trends of Fintech in Germany, Austria and Switzerland The History and Trends of Fintech in the DACH Region How financial technology has developed in German-speaking countries, what it looks like now and where it is heading Elinext, 2021 The History and Trends of Fintech in the DACH Region Contents Introduction 1 What Is Fintech 2 History of Fintech in DACH Countries Germany 3–8 Switzerland 9–13 Austria 14–15 General DACH Fintech Overview 16–17 How Forecasts and Expectations for Fintech Have Played Out 18–19 Fintech Development Trends and Factors Key Drivers 20–22 Main Challenges 23–24 Latest Forecasts and Expectations Germany 25–26 Austria 27 Switzerland 27 Conclusion 28 About Elinext 29 References 30–32 The History and Trends of Fintech in the DACH Region 1 Introduction Financial services have changed enormously in the past decades. 1 So did German-speaking societies embrace the change? This has affected the way people pay for products and services, send money to their family, buy stocks and save. It has affected people wherever they may live, and German-speaking countries When did financial technology (fintech) emerge in the 2 are no exception. DACH region? 3 How has it been developing? Germany, Austria and Switzerland, also knOwn as DACH countries, are often seen as the most conservative in their apprOach to finances. And so they are. People in This white paper answers those and other fintech-related questions about those countries tend to question innOvation in finance the region. and won’t give up their cash-based habits easily. There aren’t many studies prOviding a fintech overview for DACH as a whole, so we had to look at separate sources for Germany, Austria and Switzerland. However, the change is like an avalanche. You Most studies we have found are dedicated to the German and Swiss can resist it as much as you want tO, but you markets, while the information on Austrian fintech is lacking. can’t stop it. That avalanche hit the DACH region the hardest during the COVID-19 Given the heterogeneity of sources, this overview should not be pandemic, when social distancing rules made cashless and remote considered a comparative study of the three countries. Instead, it payments the new norm. should help you understand the specifics of each country and the things they have in common. The History and Trends of Fintech in the DACH Region 2 What Is Fintech Fintechs Fintech is simply an abbreviation for Asset Financing Payments Other fintechs financial technology. The term is used to management describe software and digital services such as payments, crowdfunding, Credit and Alternative Crowdfunding Robo-advice Insurance investing, insurance and others. factoring payment methods Prof. Dr. Gregor Dorfleitner, Jun. and Donation-based Blockchain and Search engines and Social trading Prof. Dr. Lars Hornuf suggested crowdfunding cryptocurrencies comparison sites a classification of fintech services in their 2016 report The FinTech Market in Rewards-based Personal financial Other fintechs Technology, IT and Germany. Here is what the map of crowdfunding management (PFM) infrastructure fintech looks like based on their report.[1] Investments Crowdinvesting Other fintechs and banking Crowdlending The History and Trends of Fintech in the DACH Region 3 History of Fintech Germany in DACH Countries The 1990s First attempts to create digital financial services in Germany date back to the late 1990s, when the dot-com bubble was about to burst. NOTE: Different sources use different measuring methods, and numbers can vary This is when the notorious Wirecard company was founded — to widely. Take investments in German fintech in become the world’s biggest fintech scandal more than 20 years later. 2015. Accenture evaluates this at $770 million [6], KPMG at $106 million [7], and Barkow Consulting at €455 million [8]. The 2000s Researchers name the late 2000s as the period when fintech really began to emerge in Germany. According to a 2019 study by Haddad and Hornuf, this emergence was triggered by recent financial crises.[2] As a result of the crises, traditional banks lost people’s trust and it became difficult for companies to get funds the old way. A new solution was required, and fintech provided it. The digitization of financial services made the number of banks in Germany fall from 3006 to 1774. [3] The History and Trends of Fintech in the DACH Region 4 Germany The 2010s From 2011 to 2019 233 German fintechs shut down, according to PwC’s Cooperation Radar. 2013 and 2014 Further, 2013 and 2014 saw many new companies inspired by the hype on the market. Most of those startups were not prepared for the competition they wouLd face. Between 2017 As a resuLt, about 175 of them shut down [4]. and 2019 In 2014 Germany was Lagging behind other European countries in fintech investments. Accenture reported that German companies in this sector raised $82 miLLion that year. Compare that to $306 miLLion raised by Dutch fintechs, $345 miLLion in the BaLtic region and $623 miLLion in the UK and IreLand. [5] Germany $82 million Dutch fintechs $306 million BaLtic region $345 million UK and IreLand $623 million The History and Trends of Fintech in the DACH Region 5 148 138 141 The 2020s 2020 delivered a huge blow to the German fintech scene. And 125 it’s not the coronavirus to blame. 105 One of the first and most successful German fintechs, Wirecard, was caught laundering money and lying about its assets since 2014. 48 Investigators found that €1.9 billion the company claimed to have were missing. As a result, the company’s valuation slumped from more than Figure 2: Number of fintech startups founded in $28 billion to a little over $3 billion. It filed for insolvency and its CEO Germany from 2007 to 2020 [10] Markus Braun had to step down and was arrested shortly thereafter. 1,755 The Wirecard scandal might have undermined investor confidence in the sector. In 2019, German fintechs raised €1.755 billion, a figure that 1,169 fell to €1.38 billion in 2020. The number of new companies was 1,380 743 684 reduced by half, from 105 to 48. 455 If the downtrend for fintech foundations in Germany has been seen 275 since 2018 (Fig. 2), investment volumes grew steadily up until 2020 (Fig. 3). However, the global amount of investment in fintechs in 2020 2015 2016 2017 2018 2019 2020 Jan 2021 shrank too, according to Innovate Finance, an independent UK Figure 3: Venture capital investments in fintechs in organization for research and development of fintech.[9] Germany from 2015 to January 2021 (in €M) [8] [11] The History and Trends of Fintech in the DACH Region 6 General Overview Hamburg 51 Four cities have become home to half of all German fintech companies: Berlin, Munich, Frankfurt and Hamburg. Berlin 197 Figure 4: Fintech distribution across Germany [12] Dusseldorf 9 Cologne 11 Frankfurt 57 Stuttgart 9 Munich 84 The History and Trends of Fintech in the DACH Region 7 60% 55% 60% 50% 50% 40% 40% 28% 30% 30% 19% 19% 20% 20% 14% 15% 13% 9% 6% 6% 6% 10% 5% 10% 0% 0% / r y IT Law Media Other IT Media y Othe ersit v industr Business Banking/ ni Incubator Insurance Science & Science U Consulting Engineering Administration Figure 5: Educational background of fintech founders (in %), N = 422[13] German fintech founders have diverse backgrounds: 542 of those As for careers prior to founding fintech companies, only 28% of evaluated by Hornuf and Brandl [13] studied at 169 universities. founders worked in banking and insurance. Meanwhile, 24% Most of them have a degree in business administration, followed gained experience in sectors other than banking, IT, consulting, by science and engineering (Fig. 5). media and university projects (Fig. 6). The History and Trends of Fintech in the DACH Region 8 Trade Associations Fintechs in Germany are represented by 5 trade associations founded in different periods. Key Players Founded Association 2012 Fintech platform of the Federal Association of German Start-ups 2017 German Blockchain Association 1999 The German IT Association (Bitkom) 1952 Association of German Banks 2015 German Crowdfunding Association The History and Trends of Fintech in the DACH Region 9 Switzerland The 2000s In Switzerland, the fintech scene began to emerge at about the same time as in Germany. 2010 One of its most successful representatives, Qumram was founded in 2010. The platform helped with compliance, fighting fraud and improving customer experience. In 2017, it was acquired by the US technology giant Dynatrace. The 2010s 2015 According to the 2021 Fintech Study by the Institute of Financial Services Zug, most of the leading Swiss fintechs emerged in 2015 (56 companies). That year is followed by 2016 (44 companies) and 2012 (40 companies). After 2015, the number of new fintechs declined each year (Fig. 7 and 8). [14] The History and Trends of Fintech in the DACH Region 10 60 60 7 21 40 40 11 3 19 6 18 17 3 11 12 18 15 9 9 10 47 4 20 6 20 4 13 7 6 10 7 32 7 12 9 13 7 18 26 5 10 10 5 16 16 22 25 5 6 8 5 3 8 5 3 4 9 10 10 10 10 13 3 3 8 7 8 5 9 3 4 4 6 5 4 0 3 0 3 3 3 4 2011 2012 2013 2016 2017 2018 2019 2011 2012 2013 2016 2017 2018 2019 s1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2014 2015 2020 s1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2014 2015 2020 Figure 7: Number of leading fintech Banking infrastructure Figure 8: Number of leading Distributed ledger technology company incorporations in Switzerland fintech company incorporations Payment Analytics/big data/artificial intelligence per year by product, N = 389 [14] in Switzerland per year by Process digitization/automatization/robotics Deposit and lending technology, N = 389 [14] Investment management The History and Trends of Fintech in the DACH Region 11 80 The key word here is leading.
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