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Frankfurt – An Emerging FinTech Gem in Changing Europe

MEDICIGlobal Head of Content

According to MEDICI data, Germany’s FinTech landscape counts ~475 companies. While FinTech companies in Germany collected €400 million for the whole of 2016, the inflow of capital had already reached €307 million in H1 2017. The number of deals also went up, as did the average size of the deals, rising from €7 million to €7.3 million, Frankfurt Main Finance, the financial center initiative for Frankfurt am Main, reports.

The full market potential for FinTechs in Germany is estimated at €1.7 trillion (€380 billion in financings and €1.3 trillion in wealth management). Of this market, FinTechs are expected to catch relatively moderate €58 billion in 2020, €97 billion in 2025, and €148 billion in 2035 (base case), according to the International Comparative FinTech Overview published in June 2017.

The edition emphasizes that the regions of Berlin and Rhine-Main-Neckar (led by Frankfurt) in particular are consolidating their status as FinTech hotspots within Germany. In fact, in November 2016, the German federal government designated the Financial Center Frankfurt the digital hub for FinTech and financial services as part of their greater digital hubs initiative.

“As part of the national IT summit in November 2016, the German federal government named Frankfurt one of five digital hubs across Germany. The Frankfurt digital hub focuses on the financial services and FinTech industries and is supported by Darmstadt, whose focus is on cybersecurity,” the Ministry of Economics, Energy, Transport & Regional Development emphasizes in the brochure reviewing Germany’s leading FinTech ecosystem.

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Image source: Axon FinTech

“Frankfurt’s strong appeal to banks makes the region even more interesting for FinTechs,” said Hubertus Väth, Managing Director of Frankfurt Main Finance. “The EU’s leading financial center is well-placed to attract FinTechs and become a leading location for young, innovative and agile companies. It is a matter of further enhancing the location’s appeal to FinTechs. Frankfurt and the Rhine-Main-Neckar region are facing global competition, and for the foreseeable future, London is likely to remain the benchmark in Europe against which company founders will judge us. In particular, we still need to improve in terms of our openness to cooperation with company founders, the social acceptance of failure and subsequent new starts, and the tax treatment of venture capital losses sustained.”

Frankfurt is home to the European Central Bank and more than 200 banks (of which 161 are foreign). The Rhine-Main Region is one of Europe’s strongest economic regions and home to top-class higher education and research institutions. More than 90% of the total German stock market turnover is earned in the financial center of Frankfurt. The euro currency sector is managed by the ECB in Frankfurt.

Frankfurt has gained momentum after a string of banks — including Citigroup, Morgan Stanley, Nomura and Standard Chartered — opted to beef up their operations in the German financial capital, FT reports.

In Frankfurt, ~50 investment firms broker financing deals between companies that need capital and investors in search of returns. “Frankfurt invests a great deal, not only from the public purse but above all from the private sector as well,” said Dr. Remigiusz Smolinski, an innovation expert at the Commerzbank subsidiary Comdirect.

An overview of global FinTech hubs published in June 2017 by a multinational law firm Baker McKenzie suggests that Frankfurt is an ideally placed hub primarily for B2B business models. Various firms from the financial sector have created incubators, accelerators, labs, and similar playgrounds to promote FinTech business models. Notable examples of supportive spaces include TechQuartier, Accelerator Frankfurt, main incubator (+ Between the Towers initiative), The Spot, FinTech Hub by Deutsche Börse, FinTech Lab by FinTech Group AG, VABN by Aurelis Real Estate, not mentioning regular events organized by entities supporting entrepreneurs, developers and other tech talent.

“The opening of TechQuartier marks the culmination of nearly a year’s work from the Hessen Ministry for Economics and the FinTech Dialogue Forum, which was initiated by Frankfurt Main Finance. Financial support for TechQuartier has come from a broad base of large banks and consulting firms. Platinum Sponsors include Commerzbank, Deutsche Bank, Deutsche Börse, DZ Bank, Helaba and ING-DiBa. Gold Sponsors are Sparda-Bank Hessen, Allen & Overy, EY, KPMG and PWC,” Frankfurt Main Finance noted at the end of 2016. “For the first time, Frankfurt now offers foreign FinTechs and startups an attractive place to start their business in Germany and prepare for their entry to the European market.”

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Image source: Brähler Convention in Frankfurt am Main

On the global scene, the Startup Ecosystem Ranking October 2017 featuring 125 countries and 950 cities, places Germany on the fifth place following the US (first), UK (second), Canada (third), and Israel (fourth). Rankings are drawn from thousands of data points gathered since 2014, and provide an accumulative score across three verticals: the quality of startups, quantity of startups, and business environment. The report suggests that Germany as a country is enjoying a startup renaissance.

Aside from Berlin, which came fifth in the global city ranking, Germany has three additional cities in the top 100, starting with Munich, Hamburg, and Frankfurt (in ascending order).

“Four cities in the top 100 is a great achievement, showing the diversity of the German startup ecosystem. On quantity and activity levels, Germany has closed the gap with the UK and Canada, and its next expected leap will happen when the ecosystem generates more unicorns and exits,” according to the report.

While Frankfurt cannot yet claim to be the hottest FinTech hub in Europe, it certainly is on the way to a much more prominent role in bringing out the best of technological advancements into the business world. Large corporations are some of the most active supporters of the local tech talent. A year ago, Deutsche Bank opened its own innovation discovery and adoption engine – the Digital Factory in Frankfurt – with the goal for the Digital Factory to be a driver in innovation, digitalization, and re-engineering of the bank.

“The Deutsche Bank Labs discover and evaluate new ideas. At the Digital Factory, we translate these ideas into real products and services for our clients,” said Kim Hammonds, Member of the Management Board of Deutsche Bank and Group Chief Operating Officer.

In October 2014, Commerzbank, an international commercial bank with branches and offices in more than 50 countries, found CommerzVentures (Frankfurt) as a corporate VC entity with focus on FinTech. CommerzVentures backs early- and growth-stage companies in the financial services and insurance sectors, starting at Series A. For its portfolio companies, the fund offers access to key decision makers within Commerzbank Group and other relevant players in banking and insurance.

Another leading institution, Deutsche Börse, launched its own instrument to nurture innovation in FinServ. Deutsche Börse Venture Network launched with 69 partners (27 companies and 42 investors) in April 2015. Having invested $718.46 million within a year from the launch, Deutsche Börse opened The FinTech in Frankfurt in April 2016 to promote early-stage FinTech companies. In September 2016, the institution launched The Venture Match service that enables targeted matching of investors and businesses in current funding rounds for the first time. By January 2017, member companies reached over $1 billion in financing volume. Today, the number surpasses $1.55 billion.

Business Angels FrankfurtRheinMain, Germany‘s largest association, is among the vivid supporters of the local startup scene. The organization brings startup founders and entrepreneurs together with its community of >100 business angels in Frankfurt. Other notable events, networks and awards count The Frankfurt FinTech Meetup, Deutsche Börse Rooftop Talks, a range of TechQuartier events, EURO FINANCE TECH, FinTech Forum, FinTech Headquarter, the FinTech Germany Award, The Goethe Innovation Award by the Goethe University Business Incubator, Frankfurt Startup Award, and many more.

Furthermore, Messe Frankfurt is the third-largest trade fair venue in the world and provides the best conditions for exhibitors and visitors from all over the world with its leading global trade fairs for consumer goods, automotive tech, architecture, and technology. Every year, Frankfurt’s 36 international trade fairs attract more than 1.4 million visitors.

”The increase of FinTech companies in Hessen is the highest in Germany. The access to investors, partners, and regulators and the availability of affordable space are the basis of our successful FinTech ecosystem. The “Fin” is in Frankfurt; the “Tech” is everywhere in Hessen,” said Dr. Rainer Waldschmidt, CEO at Hessen Trade & Invest GmbH.

Elena Mesropyan

MEDICIGlobal Head of Content

Global Head of Content, MEDICI

Elena is a research professional with a background in social sciences and extensive experience in consumer behavior studies and marketing analytics. She is passionate about technologies enabling financial inclusion for underprivileged and vulnerable groups of the population around the world.