Ich bin ein innovator

German financial towers illustrate a story on German fintechs
Credit: fotoVoyager and Getty Images

Renowned for amazing automobiles and fantastic football, Germany’s approach to success is admired and envied across Europe. But what of its fintech and banking achievements? Is this industrial powerhouse a leader or a laggard? We spoke to three experts from the German world of fintech and modern banking. Each was asked to offer three insights and here’s what they had to say.

Mikko Rieger — independent card and payments platform specialist

German fintechs are opting for their own banking licenses
The old-world way of riding on the back of someone else’s license to launch a neobank app and prepaid card proposition is on the wane. Startups now prefer to secure their own central bank-backed license. It’s all about demonstrating your credentials as a serious player in a very conservative market. It means the newcomers are starting to look more like the incumbents, with security, trust, and reliability being as important as offering real-time, slick, digital experiences.

E-receipts are closing the transaction data loop
E-receipts have already proven their worth with fuel and fleet cards, preventing certain types of expenditure abuse such as adding confectionery and drinks to fuel and motoring-related purchases. They’re now providing businesses with a full transaction data set, creating opportunities to personalise offers. One example is insurance products for high-value items. Having the full transaction data set, from invoice to payment and receipt, is going to continue to be a focus area for many fintechs and rightly so.

The importance of personal contact in banking
Human-to-human interaction still matters in Germany. For example, customers of regionally organised bank Sparkasse can telephone a branch contact for advice on all sorts of topics, such as personal accounts and investments. Alongside this, Sparkasse offers great digital features and its mobile interface is as good as any neobank’s. Many consumers still appreciate the human touch and with so much in the news about fintechs not always getting customer support right, knowing there is a human to speak to is welcomed by many.

Adrian Klee — Digital business builder, Ross Republic

Banking as a Service will overtake white label solutions
The BaaS segment is starting to gain traction thanks to new players delivering end-to-end banking capabilities, including current accounts, cards, loans, and payments. This is all done via modern APIs to other third parties, and it enables innovators to concentrate on the important stuff, such as enriching their client-facing propositions and branding. It’s a sea change when compared to traditional white label services and ensures the innovator is in full control.

Decentralised banking network makes B2C a tough market to crack
Neobanks are struggling to crack the business-to-consumer (B2C) segment due to Germany’s decentralised banking culture. The system is structured in three tiers, with private banks such as Deutsche Bank and Commerzbank in tier one, co-ops like Volksbanken and Raiffeisenbanken in tier two, and public banks including German Savings Banks Finance Group in tier three. This third tier occupies around 40% of the market. Trust, security, and reliability are of fundamental importance and the neobanks and German fintechs must keep this front of mind.

Risk aversion hampers credit card propositions
As consumers, Germans don’t really do credit cards at the kind of scale seen in other European countries. Progress in this area is slow, not because of a lack of innovation, but because of entrenched risk aversion amongst the population. Germans also love cash and many folks are skeptical about digital banking. The result is a 60% cashless banking adoption rate, which is remarkable when compared to the Nordics which are at around 90% or higher. By developing propositions that focus on great customer service, with solid security and compliance features, and digital, innovative offerings that delight, things will[a] change.

Gerrit Glass — Head of Banking, Avenue

Consumers are as conservative as incumbent banks but change is coming
German consumers’ reluctance to embrace digital financial solutions is making incumbent banks complacent. Whilst Germany is lagging behind other markets, the pandemic will prove educational in terms of demonstrating the value of digital payments and banking, and instrumental in the adoption of neobank and fintech offerings.

Banks need to talk global
Globalisation means financial businesses need to be multilingual, and this is something Germany’s smaller regional banks really struggle with. It’s a barrier to anyone living and working in Germany without native language abilities. Compare this to N26, which supports seven languages.

Open banking progress is needed for B2B solutions
New money management propositions would do well to take advantage of the existing market gap for small- and medium-sized enterprises (SME)s, as there is huge scope for innovation in this vertical. A key stumbling block, though, is open banking. Because of Germany’s fragmented banking sector, APIs are diverse and there’s huge inconsistency with how incumbents approach Payment Services Directive 2 (PSD2). This makes life challenging but not impossible, particularly now that the Banking as a Service model is taking off.

*The views and opinions expressed in this blog are those of the respective respondents and do not necessarily reflect the views or opinions of Marqeta.