Contextual Solutions and FinTech Consult were recently commissioned to prepare a report on behalf of the Netherlands Enterprise Agency (RVO) and the Netherlands Business Support Office (NBSO) Frankfurt am Main that provides a holistic overview of the German FinTech ecosystem, including opportunities, challenges, success factors, and latest trends.
The study was prepared from the perspective of Dutch companies; however, it includes evergreen suggestions for companies preparing to enter the German market. In this article, we will summarize the key findings and harmonize them with the market’s relevance for Turkish players.
German (FinTech) Market Basics
As the largest EU country with a robust economy, Germany attracts foreign capital, talent, and businesses. Furthermore, the population of 83m makes the country an obvious starting point for international FinTechs when bringing B2C solutions to the European market. Additionally, the 3.5m German enterprises offer an excellent market potential for B2B FinTech, and many of the 1,500 German banks are willing to collaborate with startups.
Moreover, FinTech in Germany is booming. Despite a recent consolidation phase, the number of FinTechs and the amount of funding have risen strongly over the past years. Several FinTech hubs provide access to knowledge, talent, network, funding, and initiatives, with Berlin standing out as one of Europe’s most relevant FinTech hubs.
However, when something sounds too good to be true, it usually isn’t. This also applies to the German market and its various challenges newcomers need to be aware of:
- Consumer Culture: Germany’s society is aging, risk-averse, and traditional, so it can be tough to get Germans to try new (digital) solutions. Gaining consumers’ trust plays a vital role in this process. The first impression is crucial. Concerns regarding data safety and protection are red flags for many Germans. Fortunately, once convinced, German consumers are very loyal. Therefore, focusing on building a trustworthy brand is likely to pay off. With the usage of digital solutions growing but lagging behind many other European countries, it is also important not to overestimate the market potential. Cash payments and offline banking are still highly popular among Germans, to name only two examples that represent the society’s low digital savviness.
- Business Culture: Being on time, working thoroughly, and being disciplined are likely associated the most with German business culture. And indeed, those values are part of what can be referred to as German professionalism. Having clear goals and a detailed plan for reaching them is the essence of it. This plan is usually executed carefully within specific structures and procedures. Adopting German business culture is – at least to some extent – expected from foreign companies when doing business with German organizations. German professionalism is vital to producing the high-quality results the country is globally renowned for. On the downside, however, German companies often lack the flexibility and agility that are particularly vital in fast-paced and dynamic environments such as FinTech. As a result, foreign FinTechs need to be prepared for long and challenging sales cycles.
- Regulatory Climate: German financial regulation was never known for favoring innovation over tight supervision. Following market scandals and failures, the German regulator Bafin emphasized that this balance will shift even more towards stricter financial supervision. In addition to the specular fraud scandal at the German payment company WIRECARD, Bafin was not happy with the compliance standards at some of the rising FinTech players, the most prominent ones being N26 and Solaris. Both companies were given a lot of extra homework. N26 even had to limit their staggering growth to 50k new monthly users in Europe. Consequently, FinTechs coming to Germany need to be prepared for high compliance standards. However, having once received a German license, it can be considered the “gold standard” and a valuable asset for further European growth.
- German Market Infrastructure: Germany offers excellent conditions for FinTechs regarding finding and retaining talent. The general supply of highly educated and skilled employees is among in best across the EU, but competition for talent remains fierce and salary levels high. As for digital infrastructure, Germany offers above-average broadband and mobile internet coverage and speed but is lagging behind massively regarding fiber internet. This also applies to the country’s digital public services for citizens and businesses. Despite ambitious goals, public services are primarily based on paper forms and in-person appointments. At the same time – for instance – little use is being made of the digital identity card that is issued to nearly every German citizen. Also, adoption rates of new technologies, such as AI, big data, cloud services, etc., are lagging behind many European countries.
- German Payment Infrastructure: The findings on German consumer behavior mentioned above are also reflected in the local payment infrastructure. For instance, regarding card payments, Germans favor the local debit card scheme “Girocard” over the solutions offered by Visa or Mastercard, despite Girocard’s limited functionality (e.g., domestic and offline payments only). As for online payments, SEPA direct debit and purchase on account are the methods of choice, reflecting the risk-averseness of German consumers. Compared to other markets, German payment infrastructure, therefore, does not follow international standards as strongly, which adds to the market complexity. Also, infrastructure often runs on legacy systems, negatively impacting performance and stability.
Relevance for Turkish players
As the Netherlands is one of the most advanced countries regarding innovation and startup culture, entering the German FinTech market is likely to be a setback. Digitization in Germany is lagging behind, and traditional German consumers are hard to convince. Turkish players entering Germany are like to face similar challenges considering Türkiye’s high adaption rates of digital financial products. Whether mobile banking, crypto trading, or crowdlending, Turkish consumers are far more open to trying new offerings. Further, infrastructure is based on international standards to a more considerable degree. For instance, a solution built to function within the Visa and Mastercard rails and brought to Germany might need a larger adjustment to account for national payment particularities.
Regarding business culture, Germany and Türkiye have a long political and economic exchange history. Nonetheless, the cultural gap is presumably more significant than between the neighboring states Germany and the Netherlands. Ideally, this is considered from early on as there is no second chance for the first impression when convincing potential clients and partners.
Undoubtfully, Germany is a challenging turf for newcomers. Nonetheless, the German FinTech Market study advocates not to miss the opportunities of the German market but study its particularities carefully, reflect on the business model implications, and take necessary measures to succeed in Germany. The study provides guidance that helps ask the right questions and assess the German market readiness. Additionally, current trends are outlined. Banking-as-a-service & embedded finance, open finance, sustainable banking, financial education & inclusion are some topics expected to pick up speed over the next years. Furthermore, the study reveals that the B2B sector in Germany is still underserved, as most FinTechs focus on B2C solutions. This is particularly relevant since the large German SME sector is expected to increase digitization efforts strongly due to intense pressure to save costs and boost efficiency.
In essence, Turkish players should not hesitate to engage in Germany. To benefit from the market potential and master the challenges, it just needs the right approach. This is likely not an exact copy of what has already worked in the home market. Still, given the maturity of the domestic digital ecosystem, Turkish players are generally coming from a strong position. In the past, we supported and advised several Turkish businesses with their German market expansion. It needs planning, but also innovative ways to test the value proposition early on and in a lean manner. To avoid excessive upfront investments, partnering with a German bank can provide quick market access to clients, a trusted brand, and a regulatory umbrella. Also, building a solution based on the infrastructure of a banking-as-a-service provider will save costs and increase time to market. In the end, many ways can lead to success in the German market, but they will all require a deeper understanding of the local dynamics. By choosing experienced partners, newcomers can have a much smoother and quicker ride.
You can download the study using this link. Furthermore, contact us if you would like to learn more about the specifics of the German FinTech ecosystem, including information about the key players, trends, market gaps, payment systems and banking culture.
