From Paris to Berlin: the tight FinTech race brewing in Europe

While the US may be leading the way globally in FinTech and FinTech innovation, the European market is proving to be a pacesetter. Two key markets are France and Germany, with both markets in a tight race to be number two.

The biggest FinTech market in Europe currently in the UK, ahead by a significant margin. Trailing the UK currently is Germany in second and France in third, with the former securing €2.6bn FinTech investment last year compared to €1.8bn for France.

According to a recent post by Currencycloud, Germany looks set to stay ahead of its continental competitor. Key reasons for this include its buoyant start-up scene in Berlin which is able to attract top international talent. In addition, the country has startup-friendly laws and is fairly stable in the Eurozone.

While France also has a humming FinTech market, Germany is currently out-financing its neighbour. In October 2021, for example, France’s Swile secured a $200m investment. However, this was almost instantly eclipsed when Germany’s N26 bagged an eye-watering $900m in Series E funding. Both countries are increasingly matching each other on unicorn creation, which both having 22 as of December last year.

Why is Germany ahead? Currencycloud highlighted that one of the key reasons that Germany’s Fintech market is thriving is due to its innovation-friendly environment. There is a mature infrastructure in place for firms, with the Crowdfunding Regulation coming into law in 2020, a law that makes it easier for crowdfunding platforms to offer their services across the EU and improve access to crowdfunding for Fintechs.

This may have been an EU-wide regulation, however it particularly been beneficial in Germany due to a combination of the national government’s active support of startups and FinTechs as well as its position as a vibrant financial center and its strong GDP growth.

Germany also has laws which enshrine strong consumer protections. The German Civil Code and the Introductory Law to the Civil Code have inbuilt European Directives on distance selling of financial products into German law.

Currencycloud also underlined the fact Germany is home to 3.6 million registered SMEs. In terms of cross-border sales, Germany’s online merchants sell mostly to France, Austria and Italy.

Many Germans are also adopting new FinTech technologies at considerable levels. Up to 28% of online payments made by Germans are done via an ewallet and 21% via BNPL. In addition, 26% of Germans deliberately avoided paying with cash post-pandemic, with the digital payment market volume estimated to be 149.2bn in 2023.

Currencycloud concluded, “Germany is a leader in attracting worldwide Fintech investors and is a stable base from which to conduct cross border transactions. However, with cross border comes the challenge of higher payment fees, FX costs, regulatory challenges, and the time it takes to establish relationships with banks in every country traded with. Not to mention factoring in that nearly 8% of international transactions are declined during the approval process.

“Whatever partners a German Fintech chooses, the country’s mature financial market, startup-friendly regulations, proximity to East and Central Europe, a high rate of English speaking professionals, means they are already ahead of the race to be the leading destination for Fintech, just by being in Germany.”

Find the full post here.

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