How many would-be Fintechers said way back when, ‘You know, when I grow up I really want to get into Fintech’?
Answer: none, because Fintech is a very new idea. People may have been interested in Finance, or Technology, but the joining of the two as we now recognize it wasn’t a thing. I mention this because it’s fascinating to see the route some people have taken to get to where they are now.
For instance, in Georgia, Tamaz Georgadze’s school teachers had run out of things to teach him by the time he was 12. By 15 he had graduated from university, and embarked on a PhD scholarship in Germany to study Agricultural Economics, then International Economics, then Law. At which point, he says, “I didn’t know what to do actually – it was a weird mixture of everything and nothing.”
In Hamburg, Clas Beese studied Business, majoring in Entrepreneurship and then running a startup center to help others get their companies funded. Sebastian Schäfer meanwhile did his PhD in Frankfurt, in Behavioral Economics, which touched on game theory and experimental economics.
And then there’s Cornelia Schwertner, somewhat younger than the others (and a part of Capital Magazine’s ‘40 under 40’ Young Elite in 2020), who spent a decade in a ‘Classical Finance Industry’ background before switching to Fintech in 2016.
So the space that we now recognize as Fintech is a very new phenomenon, and here are four varied representatives of German Fintech, whose backgrounds led them to a perhaps surprising present day, and yet in retrospect who seem to have been moving steadily towards their current work.
The origins of TechQuartier
Dr Sebastian Schäfer is a Co-Founder and Managing Director of TechQuartier, founded in 2016 in Europe’s ﬁnancial center of Frankfurt. TechQuartier is an ecosystem-builder and cross-industry innovation platform created to bring startups, corporates and new talent together to work, meet, learn and collaborate on new technologies and digital business models. The member-based community numbers more than 550 startups, 50 academic and corporate innovators and hundreds of potential founders.
From his PhD studies, and later as Managing Director of Goethe University’s Business Incubator, or ‘Unibator’, Sebastian says, “You try to understand situations in a controlled environment to better understand causality. I came across interesting phenomena that are very much associated with entrepreneurship and innovation literature, self-confidence and over-confidence, trust and cooperation, the stigma of failure, not only within organizations, but also within a country, and across cultures. At a certain point in time, I thought, ‘I need to apply this in practice and see what I can use from behavioral economics to understand entrepreneurship and the startup scene.’ This is when I built the first accelerator with a Fintech focus, between 2012 and 2016.”
A pre-Fintech Fintech
That mention of ‘the stigma of failure’ is something Clas Beese can probably relate to, because his present success as CEO of finletter and Fintech Week in Hamburg was won the hard way. Back in 2010 he left his job as an encourager of other businesses, to set up his own peer-to-peer lending platform, called Finmar. It was a Fintech before the term was in widespread use. “We went online in 2013. We went offline in 2015, so we failed. I can explain that story extensively nowadays, and tell you a lot about entrepreneurial failure and how that actually feels, and what I have learned.” But like many another entrepreneur, Clas refused to stay knocked down, and hit on the idea of a ‘Curated Newsletter’, to provide an overview of Fintech-related news across Germany and beyond. “Finletter is perhaps not the most read, but we were one of the first, and we’re still relevant. However, the news landscape for Fintech has changed quite a bit in recent years.” Partly as a result of those changes, Clas started Fintech Week, held in Hamburg each autumn and acting as a focal point to bring Fintechs of all shapes and sizes together. It’s probably Germany’s biggest Fintech event, in a crowded field including ‘Women in Tech’, the ‘Digital Banking Summit’, and the intriguing-titled ‘Land on Moon’ conference. As with finletter, Clas practices a hands-off curator approach for Fintech Week, inviting companies and presenters to ‘do their own thing’ within an overall framework. He remains an encourager and enabler.
The early starter
Having graduated in Germany, Tamaz Georgadze was on the lookout for opportunities to fit his ‘weird mixture of everything and nothing’, and became a McKinsey consultant for ten years. He had a couple of banks as clients, and one of his biggest and most relevant was a Georgian bank, which he saw had to “jump over many more hurdles, and through many more hoops” than comparable European banks. He became McKinsey’s man on the spot for deposit and investment products for the EMEA region around 2007-2008, slam dunk in the middle of the financial crisis. He reminds me of the run on Northern Rock, a British bank that had to be rescued at an enormous cost by the UK government. It was not atypical of the banking chaos in those tough times. “Prior to the financial crisis many banks were fully wholesale funded, so dependent on capital markets,” Tamaz explains. “They were prone to sudden increases in funding costs, so a lot of them became keen to launch retail propositions.” In one year, while still working for McKinsey, Tamaz held around 100 workshops with different banks who wanted to offer retail deposits to their clients, either locally or cross border in the European Union.
Rabobank, and MoneyYou from ABN Amro – both from the Netherlands – and BigBank from Estonia, were already operating in the German market, as Tamaz came to the realization that it wasn’t just difficult for clients to make deposits, things were also tricky on the provider side too. For most banks too much infrastructure build-up and investment was needed, which for any mid-sized or smaller banks simply didn’t make sense. They were sitting on fixed cost blocks, making it unattractive to either increase volumes, or wind them down. “The ability of a mid-sized bank to have really good online marketing is also limited because you need talent, and you need a budget to test, and so on.”
So, there were a lot of limiting factors in the marketplace, from which Tamaz began to see a way forward: to help consumers struggling to open accounts in other countries, and to assist providers who would otherwise be unable to create the infrastructure, or marketing, and were not able to apply the advantages of scale. “Integration with a bank is a difficult undertaking which takes time. Basically, our launch itself took almost a year (2012-2013), and the majority of it was integration with a single bank. So it takes time to build, and then the marketplace effect – once you have built a marketplace – is very hard to replicate.”
Result – no close rivals to snap at the heels of the first company on the scene. “By now, we have almost 200 participating banks on the deposit-taking side. So to build the variety of offerings, which gives you the strength in terms of the offered rates that appeal to the customer, takes a lot of time and investment, and it’s not guaranteed. It’s tedious. The marketplace’s natural fit or the platform’s natural fit, of course gives the advantage to an already established and scale provider.”
What’s in a name?
Such as Raisin? I ask, because indeed Raisin is the company Tamaz started ‘figuring out’ while still with McKinsey, along with two other McKinsey colleagues, COO Michael Stephan and CFO Frank Freund. And how did McKinsey react to the trio setting up their own operation? No problem, says Tamaz, there are still good relations between the two companies, with more McKinsey alumni joining Raisin, as well as the flow going the other way.
And why that name? Well, the original company was called “SavingGlobal”, and in Germany and Austria, Raisin still operates under the brand “WeltSparen”. However, investors struggled to enter the name correctly in web searches, and the new company decided to rebrand itself. Everyone involved had different ideas, and a consultant brought in to help also had 99% of their suggestions rejected, until at the very end of the process, when the word ‘Raisin’ popped up: Raising interest, raising earnings, raising money… Raisin – an easy-to-remember word that quickly caught on. Tamaz adds that the English phrase ‘To cherry pick’, meaning to take the best of something, is rendered in German as ‘Raisin picking’.
The bridge to hygge
And speaking of names, I get ‘TechQuartier’ and ‘Finletter’, but ‘Brygge’? Explanation please! The Brygge website has a helpful audio sample to click on, demonstrating the correct pronunciation, which I would render as ‘Brug-geh’. But is this a German word? Founder and CEO Cornelia Schwertner outlines the idea: “The target was to have a name starting with a ‘B’. I always said that an app connected to banking needs to start with a ‘B’. Then there was the concept of a bridge to the bank (German – brücke). And last but not least, I have always liked the term ‘Hygge’, the Danish and Norwegian word for feeling comfortable. So we merged between bridge and hygge to make it Brygge.”
Before going on to hear about the comfortable Bridge to banking that Brygge will provide, Cornelia’s story is another of those winding roads to where she is today, ready to go live (in December 2022) with her own first startup, based in Hamburg.
Having studied ‘half Law, half Business’ and worked in that sector of ‘classical Finance’, Cornelia’s switch to Fintech in 2016 came with an Open Banking player, Figo, where she became employee number 20. She was there for 5 years, as the company expanded to around 150 employees, active in 5 countries. During that time there were several market changers and company mergers, which meant Cornelia was heavily engaged with the German regulator and PSD2 issues.
“I was taking care of the whole back office legal, regulatory compliance side of things, as a b2b player in that space. Also I was part of the sales cycle to banks, because we always – of course – had to prove that we were secure enough and data-protected enough to serve a bank, or an insurance company.” As the go-to ‘Risk Lady’ (and one of few female employees), Cornelia and her growing team were always making sure The Guys didn’t do anything out of line with the company license. The good thing from her point of view was that she was deep into PSD2 and all the rush of regulatory developments and mandates, but also had an understanding and empathy for the regulators’ concerns.
A Europe-wide viewpoint
As a result there was also a lot of lobbying to do on behalf of Fintechs in the face of stiff opposition from German incumbent banks, worried by the upstart industry. Cornelia’s brief then developed into a more Europe-wide viewpoint, and she found herself regularly traveling to Brussels and London, to argue use cases and make sure that the new PSD2 APIs offered the same services as had previously been available. “So I was pretty well connected in the whole Open Banking markets across Europe.” These connections included the ‘pre-pre organization’ and being a co-founder of the European Fintech Association itself, along with emerging players such as Raisin. “As a small company, of course, it is difficult to get time with the Regulator, if you’re not N26, or already have a huge name. So there was lots of work sitting together and coming up with joint ideas. That was always the fun part of my job – to have impact and be really connected to developments around the regulation.”
However, by 2020 Cornelia was planning new moves where she aimed to do something with more purpose. That would be Brygge then, the idea of which started coming into being just as the pandemic was biting. “I had to take a step back: I had started my career with PwC, in the specialty of forensic services, shortly before the subprime crisis. And so I had seven years of always seeing the bad side of banking, and the bad side of financial markets.” Now was the time to exit ‘the hamster wheel’ and reconnect with the human touch. Now was the time for Brygge and combining her expertise to make a real impact.
The missing piece
In Frankfurt, Dr. Sebastian Schäfer was also interested in helping and encouraging others – remember his mention of studying confidence and overconfidence? – important factors that go into the entrepreneurial mix.
Back around 2015 there was lively debate in Frankfurt about the possibility that Europe’s banking capital, ‘Bankfurt’, might be left behind when it came to this new thing called Fintech. London, Tel Aviv and ‘even Berlin’ were steaming ahead with programs and ecosystems to encourage the new hybrid of finance and technology. “What was missing in Frankfurt was really a startup scene, and close connections, not only between founders, but across all stakeholders of the financial services industry. And that’s why I was asked if we could develop ideas to change this, which was the origin of TechQuartier.”
Providing a focal point for growing startups came before WeWork, Mindspace and other international coworking providers entered the local market, and many founders were looking for a more flexible working environment in Frankfurt, with less restrictive contracts. From its inception, TechQuartier was set up as a high-profile downtown space, located in the 33-floor Pollux building. This announced the serious intentions of the organization, backed by public shareholding, universities, the Development Bank of Hessen, and the city of Frankfurt. The mandate was to work profitably, while creating a meeting point for like-minded Fintech entrepreneurs, and bringing the international Fintech scene to the city. Very quickly the government also saw the value of TechQuartier (or ‘TQ’ as it is often shorthanded), with the potential to help develop the whole region. Until the arrival of TQ on the scene, Sebastian says people weren’t really talking about Frankfurt Fintech stories, whereas Berlin, for instance, had the knack of attracting more attention. TQ was set to change that, and from the start was about creating a community where startups and corporates could do collaborative innovation, matching up with interesting technologies and business models. Building on that space, Sebastien and his team started developing a portfolio of services, such as acceleration programs and training bootcamps.
Perhaps in part because of Dr. Schäfer’s own academic background, one topic that TQ has focussed on is growing the talent pool through close collaboration with universities. This involves bringing students and young professionals in touch with the startup scene, and helping them build their own ventures. AI Talents, another TQ program, was opened up to the international student population in 2020, with a nine-week intensive for young people interested in becoming entrepreneurs. Then there are partnership programs, such as the one run with the UI Startup Academy. “Talent is scarce nowadays,” Sebastian says. “So these programs are about not only how to grow TQ, but how we can promote and enable the whole region to become a hotbed for innovation.” The latest initiative – as of September 2022 – is the launch of H_Ventures, which is a ‘venture-readiness’ program over seven weeks, giving first-time founders the knowledge and connections to build a viable team and start data-driven businesses. H_Ventures was created to empower new entrepreneurs with diverse backgrounds to launch enterprises using data, machine learning and artificial intelligence, and ‘Immigrants who have a desire to start a venture in tech and have a B1 level of German are encouraged to apply.’ As Sebastian says on the H_Ventures site, “Too many promising venture ideas fail because either the right founding team is missing, or the team is dysfunctional and lacks the necessary skills and experience. With H_Ventures we build on our years of matching experience and take the team formation process to a new level.”
But it seems that TechQuartier is doing far more than growing the market for Fintech in the State of Hesse, and creating programs to encourage students and young startups. Startup Genome is a world-leading innovation policy advisory and research firm, working with more than 45 governments on development strategies to benchmark ecosystems across the world. Frankfurt came in for the benchmarking treatment, and was found to have a lot of ‘interesting ingredients’, including top researchers in data and AI, as well as being home of the European Central Bank, and Deutsche Bourse. So a ton of data sloshing around, but most of it in silos and therefore pretty unusable, to the extent that Germany and even Europe couldn’t hope to compete with the US and Chinese Big Tech giants.
This led to the advent of the Financial Big Data Cluster (FBDC), coming under the umbrella of the Federal Ministry for Economic Affairs and Climate Action, and recruiting many of the talents mustered by TechQuartier. The goal was to figure out how to bring all the different data silos together by creating an infrastructure where data exchange is possible across platforms. Some trial use cases include Anti Money Laundering and fraud detection, which immediately demonstrate the advantages of pooling data on a large scale. For single banks AML and fraud is hard to detect and act on, but accessing data from multiple banks decreases false positives, and helps identify potential criminal behavior.
Staying determinedly conservative
Such security issues are of course baked into the DNA of Raisin, so let’s pick up the story there, with Co-Founder Dr Tamaz Georgadze. “We were one of the most regulated startups in Europe, and one of the first in the European Union to acquire its own bank and offer our services under a banking license. Because we also do payments services, in all relevant countries we have local brokerage licenses, where it’s applicable. We try to be as conservative as possible, and we want to avoid any disruption of services. It’s the clients’ money, so we are very diligent and cautious on the regulatory approach.”
OK, clear, but that must mean every new market is bespoke? Tamaz says that entering new markets is always done with a trusted local law firm, in order to fully understand local regulations. This can also entail modifying the Raisin product, as consumer protection legislation is not yet harmonized across Europe. How interest rates are displayed, how bank details are given, and even complaint processes must all be localized. Only when all this groundwork is done are formal meetings with regulators started, with the result that launching into a new market might only take a few months – as opposed to that year of negotiation at the very start of the Raisin journey.
A new challenge is entry into the USA, which Tamaz reports, “Is a very different market in all dimensions. The payment infrastructure is different, the interest rate environment is different, the FDIC rules are completely different. There is also a whole segment of competitive deposit brokers that doesn’t exist in Europe. So of course we need to adapt our approach and product, and re-assemble our offering to fit the US market. A lot of effort goes into this, like building up and scaling the platform in terms of the offering. That’s been true across Europe, and now for the USA.”
Making money perform better
OK, but let’s take a step back and see what Raisin actually is, and how it is: ‘The first and only pan-European deposit marketplace’. So it’s about partnering with banks to provide attractive interest rates? OK, check. Obviously that also means securely ‘accessing attractive term deposits’, and the seamless transfer of funds through an ever-growing network of partner banks. Or as the Raisin website states: ‘Raisin’s mission is to make money perform better. We help people take control of their financial futures by bringing them the best financial products, all in one place. Raisin also empowers banks and other financial institutions to grow. We develop solutions that help create a better connected and more resilient financial industry – one that forms a stronger backbone for the real economy.’
Great, but then Raisin also has a bank in its own right, Raisin Bank, with a full banking license to undertake classic transaction banking with account management and payments, plus lending, leasing and servicing. All this, with the promise to partners that there will never be competition to poach clients, because, ‘Your customers are your customers!’
Making life easier
And speaking of those customers, whoever they bank with, via Raisin, Tamaz says, “We simplify the client’s life and make a measurable success in terms of giving back, or giving more money to them, so that their money works better, and they spend less time on it. If you’re thinking of cash portion optimization, there is no other tool available in the market which would do that. A lot of offerings on our platforms are available only through us, so there is no direct route towards another bank. So for clients it’s less time and hassle, and more return. And from the bank side, it’s basically the same but opposite! For the treasury, it’s also peace of mind because it doesn’t need to ask for huge IT investment to build up people, or operations in different languages, and so on. We take all this over and basically make life easier by giving a bank access to retail deposit markets all over Europe. The bank simply chooses their market, gives us the rates, and we take on the rest, including client marketing and a large part of the integration work.”
I wonder what this means in terms of staffing, and presume that there’s a lot of outsourcing going on to keep the Raisin empire on course. Not so, says Tamaz. There are currently around 600 employees across all entities, including the bank, with more than half of them in product and technology. The remainder are mainly in support functions, including regulatory, legal, business, and bank onboarding. There’s a dedicated Raisin presence in Germany, Spain, the Netherlands, and France, with the UK as the second-largest European market also offering opportunities for growth. Two years ago Raisin had around ten UK providers, but that has now tripled.
Functional and measurable
There are a handful of law firms which Raisin works with ‘on a more or less continual basis’, but 95% of business is conducted by internal teams in Berlin, Hamburg, Manchester, and other locations. There was also a decision early on to place call center work with an external provider, because of scalability and technology issues, which were more of a headache to take on than they were worth. And is UX done in-house? Tamaz admits to not being a UX person, but says the company has 7 full time UXers, in Hamburg and Berlin, with a new position in New York.
Speaking of what constitutes good UX, Tamaz comments, “It’s hard for me to judge all the bells and whistles which go with it. Everyone recognizes simple User Experience when they see it, and for us that was in the product description: it must be functional, and let you spend as little time as possible on it, because people do not like spending time on finance.” Finding good offers and increasing rates is what the majority of Raisin users are into, and Tamaz regards that as being more attractive than, “A nice interface and nice user experience.” He even suggests – perhaps a little tongue in cheek – that Raisin might be overdoing the niceness of its UX, because, “We’re one of the few Fintechs which comes more from the functional and measurable material value-add in terms of return. We’re more on that path than bringing consumer goods or unusual UX into banking.”
Special solutions for special situations
Does Cornelia Schwertner have anything to say on the subject of UX? One of the first things I noticed about the website for Brygge is how… Well, how not Fintech it looked. We’re all familiar with neon lines and geometric shapes to represent the coming together of the financial world and technology. Well that isn’t the Brygge way. But to find out what is, and where UX fits into that view, we have to first find out what Brygge is offering. We left Cornelia exiting the toxicity of ‘the dark side’ of financial activity, with a resolve to get off the hamster wheel and start something new, and with ‘purpose’. Meeting other listed ‘40 under 40’ people, she found some who were doing work such as connecting refugees to job markets, which re-lit an old thought she’d often had: “Even in my younger years, I dreamed of founding something on my own, and I always had Seniors in my mind. I don’t know why, but I think it was because I had a great relationship with my grandmother. I saw that there’s a need to give older people special solutions for special situations.”
A new Fintech demographic?
Although Cornelia’s initial thoughts turned to some sort of dating app for seniors, she began instead to ‘connect the dots’ between Open Banking, Forensics and the elderly. One early conclusion was that banks don’t make the effort to target UI-UX towards older people, including making it easy enough to use online banking. There is often a lot of confusion for older people about multiple features which some apps have at their front end, so by reducing the number, Cornelia could see that would give a greater feeling of security to older users. Simplifying the terminology, and offering it in German instead of English also, could contribute towards helping many German seniors feel more comfortable with online banking.
Which brings me to the look of the Brygge website: it is neither a generic ‘high tech’ design, nor that typical cozy collection of laughing, healthy, old people on sailing boats or bicycles. Typical, that is, of pension sites, or indeed elderly Romance sites. Cornelia, her team and backers rejected such clichés and have gone instead for tasteful watercolor paintings that immediately set their offering apart from any other Fintech. The look of the website flags up that here is something different, which is targeted at a new demographic on the Fintech scene.
One crucial point from the beginnings of Brygge was to maintain clarity as regards unbiased financial advice. In Germany (and elsewhere) commission fee-based models are often disguised behind financial advice, for banking products, energy providers, and so on. Seniors especially don’t always perceive or understand this model. It isn’t exactly a scam, but understanding that the ‘advice’ given is not necessarily unbiased can be difficult. And if an older person is savvy enough to seek out genuinely unbiased advice, it will cost them at least 350 euro. That’s a sum most German banks claim is too much for the broad mass of people to pay, and so the ‘stealth advice mode’ remains in operation.
Providing a safe space
Then there’s actual fraud, such as grandparents being tricked into releasing their financial details by faked messages from their grandchildren. (I tell Cornelia this is something I can readily relate to as my mother-in-law was very nearly the victim of her ‘granddaughter’ calling to say she needed money urgently. The ‘granddaughter’ didn’t even sound believable, but the combination of stress and urgency almost resulted in money being transferred, along with a bunch of other financial details).
Cornelia agrees, “There’s a lot of fraud going on which is not even detected, and a lot of fraud which could actually be prevented, but so far, the industry and also the regulator is only using this information to protect the bank, or to protect the law. It is never the consumer in the first place.”
This is another part of the offering from Brygge – to combine the power of data science with banking transactions, to spot not only fraud, but also to look for use cases which are “of actual benefit to the consumer, like day-to-day relevant advice.” This can even include identifying online shops and services which are safe to use, especially for seniors. The Brygge approach also takes into account the position of many carers of seniors who may have ‘power of attorney’ over their elderly relatives, and need to be able to monitor and protect spending on their behalf. Sometimes, Cornelia stresses, that’s not even about combatting outright fraud attempts, but simply taking a longer and clearer view of, for example, insurance contracts. Is taking out an insurance contract with a runtime of 20 years a wise thing to do for someone in their 80s? Then there were seniors who were persuaded – often on the advice of a banker – to place all their money in the stock of the now-insolvent German payment processor Wirecard, which hit the wall in 2020 with €3.2 billion in debt. The scope for providing a safe space for seniors to deal with their financial affairs is something which is now very much of its time.
The human touch
Then, for the somewhat younger, aged 55+ members of the Brygge demographic, there’s the question of preparing for retirement, with plenty of hygge in their later days. What’s the best package to pursue, and how to be sure that the advice being provided is free from commission-based twists and turns? Well, the answer to all these questions, problems and more, is the automated way, with the human touch. As such the Brygge website will be the first port of call for anyone seeking information, looking for the right ethical financial products, or needing warnings about potential fraud or questionable deals.
OK, I get that, but thinking of my sainted mother-in-law again, I wonder how far she’d be able to dig down for information, no matter how beautiful the images on the website are, or how simple the UX is. “The whole language and the whole UI-UX is built for beginners,” Cornelia says. “There are little boxes which explain the next step. And if you say you already have online banking experience, and for example that you are tech savvy, those boxes are hidden. So in that way, we personalize your experience, and when you register we ask for your level of experience. Accordingly, the front end is designed to take you by the hand and go step by step: There’s a big educational part that is integrated into the product as well.”
The ‘cool’ approach
Right: simple, progressively applied UX which step by step educates the user. But you know what, my mother-in-law would still probably be throwing her computer mouse at the wall after an hour. Cornelia acknowledges that many prospective Brygge customers will definitely need the promised human touch, and they’ll get it: Not from a massive 24/7 remote Call Center, but from the simple expedient of booking an appointment to personally raise issues with an expert Brygge advisor. Research very quickly found that one of the things most seniors hate is being kept in a Call Center queue, and having to navigate by pressing number keys. So, book a personal slot via the website or join a group in a regular ‘Ask Me Anything’ session, and then be supported. In addition, the company’s commitment to education also includes dedicated online group sessions where people with similar interests can share experiences and advice, because – perhaps surprisingly – Cornelia says many of the sampled demographic say that online video is ‘cool’.
It’s interesting that with each successive wave of ‘oldies’ arriving, their online ease and awareness increases. Now almost 100% have smartphones – in Germany anyway – and 90% of elders engage with online banking, but mainly from a desktop device because of having a bigger view and better manageability. But then, as Cornelia points out, the older people get, the more difficult it can be for them to manage the all-round security of a bigger device.
Oh, and by the by, what’s the Brygge business model? For people who earn less than 1,000 euro, the service is free: “You don’t need to pay for banking, because you should receive independent advice for free, and because you need it the most, right?” Cornelia says. “Other people earning more, having a better pension, and being more stable, can then pay more in a step-by-step income-based model. In that way they cover for the community, so they’re doing something good. We are convinced that a subscription model in our target group is fine because they are used to paying for quality.” Brygge provides a bridge to the banks and other financial services, with a definite feeling of hygge.
Who can I trust?
Now, so far we’ve barely heard from the CEO of finletter and the Hamburg Fintech Week, Clas Beese. That’s because he’s already the star solo subject of an in-depth portrait piece on the Ergomania website, so his contributions here are more ‘salt and pepper’ than ‘main meal’. From his position of a curator of Fintech information across Germany, how does he see the situation, both from where it’s come, and where it is going?
“When I look back at Fintech startups that were entering the market 5 or 10 years ago, part of their fundraising story was that they were going against the banks, to take away their customers,” he says. That has changed with the years however, because many Fintech startups realized that they could offer better usability, digital services, and quality without necessarily going head to head with the incumbents. “Coming to the financial services market with no brand is a disadvantage when it comes to trust. In the money business, we’re talking about trust a lot: Who am I trusting with my money? The incumbents, as digitally outdated as they might be, still have earned and still enjoy the trust of their customers.That has now been understood by Fintech startups. So that’s the trust issue.”
Many Fintech business models have also adapted and changed to White Label Solutions, working with incumbent banks rather than against them. It’s a situation which seems to be appreciated by many of Germany’s 80 million people, who Clas describes as ‘over-banked’ and not willing to quickly adopt digital solutions (however much his Hamburg neighbor Cornelia Schwertner observes change at the Seniors end of the market). The comparison Clas makes is more about Germany when referenced against the UK or the Nordics, where adoption of digital solutions by the general population has been quicker, and deeper.
So Fintechs are increasingly seeing themselves as partners to the established banking system, and indeed even as allies against the encroachment of Big Tech in the form of Apple, Amazon, Facebook, and so on. Rather than ‘fighting on two fronts’ both the incumbent banks and the Fintechs are uniting to face these external threats.
As an example of how hampered many incumbents are in facing up to the Tech Giants, Clas says that Deutsche Bank alone, as far is he is aware, still has around 49 operating systems up and running, so that the Legacy IT to maintain and modernize is a colossal drain on budgets – and one which many Fintechs can help with.
So the banks are opening up, and they are also becoming much more accepting of Open Banking, even to the extent that – again to take Deutsche Bank as an example – they are offering more access to customer data than is actually required by law. Meanwhile the Tech Giants circle, dangling the possibilities of loans, or Buy Now Pay Later offerings.
Not born global
With his comprehensive view of the German Fintech market, Clas is also able to put some figures on the ratio between German banks and German Fintechs. Broadly speaking he reckons that there are around 1,000 Fintechs in the country, in all stages of development. That’s from startups like Brygge, through well-established operations such as Raisin, and onwards to N26, voted among the ‘Best Banks in the World’ by Forbes. Set against these 1,000-ish Fintechs in all their different stages of maturity, are around 1,500 incumbent banks, servicing a well-established and rather traditional market of citizens for whom trust is so vitally important.
Because of these issues, coupled with the large domestic market, and the use of the German language to service it, Clas says that few Fintechs in the country are ‘born global.’ He points to London as an example of a place which sees itself as an international financial hub, where services are designed from the off as intended for other countries. Of course UK startups benefit from natively working in the international language of Fintech, English. German Fintechs on the other hand have the tendency to be developed for and in the ‘local’ market, and only afterwards might expand to other territories, as Raisin have done.
And can Clas provide a snapshot of the hotspots for Fintech across Germany? Of course! He points to the capital for financial services, Frankfurt, as clearly being the place to be if your business is looking to cozy up to the incumbent banks, in any way, shape or form. Sebastian Schäfer and TechQuartier have no doubt played a significant part in making Frankfurt an attractive place for Fintechs, and I wonder if Brexit – the UK leaving the EU – benefited Germany’s financial center too. Clas thinks not so much, when compared to Dublin, Paris or Luxembourg, all of which, “Got a way bigger slice of the Brexit cake than Frankfurt or Berlin.” Frankfurt is still growing, with people still moving there for the Fintech activity, because with so many headquarters there, the digitalization process is crucial, and ongoing. In terms of financial services in ‘Bankfurt’ however, he believes the pool may be shrinking somewhat, and heading for other cities.
Take Berlin, where the startup scene is vibrant. “It’s very international, and you can easily live there without speaking a word of German, which wouldn’t happen in any other city in Germany,” Clas says. Most new startups go there for the ecosystem, which he says is worrying for Frankfurt. Berlin, on the other hand, has very little to worry about in terms of numbers, because there never was much of a banking industry based there. Instead Fintech talent moves there for the lifestyle and thriving ecosystem. In comparison “No-one moves to Hamburg or Munich just to start a Fintech, and that’s a big difference.” So for Cornelia Schwertner or Clas Bees, their enterprises have started ‘at home’, rather than in the larger pools of Frankfurt or Berlin.
The sustainability question
As I’m talking with a man who has his finger on the pulse of German Fintechs, I’m also interested to know if he can give me a readout on a frequent question I ask, about sustainability, and other Environmental, Social and Corporate governance issues. It turns out that Clas has exact figures, thanks to the launch of his latest venture, Zebra. This is a magazine specifically addressing sustainable finance companies in Germany, which has assessed that there are 57 sustainable-oriented Fintechs. This is a ‘reasonably honorable figure’ in Clas’ opinion. A trend he predicts is that when the next big funding rounds kick in, following slow-downs caused by the pandemic, sustainability and related issues will be an increasingly important part of startups’ offerings.
I turn to Tamaz Georgadze to find out what the Raisin take on ESG and related issues such as sustainability is. I’ve already got the message that Raisin is very far from being a risk-taker, or ‘out there’ organization, so I anticipate that his reply will demonstrate caution. Nevertheless Tamaz replies that in a couple of dimensions Raisin is investing time beyond building the business itself. “It’s really close to our hearts to bring the Fintech and innovation agenda to Europe. Fostering the European markets is the biggest single lever to lift the GDP and income in Europe, and to fulfill and finalize the promise of an integrated services market in Europe, which is not yet there. It is in the goods market, yes, but in the services market, there are still a lot of very pragmatic and practical barriers.”
From the founding of Raisin, Tamaz and his partners therefore spent a lot of personal time explaining these points to regulators in Brussels, and helped co-found and lead the European Fintech Association. “So we’re spending money, effort, and time both at a German and also at a European level, to make rendering services across borders less of a pain for the providers. And that will allow customers to enjoy the best service. We’re an international company, and for us open borders are very important. We’re fighting for that.”
Equality and opportunity
But what about ‘the human touch’ as Cornelia Schwertner puts it (in her startup where the top two positions are occupied by women). Where is Raisin in terms of equality of opportunity for its 500+ workforce? “We are really, really careful about the work environment,” Tamaz replies. “We had a lot of sessions internally and came up with a proposition to really enjoy going to work, and spending time with colleagues.” However the brainstorming also revealed that over time people’s career choices and environment changes, and that they inevitably want to do something different. Normally that would probably mean changing companies, but Tamaz has a different philosophy: “Our objective is that looking back people will say, ‘This was the most terrific time in my life, because I really grew inside Raisin, both personally and professionally.’ So we invest a lot in professional and personal growth through talent programs.” For the last six years there have been internal coaching programs with the Managing Directors and Management team, and a training budget for every employee, to be spent on their favorite topics.
“And we have a lot of layers too: We have a 360 degree feedback system so that people can really see that they are growing. So there is an incentive to stay at the company and to learn more and more, even once the learning curve starts to flatten out.”
Keeping the curve curvy
Tamaz adds that Raisin also does a lot of internal rotation to avoid letting the curve flatten, and to find another curve inside the company. It’s something he’s personally very passionate about, including equal opportunities. Currently around 20% of the Management team are female, and team leads already have a good gender balance. Tamaz is also keen to stress that there is no gender imbalance in pay. So in terms of equal opportunities of gender and also race he says, “We’re monitoring it all and trying to move in the right direction, but we’re not there yet.”
Fortunately, sharing our call is Raisin’s Communications Manager and PR Lead DACH, Mathias Paul, who I turn to for confirmation of ‘being on the curve’ in his own career development. “You’d need to ask Mathias when I’m not here!” Tamaz jokes, but in fact the answer comes very quickly from Mathias: “I’ve been with Raisin for almost two years now, and I was promoted at the beginning of this year. So, I guess I’m right on the curve. We have a training budget for every employee, so we can select the coaching of our choice.” This covers any external training to help with this, but there’s also an internal learning and development team offering topics such as self presentation, time management, project management, and working smarter instead of harder. Mathias adds, “Besides that, we can use the training budget for more focused deep dives into topics like Data PR, which I did last year.” He adds that ‘the curve’ is very individual, and he certainly appears to be one satisfied customer of the process.
The bigger picture
And so onward to ‘the Flavor of Fintech’, to find out what Tamaz Georgadze makes of that almost-impossible question. To some extent he shares Clas Beese’s view of German Fintechs not being ‘born global’, in that as startups they are already in the largest market in Europe – which to a large extent can be self-sustaining. At the same time that can hinder founders, because they are only developing their offering for a single market. In comparison Tamaz cites an Irish or Estonian founder, who has no option but to look outside their own small country. Instead, in Germany, “Everything is seen through a German prism, a German lens.”
He also points to the regulatory system in Germany as being ‘not the friendliest’ where it is still a struggle to easily identify clients digitally, and “Sending clients to the Post Office or to video chat is really not in sync with the times.” Of course all the technological fixes for identification and checking exist, but in terms of laws such as Anti Money Laundering legislation, they are still not allowed in Germany. This puts homegrown Fintechs at a disadvantage compared to their peers in the Netherlands, Ireland, Estonia, Lithuania, and many other territories.
Germans are ‘Savings Champions’, typically putting aside 10-11% of their net salaries each year, so in products which cater for this, the country is leading Europe. However Tamaz regards it as ‘a pity’ that Germany is missing out on creating significant businesses, because of the regulatory environment and stance, coupled with the somewhat inward-looking nature of many German Fintechs. “I think the energy in terms of new ventures going to market, and the energy of the founders and so on, has receded in the last two or three years.”
Looking back, and forward
“Every ecosystem has its own flavor,” says Dr. Sebastian Schäfer, “And originally different actors were not talking to each other. If you look at early numbers back in 2017 – 2018, when Startup Genome benchmarked Frankfurt, in terms of the number of founders, the exit value, the output, there were only one or two other ecosystems at this maturity stage.” Around 35% of all startups were Fintechs, and 55% of Venture Capital went into Fintech. Founders were very often experienced experts who recognized the customer pain points which banks or other financial institutions weren’t able to address. Sebastian explains that those founders didn’t come from abroad or from other cities, but were already part of the Frankfurt scene, resulting in a relatively limited pool of entrepreneurs. “Of course,” he adds. “If you are socialized in a corporate environment, you tick the boxes differently than if you are socialized as a freelancer, or as a startup, or as a serial entrepreneur. So I think Frankfurt always had this flavor, but is of course changing now because the startup scene is much more open. We are not talking any longer about Frankfurt versus Berlin or Munich. It is more about the German Fintech scene overall. TechQuartier is an important player now, with more than 550 startups, and only 40% are located in Hessen, 30% of those in Frankfurt. The rest are spread across Germany and internationally, with some of the biggest clusters in the USA, UK, France, Italy, and Singapore. So for us, it’s no longer so relevant to have all Frankfurt founders. It’s now about scouting the most exciting technologies around the world and feeding our corporate partners with new ideas and business models.”
Although we are specifically talking about the Flavor of Fintech, Dr. Schäfer also points out that despite being Germany’s official Fintech hub, TechQuartier communities are far more diverse than just Fintech, which accounts for about 30% of TQ activities. The organization also has fast-growing communities for data, IoT, machine learning and AI startups, with a ‘big chunk’ of sustainable and green tech businesses occupying a growing space. In addition some of these are not for profit and are ‘purpose driven’.
Now differences are becoming less pronounced, Sebastian observes Fintechs merging, and banks cooperating more. “When we started, only 30% of banks had some sort of touchpoint with Fintechs. Now there’s basically no bank that doesn’t have any touch points.”
The UX touchpoint
He adds that without good UX it’s very hard to ‘join the game’, and that from the start, Fintechs understood much better than banks that customers want to experience services and products, because we have all been socialized by the UX standards provided by Big Tech. He points to N26, saying that the initial attraction for customers was that to some extent it mirrored the experience of using Facebook, and Google apps by being direct, simple and easy to use. “An industry that cannot meet customers’ expectations in terms of digital experience, will fall behind and will not survive. At a certain point in time customers also understood that, and it’s particularly true for regulated markets.” TQ’s part in encouraging and nurturing talent, for both the Frankfurt market, Germany as a whole, and beyond is vital, because – as Sebastian says – Fintechs and Big Techs go where they can find the right talent. “If the talent base is there, you will see a lot of companies coming to a place, and that’s why it’s so important to continue growing the talent pool.” Spoken like a true encourager.
The change leitmotif
Returning to Hamburg and the imminent launch of Brygge (as of December 2022), I’m intrigued by a line on Cornelia Schwertner’s LinkedIn page: ‘Daring to be the change I seek’ which to me seems to symbolize the inspirational quality of all four of the entrepreneurs and forces for change that I have spoken to on this brief visit to Germany. Each seems dedicated to doing something different, to challenging norms, and to working cooperatively with others, for the benefit of all. Each has also come some distance from where their initial training and direction may have suggested. And each is still moving forward, with new offerings and ideas.
Cornelia admits that her LinkedIn quote is ‘kind of stolen from Obama’. (Actually I’d say ‘adapted from’, and the US President in turn borrowed it from Mahatma Gandhi).
“I was always a person who didn’t like people who just complain,” the Brygge CEO says. “That won’t change anything if everyone just complains about how things are. But if you ask yourself, what have I learned so far? How can I use that to make something that is different from everybody else? – To try something new, and mix experience and technology, in a gap that has been overlooked for far too long. It’s something I realized that I needed to try myself. I needed to prove to myself that it works, because otherwise no one else will follow me.”
Which seems to me to be something of a leitmotif for these four interviewees, and perhaps even German Fintech in general.