According to a definition by the industry expert Heinz-Roger Dohms, FinTechs are “technologically-backed financial start-ups founded after 2011/2012 that do not just do a bit of software engineering business-to-business stuff, but rather replace a classic banking service almost as a mirror image, but no longer work like a classic bank “.

One of the first German FinTechs to raise a significant amount money was Kreditech. The Hamburg company lends to people who are not affiliated with traditional financial infrastructure, especially people in developing countries. Kreditech received a cash injection of EUR 82m in 2015 and then another EUR 80m in 2017. The money came mainly from Naspers, a South African media company.

In 2017, the number of large investments suddenly increased: The online asset management company Scalable received EUR 30m, PayPal invested EUR 30m in Raisin, and the FinTech incubator Finleap received EUR 39m. The company RatePAY, which I co-founded, was taken over in 2017 by the American investor Advent International and Bain Capital.

2018 — Year of the Mega Deals

The financing rounds have even picked up this year. First, Berlin-based Solarisbank made headlines. As a digital bank, it provides businesses, especially start-ups and online retailers, with “digital and legally compliant financial services” that they can then integrate into their own products, websites or apps.

Obviously a business model with a future: At the beginning of March, Hypovereinsbank left as the main investor in Solarisbank, freeing up space for foreign investors: BBVA, ABN Amro and Visa. They provided a EUR 57m cash injection.

Only a few days later, there was a huge round of financing in what is probably Germany’s hottest FinTech, the digital bank N26. On March 21, it received EUR 130m in investor money and thus completed the most significant deal in German FinTech history. The investors were the Chinese Internet giant Tencent and Allianz, so for once a large German corporation.

N26 is a direct bank specializing in the provision of traditional banking services on smartphones. It represents a serious competition for the private customer business of the incumbent national and savings banks and has already gained 850,000 customers since its founding in 2013.

Why are German FinTech fashionable now?

German FinTechs are in high demand. According to industry expert and Traxpay COO Jochen Siegert, this has several reasons: “The whole FinTech scene started a little later in Germany than, for example, in England or in the USA. The only German FinTech that has been engaged internationally for quite some time is the Auxmoney lending platform. Almost all other German FinTechs were founded quite a bit later. That is why there is only now evidence emerging for which business model works and which does not. The profitable and/or successfully scaled business models are now attracting large investors.

In particular, N26 is considered a model digital bank, whose portfolio fits exactly to the needs of a young, smartphone-dedicated clientele. The big German financial start-ups are developing into serious players in the international financial market.

At the same time, the German FinTech market is consolidating, investors are no longer sprinkling their money indiscriminately all over the newly founded entities. The actual number of FinTech financing transactions declined in 2017, although the level of investor funds has increased.

Where are the German investors hiding?

So far, Allianz is the only German group that has invested significantly in young German financial services providers. Why do not more companies or banks invest in the up-and-coming startups?

According to financial expert Jochen Siegert, this has something to do with the peculiarities of the German funding scene: “Nowadays it is no longer challenging to collect EUR 3m to 5m in Germany as seed funding. That was quite different a few years ago. However, if larger sums are needed in the next round of financing, German investors cannot participate. There is a lack of appropriate budgets and risk appetite. This is much more anchored in the Anglo-Saxon investment culture. “

Foreign investors such as ABN Amro, Visa or Tencent are investing in German FinTechs with international ambitions. Along the way, they ensure a path to German customers: The commitment of Tencent at N26 could be seen as a first step towards European customers. The reverse might also be true: Will Tencent show N26 the way to Asia?

The US expansion of N26 is already in full swing. If the business model of N26 succeeds, it is conceivable that the whole business moves from Europe to the United States, such as Spotify or Skype once did. Only European investors can prevent this from happening. First of all they have to increase their budgets.