Global investment in FinTech rose to around $25 billion in 2015, an increase of approximately $10 billion on the previous year. This significant jump marked the continuation of a steep upward trend, and highlighted just how far FinTech has come since 2010 – when worldwide investment totalled under $5 billion.
The big picture of where that money went isn’t likely to raise too many eyebrows. Asia showed the strongest investment growth last year, while Silicon Valley remains the biggest employer in the FinTech sector, as well as a wide leader in terms of overall investment.
Zoom in a little closer, however, and 2015’s figures – according to a new report by Ernst & Young – reveal an intriguing FinTech narrative unfolding in Europe. Because while the UK continues to lead the world in terms of market size (at $8.9 billion), the numbers suggest that the long-anticipated surge of Germany as a FinTech powerhouse on par with its EU counterpart is now underway.
FinTech fundraising in Germany has increased 156% since 2013, rising from €80 million to €576 million last year and closing the gap on the UK in terms of absolute FinTech investment (the UK saw €707 million invested in 2015).
At present, around 250 FinTech companies call Germany home, an increase of more than 70% since 2013. These companies are primarily based in three key parts of the country: Berlin, Munich, and the Rhein-Main-Neckar region – the latter of which will be better known to most readers as the Frankfurt am Main area.
As Germany’s banking capital, Frankfurt is proving an increasingly popular proposition for FinTech start-ups and investment. While the number of new FinTechs in Germany rose by 13% in 2015, the Rhein-Main-Neckar region saw a more dramatic growth rate of 22% to help cement its status as the 2nd largest FinTech hub in Germany, with 56 companies compared to Berlin’s 70.
Advantages of Frankfurt and its surrounding area for FinTech extend beyond the fact it is home to so many banking headquarters. Frankfurt also boasts an enviable geographical location in Western Europe, and is well connected by Germany’s busiest airport and excellent transport links on the ground. Moreover, DE-CIX Frankfurt is the world’s largest internet exchange, making the city a key location in the global internet infrastructure. Such factors have attracted countless international businesses over the years, but understandably carry a special appeal for FinTech start-ups.
Ernst & Young’s report highlighted banking and lending as the dominant sector in the Rhein-Main-Neckar’s FinTech landscape, alongside platform markets and processes and technology. The report also included practical ideas that the region might embrace to ensure its continued FinTech expansion.
While acknowledging that the existing banking infrastructure represents a “major advantage for Frankfurt as a German FinTech hub”, the report proposes measures such as a single, subsidised office space for FinTech companies in the area to create a focal point for incubators, investors, and regulators. Other proposals include regular innovation and hackathon events that tie winners to Frankfurt as a base of operations. In general, says the report, the region should be quick to tap into the banking expertise available on its doorstep – while at the same time strengthening the ecosystem to establish itself as a lively location that’s more than just the “home of bankers and consultants”. By coordinating such activities and clearly communicating its advantages, Frankfurt has “great potential to become the leading German FinTech hub” according to Ernst & Young’s research.
With Germany as a whole well positioned to continue its rise as a FinTech leader in Europe and beyond, it will be interesting to see whether a dominant city does indeed emerge as the symbolic center of operations, or whether the current – and somewhat unique – status quo of spread-out success stories continues to define the landscape.