German Fintech sector continued to grow and mature in 2022
With almost 1,000 fintech startups, among them 13 unicorns, a burgeoning startup ecosystem and a supportive regulatory and political landscape, Germany has become one of the world’s top fintech markets and the EU’s fintech leader.
In 2022, the sector continued to grow and mature, on the back of solid financing activity, a dynamic mergers and acquisitions (M&A) landscape and increasing use of digital financial services, including cashless payments and online brokers, a new report says.
The study, produced by Fintech Consult, a fintech advisory company, and Contextual Solutions, a Berlin-based consulting, coaching and publishing agency specialized in fintech, legaltech and tech marketplaces, looks at the German fintech industry, providing an overview of ecosystem and share important market trends.
In the first eight months of 2022, German fintech companies secured a total of 3.2 billion euros, already exceeding pre-COVID levels, the study found. The figure suggests that total fintech funding in Germany for 2022 is unlikely to reach 2021 levels (6 billion euros), but nevertheless remained strong despite the global slowdown.
Funding rounds of German fintech companies per year, Source: German Fintech Report 2023, Contextual Solutions/Fintech Consult, 2023
Evidence of the sector’s maturation is the increase in fintech deal sizes over the past couple of years, data from the report shows. In 2022, the average fintech funding size reached a record €45.8 million, more than double the average deal size in 2019 (€21.4 million).
Another proof is the sustained M&A deal activity the sector witnessed in 2022 through deals such as the acquisition of Simplesurance by Allianz X in September, the acquisition of Penta by French fintech rival Qonto in July, and the acquisition of Kontist by Ageras Group in July as well .
Average fintech funding size in Germany by year, Source: German Fintech Report 2023, Contextual Solutions/Fintech Consult, 2023
Increasing use of digital financial services
The growth in the German fintech sector comes on the back of increasing use of digital financial services. Most notably, the report highlights the boom in online brokerage, where securities trading increased by a staggering 80% in 2020 across all German exchanges.
The German exchange Tradegate reported that the number of trades on the platforms tripled between 2019 and 2020, rising from just 18 million to 61.5 million. These figures imply an average annual growth rate of 86%.
Number of trades on the Tradegate exchange annually, Source: German Fintech Report 2023, Contextual Solutions/Fintech Consult, 2023
Digital payments is another fintech category that has witnessed steady growth in recent years, especially since the COVID-19 pandemic. According to a survey conducted by Deutsche Bundesbank, the German central bank, 43% of consumers surveyed said they had changed their payment behavior in recent months.
Increasing use of digital payments is at the expense of cash. Since 2017, the share of cash payments measured by the number of transactions has decreased by 16%, notes the Fintech Consult/Contextual Solutions report. In contrast, the share of debit and credit card transactions increased by 4% and 5% respectively.
Payments experts at strategy consultants expect the use of cash to continue to fall significantly in the coming years, claims a report from Germany Trade and Invest, the country’s economic development agency. They estimate that the share of cash transactions will fall by 20 percentage points from 52% in 2017 to 32% by 2025.
Germany’s fintech journey
Germany is one of the largest and most vibrant startup ecosystems in the world, hosting more than 70,000 enterprises and producing around 3,000 new startups each year, the Fintech Consult/Contextual Solutions report said.
In this ecosystem, fintech has become one of the country’s most prominent start-up segments, and accounts for 3.1% of all the country’s with almost 1,000 companies in the space.
The German fintech industry is highly diversified, it notes, but insurance (104 companies), payments and remittances (95), and blockchain and digital assets (72) are the three largest fintech verticals.
Prominent names in these categories include Wefox, a digital insurance company valued at $4.5 billion; Tradias, a division of securities specialist Bankhaus Scheich, which offers a decentralized financial services (DeFi) platform; and Fundament, a provider of asset tokenization services.
Fintech verticals in Germany and their respective number of startups, Source: German Fintech Report 2023, Contextual Solutions/Fintech Consult, 2023
Germany’s fintech journey started in the early 2010s with neobanks, digital and peer-to-peer (P2P) lenders, digital wallets and payment solutions starting to emerge in the first wave. Many of these fintech companies are now in the scale-up phase and are becoming profitable.
Between 2014 and 2017, the ecosystem mostly focused on establishing solid foundations for the growth of the fintech sector, prioritizing talent acquisition, accelerator and incubator programs, attracting investors as well as the regulatory landscape. The period also saw an acceleration in the growth of the local fintech startup scene, which recorded an average growth of 25% per year between 2013 and 2018 in terms of the number of fintech companies.
Following this wave, in 2018, the focus began to shift towards new trends, including artificial intelligence (AI), blockchain and green/sustainable fintech. The number of fintech companies joining the sector also began to decline, witnessing annual growth of 9% between 2018 and 2021. In addition, several fintech companies have shut down their operations since 2018, the report notes, further indicating a maturing ecosystem.
Existing fintech companies in Germany, Source: German Fintech Report 2023, Contextual Solutions/Fintech Consult, 2023
Featured Image Credit: Edited from freepik
