Photographer: Luke MacGregor/Bloomberg

Fintechs Are Coming to Frankfurt, Whether Banks Like It or Not

  • WebID is helping banks in the fight against financial crime
  • Investment volume in German fintechs is seen quadrupling

With its job done in Berlin, financial-technology startup WebID Solutions GmbH is moving to Frankfurt.

The developer of identification systems for the banking industry chose Berlin as its base when it opened for business in 2011, so it could meet face-to-face with officials in Wolfgang Schaeuble’s finance ministry skeptical about the use of digital technology. Now, after persuading the government to change its laws to embrace video technology for identification purposes, the company is relocating to the country’s banking capital.

“With the law change, we were in the market,” said Thomas Fuerst, co-founder and co-managing director of WebID. “Now we have to ask ourselves whether it makes more sense to move closer to our customers.” The amended legislation against money-laundering allows videos to be used for tasks such as confirming the identity of individuals opening bank accounts.

WebID is one of dozens of fintech companies joining Frankfurt’s fledgling startup community that is seeking to disrupt traditional banking models as Germany strives to create a global technology hub. Backed by local-government incentives, the industry is poised to surge in coming years, closing the gap to London, New York and Singapore, according to a study by Ernst & Young LLP published on March 1.

Tangible Disruption

“We’re going to see a lot of disruption,” Fuerst said in an interview. “Business models will go away from traditional banks and to fintech companies, but it’s not too late in the game. Banks are thinking very hard about how to improve their own processes and get their game together.”

Unlike some of its peers, WebID is working as a partner to banks, providing technology to make processes such as opening accounts more efficient, as well as cooperating on lending. It’s also helping the industry in the fight against financial crime.

“We’re seeing a lot of spending going exactly into that area of banks that we work with,” Fuerst said. “We’re also very much developing and continuing to optimize our own processes so that potentially fraudulent customers, fraudulent identities, fraudulent accounts can’t be opened.”

Investment Rising

The volume of investment in Germany’s fintech industry will probably quadruple to 2 billion euros ($2.2 billion) in the next five years, said Hubertus Vaeth, managing director of Frankfurt Main Finance. The number of fintech employees is expected to double to 26,000, he said. His organization, which represents Frankfurt’s financial community, commissioned the Ernst & Young study.

Germany ranks second in Europe behind the U.K. for fintechs. The 2.4 billion-euro market drew 524 million euros in investment funding last year, compared with 707 million euros in the U.K., which is almost four times the size, according to the study. The region around Frankfurt, home to Deutsche Bank AG, Commerzbank AG and Deutsche Boerse AG, is growing at almost twice the rate of the rest of Germany, with the number of startups climbing 22 percent.

Banks count digitalization among the biggest challenges the industry is facing, alongside regulation and the low interest-rate environment.

“We don’t need to be scared of the digital challenge because if we don’t manage to go digital, we’re gone anyway,” Erste Group Bank CEO Andreas Treichl said in a March 1 interview.

Banks still retain “one vital element” in the race to incorporate new technologies into the financial system, WebID’s Fuerst said. “That is trust to the consumer. That is something that innovative fintech companies still have to build up,” he said.

“So for the next few years, we’ll see banks developing strategies that will capitalize on that trust and actually defend their business models,” Fuerst said.

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