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It can be said that the German fintech market became quite unified and developed during last years; it also has remarkable influence on the financial sector. Despite a “winner-takes-all” situation occurs often (it can be explained by strong competition and high acquirement costs), fintechs can still gain profit from new business opportunities. It can be also considered as a sign of a developed market that banks and financial organizations are trying to include fintech companies into their value chains.¹

In fact, all these changes do not suppose that the fintech market of Germany is now stagnant. The truth is quite opposite. Recent study shows us that in 2021 639 active fintech firms operated in Germany, and 45 per cent of them were more than five years old. Such field as the risk and compliance and decentralized finance had the highest share of new start-ups – 96 per cent and 72 per cent respectively. Speaking of financing and capital access of new fintech companies, it can be said that these financial activities were on the rise in Germany in 2021; the total amount of financing transactions was increasing by 6 per cent per quarter in average, while early-stage financings were most common in such segments as asset management and investment, credit and factoring and also DeFi. It is also worth no note, that neo-banks and neo-brokers received remarkable funding on the German fintech market. Of course, there are other important fintech segments like banking, application programming interface banking and personal finance management.²

In Germany, there are no special public funding tools for fintech companies; by the way, the Ministry of Economics has started the program “INVEST” to support start-ups to find venture capital. In case a business angel buys a share of a young innovative firm and keeps it for more than three years, the government will compensate 20 per cent of this investment, up to 100,000€. To apply for this program, investors need to spend no less than €10,000. Third-party loans to the investors are unacceptable. Even more, the business angels need to take part in the innovative company's profits and losses. Investors should be either natural persons that live in the European Economic Area (EEA) or should use particular investment companies registered in Germany (e.g., the limited liability company, GmbH).³

Licensing and marketing of fintech companies in Germany follow the general rules. Since there is no special fintech licence available in Germany, the regulation of fintech companies is based on the business they conduct. The technology-neutral “same business, same risk, same rules” approach is still applied. And so, the entire array of licenses and marketing restrictions may be important for the choice of a business model.⁴

In particular, these types of licenses are worth to note:

1. License pursuant to Section 32(1) of the Banking Act (KWG) for providing banking businesses within the meaning of Section 1(1), sentence 2 of the KWG;
2. License pursuant to Section 15(1) of the recently signed Securities Institutions Act (WpIG) implementing Directive (EU) 2019/2034 on the prudential supervision of investment companies or pursuant to Section 32(1) of the KWG for providing financial services within the meaning of Section 2(2) of the WpIG and Section 1(1a), sentence 2 of the KWG (including, since 1 January 2020, the crypto custody business within the meaning of Section 1(1a), sentence 2, No. 6 of the KWG, which is especially relevant for fintech firms;
3. License pursuant to Section 10(1) of the Payment Services Supervisory Act (ZAG) for providing payment services or pursuant to Section 11 of the ZAG for the issue of electronic money;
4. License pursuant to Section 20(1) of the Capital Investment Code (KAGB) or, more simple, the mere registration pursuant to Section 44(1) of the KAGB for offering collective asset/funds management;
5. License pursuant to Sections 34c, 34d and 34f of the Industrial Code (GewO) for the brokerage of loans, insurance contracts and certain financial products; and
6. License pursuant to Section 8(1) of the Insurance Supervisory Act for conducting insurance business. ⁴

Additionally, the EU-wide Regulation (EU) 2020/1503 on European crowdfunding service providers for business (ECSPR) is in effect since November 2021; according to it, crowdfunding services providers need to obtain authorization from the national supervisory authority (in Germany, BaFin).⁴

According to German marketing regulations of fintech companies, the main principle is that marketing must be fair, transparent and not misleading. These rules follow from the Act against Unfair Competition and they are also written in several of the statutory provisions for financial services. But if the additional rules must be taken into account depends on the definition of the term “marketing”.⁴

Crowdfunding in Germany

Fintech in other countries

Notes

1. http://www.bafin.de/SharedDocs/Veroeffentlichungen/EN/Fachartikel/2019/fa_bj_1911_Fintech_en.html
2. http://www.startbase.de/downloads/fintech-report/2021/fintech-report.pdf
3. http://www.bmwi.de/Redaktion/DE/Dossier/invest.html
4. https://thelawreviews.co.uk/title/the-financial-technology-law-review/germany