Sowing the seeds of a revolution

Germany’s fintechs seek success on their own terms

Digital disruption has reshaped retail banking around the world, from the UK to India, but Germany remains an outlier among developed nations. Despite the country being ‘on the verge’ of transformation for the past decade, sweeping change has yet to materialise in concrete terms.

Germany is lagging behind for two reasons. The first is conservatism – more than half (54%) of Germans only trust traditional banks with their money. The second has to do with false starts from the start-up sector. Fintechs like N26 have run into a series of reputational issues, facing a crackdown from the Federal Financial Supervisory Authority (BaFin) and the public, and shaking people’s trust in their offering¹.

That said, disruption has and will continue to affect banks across Germany. Change is coming, even if it has been a slow burn so far.

The next generation of customers in particular are hungry for something new. Centennials and Millennials are more open to using digital banking providers than Baby Boomers. They are also 80% more likely to analyse their spending habits to save money, a tendency that fintechs in other markets – such as The Netherlands and UK – have successfully addressed.

Just over 50% of Germans only trust traditional banks with their money

It is also worth noting that fintechs already account for 3% of Germany’s retail banking revenue². By comparison, the UK’s biggest fintechs, Revolut and Monzo, command less than 1% of the country’s banking market. The difference, for now, is that German fintechs are more likely to piggyback on traditional banking services than launch their own competing brand.

For their part, leading German institutions have not stood still. Sparkassen has invested in digital services to broaden its portfolio and appeal to younger generations, helping it to preserve its position as Germany’s largest financial service provider. And its investments have paid off: Sparkassen’s mobile banking service has resonated with Centennials and Millennials, who rate it 2x higher than its Baby Boomer customers do.

Germany’s major banks are now taking things further by collaborating with start-ups to develop some fintech flair of their own. As of February 2018, virtually every major player had collaborated with at least one fintech to modernise its customer experience². Commerzbank leads the way in this regard, having invested in 25 new digital services. Some will be developed further, as part of the company’s incubator programme, and while others are pure venture capital investments. Other banks, like NORD/LB, Berliner Volksbank and many more, are following suit.

This is a positive step for Germany’s retail banks, especially for traditional institutions that cannot afford to lag behind changing consumer habits. The real test will come as digital business models gain momentum and Germany’s fintechs try to find success on their own terms. As we have seen in other countries, it only takes one or two challengers that strike the right chord with customers to tip the entire industry off its axis.

Fintech unicorn N26 under scrutiny from German banking regulator Current developments in the German fintech market, Clairfield International, 2018 Bank Innovation Labs

Read more from Kantar’s CX+ 2020 Retail Banking Report