German fintech and Brexit – Don’t panic, it’s politics

There have been many predictions from many different people on what is to come for the German finance and technology sector after Brexit. In reality no one knew before and no one knows now how it will all pan out. However, there are some things that are getting clearer as time passes by.

The most obvious thing everyone learned and all the major companies realised is there is no point in unnecessary hurry. The EU is slow and so is the British government. Even if the EU is trying to pressure Britain, it won’t speed up the process. The uncertainty about the terms of any potential deal for Brexit doesn’t help, but for flexible startups it doesn’t do any harm – for the moment at least. Startups with a software solution or service are more able to adapt than classic manufacturers or companies with multiple locations and hundreds of employees.

The biggest concern is access to the European market

So called ‘passporting’ involves easy access to the European banking system while enjoying the advantages of London’s regulations, which is massively important for companies in the fintech sector. Optimists hope this system will be kept in the new Brexit deal. With rising tensions between Theresa May and the EU, caused by the planned ‘hard’ Brexit, many business managers have eyed Germany as a new home. So far the exodus hasn’t happened, but will it come?

From a stability point of view it’s a good decision to move your headquarters to Germany if you want to keep your business in the EU. At the moment there are no countries that are more focused on staying in the EU than Germany. But CEOs are still waiting – understandably – for the final outcome before shifting their whole business from one country to another.

Regulations everywhere

If you look at the regulations you may not want to move your headquarters to Berlin immediately, though. The German government still makes it difficult to move a company to Germany. It’s already a hard exercise to set up a German company, and moving an established one into this regulatory environment is even harder. This really does not sound like an open invitation to come to Germany, but if you take a closer look you will be surprised, especially as a fintech company. The struggle is worth it, though. If your company can stand up to the scrutiny of German tax laws, trade regulations and privacy standards then you don’t even have to worry about the EU regulations anymore. 

What you are doing is tackling the hardest market first. After you successfully start your business in Germany you are almost guaranteed to match all the different regulations in the other countries since they are often less strict in terms of security and privacy.

Match your product to the market

Fintech companies that are choosing to relocate to Germany to ensure the access to the EU are welcomed by the German government, but they need to consider their goals. A company that is not primarily targeting the German market may find it an unnecessary effort, while a company that is targeting this market but fails to understand the German market may fail. As we all know, Germans are very concerned about privacy. For example, only 54 per cent of active internet users do their banking online. There is huge potential, but if you don’t alter your product or at least your communications focus, you may not even get your foot in the door.

Berlin is international, Germany is not

Many founders have the impression that the lifestyle they experience in Berlin is the same across the country. But keep in mind that London is also different from Britain and New York from the most part of the USA. So if you see people paying with apps and NFC chips in Berlin, don’t be tricked into thinking they would do this somewhere else in Germany. On the other hand, Berlin offers access to Germany by being an international hub itself. You’ll find all the benefits like people speaking English and German as well as low living costs and rents. Germany itself has a huge potential and is a gateway to Europe. As this 2016 analysis by EY shows Germany is already making a significant impact in fintech:

Germany's Fintech Universe

Germany’s Fintech Universe

Brexit might be just a small shift in fintech

Germany is welcoming the new fintech companies that are looking to move from London, but the country has not yet been inundated. There is a lot of potential to unearth but also many obstacles. For businesses that are moving to Germany it is necessary to be prepared for a whole range of new challenges. Maybe that’s why the majority do not want to rush it. As soon as the Brexit plans become more real, there will be the need to consider relocation. But we all know how slow politics can be. So far the uncertainty has not killed the British fintech sector and I assume it won’t do in the future.


by Patrick Pickhan

German fintech and Brexit – Don’t panic, it’s politics
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