A comparison across countries shows just how vibrant the Swiss fintech industry has become. There’s a big question mark however over one key aspect relevant for its future success.
There’s no escaping it: the German fintech performance is poor if you look at the absolute figures only. The government of Europe’s largest economy counted 90 fintech startups for the year 2018, a paltry figure compared with say the U.K., where 464 fintechs ply their trade. The German government based its answer to an inquiry by a FDP lawmaker on figures compiled by the European Parliament, according to a report by «Handelsblatt».
To be sure, the German fintech entrepreneurs have come up with some pretty impressive and successful businesses. One example is N26, the mobile bank, which aims to launch its business in Switzerland later this year. Another is Fidor Bank, which offered loans with negative interest.
Growing Quickly
And yet, the Swiss fintech industry boasts much stronger numbers. At the end of 2018, Switzerland had 356 fintechs, an increase of 62 percent year-on-year, according to a study compiled by IFZ institute at University of Lucerne. A comparison of two studies may be skewed but the trend seems fairly straightforward: the Swiss financial market, for decades synonymous with its eternal adherence to tradition and values, is moving, and is moving at a fairly elevated pace.
«In a global fintech-hub-ranking, the cities of Zurich and Geneva claim second and third place,» said the authors of the study. «Thanks to excellent conditions, Swiss fintech firms are able to counteract a retreat of traditional financial institutions.»
Political Support
It is noteworthy that the Swiss government has given up on its traditionally cautious approach in favor of a more pro-active policy to support the industry. Both Johann Schneider-Ammann, the now retired economics minister, and Ueli Maurer, the finance chief, have been prominent supporters of a strong fintech hub and both promised to provide the fledgling sector with political backup.
In December 2018, the government signed off on a report compiled by a «Blockchain/ICO» working group and ordered the administration to devise the necessary legal framework to help Switzerland grasp the opportunities presented by digitization. The preparatory work by the federal experts is to be concluded in the first quarter.
The positive feedback from the Swiss government stands in stark contrast to the way the German government has handled the question. Angela Merkel's coalition may also have made all the right noises, but there’s an issue with the implementation of a proper fintech strategy.
Frank Schaeffler, the lawmaker that prompted the German government’s response, said that the coalition was far too busy with its own problems and therefore failed to produce the necessary framework for future technology to flourish. After all, a startup needs a different setting than a private bank, he added, according to «Handelsblatt».
Capital Requirements Met?
Under the circumstances, it may come as a surprise that German fintechs attracted disproportionately more funding compared with Swiss firms. Swiss fintechs received more venture capital in 2018 than 2017 (324 million Swiss francs compared with 130 million). Add to that some $386 million through 15 initial coin offerings (ICOs) (2017: 16 ICOs that generated $688 million).
In Germany however, fintechs attracted 630 million euros in the first nine months of the year 2018. So, the few German fintechs attracted about as much outside investments in nine months as the more numerous Swiss in the full year. And yet, both don’t even come close to the 13.6 billion euros that the British fintech industry has attracted.
