Financial technology in Germany

The financial technology market is considered one of the fastest growing, and bitcoins, blockchains, e-wallets, P2P, mPOS acquiring, t-commerce, and mobile banking are becoming familiar terms for the majority of the population.

Governments in many countries are adopting programs to support the transformation of their economies. In 2010, for example, the European Union adopted the Europe 2020 strategy for smart, sustainable and inclusive growth, which identifies the development of the knowledge and innovation economy as one of its three priorities. The seven flagship initiatives of the strategy include “the Digital Agenda for Europe” and “the Innovation Union.”

The Digital Agenda aims to create a single digital marketplace, develop interoperability and standards, increase user confidence in online transactions, develop a fast Internet, drive research and innovation, improve ICT skills and use information and communications technologies to solve societal problems. The goal of the Innovation Union initiative – to improve conditions and access to funding for research and innovation and to raise investment in research and innovation to 3% of EU GDP.

By far the largest impact of financial technology is on the credit market and in particular the banking sector, as most projects and investments are in the area of electronic payments and lending.

Given the high relevance of the digital transformation of banking, Germany has also launched a “Digitization of Banks” program for 2017-2022.

This innovation has led to internet banking, mobile banking, SMS banking, telephone banking, ATMs and self-service terminals.

A common feature of these technologies is that banking services can be provided outside the traditional branch of a financial institution by self-service through various communication channels. In other words, the idea is to change the communication channels between the customer and the bank. The constraints associated with branch banking, namely the time and speed of service, the ties to the place of service, and the need to communicate with bank staff, no longer apply.

A bank’s immediate environment includes not only customers but also competitors. Today, there is increasing competition between banks and fintech companies and technology companies that, on the one hand, offer a wide range of financial services on more favorable terms and, on the other hand, are not subject to the same legal restrictions as banks. For example, providing services such as money transfers and payments is no longer just a prerogative of banks. Such services are actively promoted by Google, Apple, Facebook, Samsung, LG, Microsoft, etc.

The emergence of P2P lending also significantly limits the role of banking institutions in the credit market, as banks are required to make provisions and take risks into account when granting loans, while the P2P lending model does not impose such obligations on any company.

Another important factor for the increasing competition between banks and non-financial institutions in the market is the emergence of cryptocurrencies, which, unlike traditional currencies, do not require financial institutions.

As a result, blockchain technology is being widely used in the banking sector. It makes it possible to securely store information about transactions, make it available to all participants in the network, and prevent data manipulation.

The further development of the banking sector is inextricably linked to digital transformation, far-reaching digitization and the expansion of online services.

Only under these conditions banks will be able to retain and expand their customer base, as the new generation of consumers tends to use modern technologies all the time, demands a high level of service convenience, and sees no need for direct contact with bank representatives.