“30% of German banks’ profits may be lost to the fintech sector” says McKinsey
In a report on the financial technology (fintech) sector published in May, US management consulting firm McKinsey & Company observed that, by 2020, 29-35% of German banks’ profits may be lost to fintech companies.
The report suggests that, with German consumers now more open to change than ever before, their nation too will experience a massive financial revolution.
It seems that the future of German banks depends on how flexibly and quickly they can respond to the demand for change.
German consumers have woken up to digitalization
According to the McKinsey report, which focuses on the development of the financial technology sector in Germany, banks in that country have no choice but to tackle the threat represented by fintech companies, which are constantly vigilant to important cutting-edge developments and fine-tune their response to market movements.
Germany has been fairly slow to adopt fintech. The value of global fintech investments last year was $13.8 billion (around Y1.4 trillion). Germany accounted for only 1.7% of this total, with relevant investments of $82 million (around Y8.6 billion).
This is a meagre figure in comparison to other European countries, with relevant investments reaching $623 million (around Y65 billion) in the UK and $306 million (around Y32 billion) in the Netherlands.
Currently, in Germany, there are some 200 fintech companies, such as FinLab and FinLeap, which have grown to a certain scale, having benefitted from government incubator schemes. These start-ups target individual consumers, highlighting the secure convenient low-cost services that they provide.
Areas of fintech with high demand include settlement, loans and investment. Among relevant dynamic start-ups are Number26, Germany’s first digital bank, and Auxmoney, a loan start-up with a million customers that utilizes a revolutionary platform where credit scores are based on “big data”.
Now that consumers in Germany are as aware of digitalization as those in other countries, the conventional, famously inconvenient, banking system is doomed.
McKinsey & Company predicts that around half of all banking customers in Germany will move to digital banking over the next few years and concludes that “only companies that can provide transparent goods and services that grab customers’ attention will survive into the future.”