Photo: Austin Distel / Unsplash

What is a fintech startup?

Something to do with finance, right? - If you've always wondered what exactly fintech startups do, we have the answers for you here. And also some Munich startups that are active in this sector.

Let’s start from the beginning: A fintech startup is a company that uses technology to offer innovative solutions for financial services. The term ‘fintech’ is made up of the words ‘financial’ and ‘technology’. Fintech startups use technologies such as big data, artificial intelligence (AI), blockchain and mobile applications to improve and automate traditional financial services or to create completely new financial products and services.

Fintech Startup Monitor

And innovation is necessary in the financial sector: Even long-established industry giants now realize that collaboration with innovative companies is essential if they don’t want to be left behind in the process of digitalization, and are investing in fintech solutions accordingly. However, many “young and wild” companies also need to work with established financial service providers; cooperation rather than confrontation is key.

In 2021, the Fintech Startup Monitor of the German Startups Association (Bundesverband Deutsche Startups e.V.) investigated the state of the startup ecosystem in the financial sector in Germany for the first time, revealing the strengths and weaknesses of this industry: fintechs, for example, have made it through the coronavirus crisis much better than other startups. However, it also became clear that the fintech world is a male domain. The proportion of women among fintech founders in the startup ecosystem was just seven percent in 2021. By comparison, the proportion of female founders across all sectors was 16% at that time. So there is still a lot of catching up to do here.

Activities of fintech startups

The activities of fintech startups extend across various areas of traditional banking. Here are some of the most common segments and business models covered by fintechs:

  • Payment transactions and transfers: Fintech companies develop solutions for simple, fast and cost-effective money transfers and payments.
  • Lending and credit scoring: Automated lending platforms use data analytics to perform credit scoring and grant loans faster and more efficiently.
  • Investment and asset management: Platforms offer automated investment advice, digital asset management and peer-to-peer investment opportunities.
  • Crowdfunding: Fintech startups enable companies and private individuals to raise capital from a broad group of investors via online platforms.
  • Insurance technology (insurtech): By using technologies such as artificial intelligence, fintech companies are trying to modernize the insurance sector and offer more efficient products.
  • Blockchain and cryptocurrencies: Some fintech startups focus on the use of blockchain technology and the development of cryptocurrencies or offer crypto trading and custody services.
  • Regtech (Regulatory Technology): Fintechs develop solutions to support financial service providers in complying with regulations and regulatory requirements.

Munich startups that are active in the industry

The Munich startup ecosystem has also produced successful fintech startups, most notably Scalable Capital, a real unicorn. Scalable Capital has been giving private investors access to digital investments since 2014. Launched as a digital asset management company, the fintech expanded its platform to include a full-service brokerage offering in 2020. Today, the broker’s customers can invest in ETFs, shares, funds, bonds, cryptocurrencies and derivatives.

Beatvest focuses on the educational aspects of asset accumulation. The Munich-based investment platform’s app is aimed at people interested in the stock market who want to acquire the knowledge they need to make the right investment decisions and put their knowledge to the test with a fictitious investment feature. This way, the startup aims to minimize the initial difficulties of investing in the capital market and thus help young people in particular to build up assets early on. Also Vinlivt wants to bring together the three areas of saving, investing and insurance with its app and help users to understand their current financial situation. They can then start their first pension activities.

Artificial intelligence comes into play at Sub Capitals – or rather into the financial products. The Munich-based startup offers an AI certificate that uses its AI to invest. Consumers can purchase the certificate via an ordinary broker and add a security based on artificial intelligence to their portfolio. Cometum is a neo-private bank that uses the blockchain to divide large assets such as classic cars, art or diamonds into smaller units. Through this tokenization, Cometum aims to introduce young wealthy people in particular to these asset classes.

Munich-based fintechs also have solutions for B2B: Finway digitizes the entire financial area of companies in order to banish Excel spreadsheets from financial management. Among other things, the startup’s software offers digital access to approval processes, payments and receipts. Finway also offers companies physical and virtual debit cards. Xpay also has cards on offer, specifically prepaid credit cards from Mastercard. The company offers these to retailers so that they can build a bonus program for their customers. This not only allows retailers to offer various discounts and benefits, the cards also provide important data on purchasing behavior.

If you want to find out more about Munich fintech startups, you can regularly visit Munich Startup. We also shed light on the topic at regular intervals in our podcast.