In 2015, an article in the Financial Times with the title: “Aversion to risk hampers growth of German fintech sector,”  noted how some of the fiscal conservatism that Germany is traditionally admired for could be its downfall where fintech is concerned. The less-than-optimistic outlook was underlined by VC investments in German fintechs the year before, which at just $82 million, lagged behind the likes of the Netherlands ($306m) and the Baltic Region ($345m).
How things have changed in the intervening period. In 2020, with most of Europe shutting down to some extent for most of the year, VC investments in German fintech startups passed the €1 billion threshold for the first time.  Among other highlights in the DACH Region, Austria reported Europe’s largest Series A round of the year when Bitpanda raised $52m,  while Switzerland’s insurtech firm Getsafe closed a Series B round of $30 million in December. 
What these numbers show, more than anything, is that from a relatively slow start, the DACH region has become a growth engine for Europe’s fintech revolution. A combination of a number of factors have come together to make fintech an extremely powerful proposition in the market. Below, we look at some of these factors as well as the fintech startups in the DACH region that are shaking things up in what was once a conservative heartland of finance.
Drivers of DACH Fintech Success
With a combined population of 100 million people, the DACH region represents approximately 13% of Europe’s population. However, the region’s 1.16 million professional developers mean that the region is home to 20% of the continent’s software development talent.  This lowers one of the main barriers to entry for entrepreneurs looking to develop applications in the fintech space and creates the possibility for existing fintech applications to progress faster.
Regulation is also an enabler. While Germany and Austria have no specific laws that apply to fintech firms just yet, Switzerland was one of the first countries in the world to develop a fintech licence in 2019.  Its relaxed requirements foster the development of new and innovative companies in the fintech space. It also creates a framework in which Zurich can compete against larger cities such as London and Paris as a hub for fintech innovation.
The DACH region’s status as a leader in innovation also feeds into the growth of its fintech ecosphere. By number of patent applications, Germany is number one in Europe, with more than twice the number of patent applications as France. When the patent applications of Austria and Switzerland are added, the total number of patent applications filed by the DACH region every year is almost three times that of France. 
Finally, in a paradoxical turn of events, it may be that the region’s traditional conservatism is fuelling its fintech revolution. With banks in the DACH region offering interest rates below those of even other European countries, Europe’s traditional savers have lost a source of yield. With most of Europe’s savings being held in the DACH region, this represents a massive opportunity for fintech upstarts. And it’s an opportunity they’re increasingly capitalising on.
Capitalising on the Fintech Opportunity
A combination of the aforementioned drivers, as well as a general global appetite for fintech solutions, have contributed to hundreds of fintech companies springing up in the DACH region over the past decade. Furthermore, the growth of fintech in the DACH region is not limited to any one sphere. Startups from the region are making an impact across the spectrum of financial services: Cryptocurrency services, robo-advisors, peer-to-peer lending, and mobile payments.
In this last category — mobile payments — Germany’s N26 is making a global impact. As if to underline the strength of DACH as a region, its founders hail from Switzerland and Austria, while the company is headquartered in Berlin. Today the company has more than 7 million customers spread across 25 international markets. It continues to add services to the payment platform, making it a continuously tougher proposition for traditional banks to compete with.
At the beginning of 2021, N26 announced a partnership with Raisin, a German fintech firm specialised in interest-yielding deposit accounts. Their latest venture together involves offering customers the best savings rate available in the DACH region, giving them interest on overnight deposits.  By operating together in various capacities since 2017, the two have been able to offer an increasingly diverse range of services to their growing customer base.
Germany naturally dominates the fintech space in the DACH region given its size compared to its neighbours. However, Swiss and Austrian fintech firms are also making headway. In 2020, Avaloq, a Swiss fintech developer and provider of software solutions for core banking was sold to the NEC Corporation for $2.2 billion. At the time of the transaction, Avaloq already counted over 150 banks in Europe among its clients. 
In Austria, Bitpanda, a marketplace for Bitcoin, Ethereum, and other digital assets, gained a PSD2 payment service provider licence in 2019,  secured the largest Series A round in Europe in 2020, and and only recently became the first Austrian startup to receive a billion-euro valuation, led by Valar Ventures, a venture capital firm backed by Peter Thiel. Given Peter Thiel’s history in payments — he was one of the founders of Paypal — one wouldn’t bet against Bitpanda becoming a major force in the global cryptocurrency space.
These are just to mention some of the companies that are making waves. But everywhere you look in the fintech ecosphere, there’s a firm from the DACH region near or at the top of the pile. Notable examples include Getsafe in insurtech, Kreditech in consumer lending, Numbrs in mobile banking, and Finnest in crowdvesting. With several hundred firms already classifying themselves as fintech in the DACH region, expect to see a wave of consolidation soon.
Far from being a stuffy enclave of bankers and wealth managers, the DACH region is now a vibrant hub for financial innovation. Its fintech ecosystem is one of the most admired in the world. Three of the region’s cities are among the ten best in Europe for VC investment, providing ample opportunities for existing companies to flourish and new ones to spring. The evolution of the fintech ecosphere in the DACH region has a long way to run yet.