A “Fintech” innovation made in Germany? That is quite unusual.
Germany lags far behind Britain and the U.S. in the battle to set up creative new finance-technology firms – a growing brand of company that is challenging the status-quo in the global banking world.
But when it comes to savings, however, Germany is streets ahead. Saving is something that Germans have always been particularly good at – the typical German household saves more money than most of their global peers.
A start-up Internet platform called “Weltsparen” is taking aim at this typically German phenomenon, and is preparing to expand its product to other thrifty European countries. The company’s co-founder Tamaz Georgadze sees himself as something of a pioneer.
“We were the first,” he said.
The idea is simple: Since German banks offer very low rates of interest for savings accounts and other deposits these days, Weltsparen mediates the contact to banks in other European countries that are offering something more.
The market potential looks huge, at least in theory: According to figures from Germany’s central bank, the Bundesbank, Germans currently hold more than €2 trillion in current accounts, fixed-term deposits and savings accounts, or as cash.
This savings glut is scarcely rewarded by Germany’s own banks. Because most of them already have plenty of deposits on their books – and if anything are struggling to find people who will borrow the money – they don’t have an interest in drumming up additional customer savings through high rates of interest.
According to a comparison by FMH-Finanzberatung, a consulting firm in Frankfurt, German banks currently pay an average of only 0.39 percent annual interest on savings accounts. For a deposit with a fixed term of five years, the annual rate is only 0.74 percent.
“Money that savers want to invest securely should be put in the hands of a domestic bank.”
The offers in other countries, particularly those outside the 19-nation euro zone currency bloc, are much better. J & T Banka from the Czech Republic, for example, offers 2.25 percent per year for a five-year fixed deposit – a considerable difference.
So how can one access these relatively favorable rates of interest? Take a trip to the Czech Republic?
“We take over part of the savers’ efforts,” explained Mr. Georgadze with regard to the Weltsparen concept. “The savers have to identify themselves one time with us through Post- or Video-Identification; then they can choose online from currently around 50 fixed-deposit offers from 10 banks,” he said.
The payments and withdrawals occur by means of an account that is opened at the small German bank MHB. The bank account is opened simultaneously when one registers with the Internet platform.
This is a necessary step. Fintechs like Weltsparen are cooperating with smaller banks because they themselves are not granted a banking license in Germany.
Weltsparen is no longer the only one offering these kinds of deals. The portals Savedo and Zinspilot function similarly.
The trend towards such innovative non-banking players in the financial world is something that strikes fear in the hearts of some traditional bankers. But unlike other types of financial-technology firms that are pushing for their own banking licenses, Weltsparen doesn’t consider itself to be an assailant of the current, existing banking system in Europe.
“We act as a go-between for savers looking for higher interest rates on their deposits and banks seeking to acquire money,” said Mr. Georgadze.
That doesn’t have to be only for foreign institutions. Fixed-term accounts are already offered via the platform at smaller German banks that might otherwise be overlooked, like Hanseatic Bank or Grenke bank, which specializes in supporting small- and mid-sized companies.
Later this year, Mr. Georgadze said he hopes to also offer current accounts, for which there is much demand. In addition, starting this fall, Weltsparen will likewise be available to savers from various other European countries, rather than just to Germans. In order to finance this expansion, it raised €20 million from international investors.
Christian Tiessen also believes in the success of this concept. So much so that, with his platform Savedo, he copied it.
Weltsparen started at the beginning of 2014 and in the meantime has handled €500 million from more than 25,000 customers. Savedo followed suit in December 2014 and since then has handled €100 million. Full disclosure: Handelsblatt’s publisher, Verlagsgruppe Handelsblatt participates in the platform.
Concretely, this is how things work at Weltsparen and Savedo: when registering, the customers must identify themselves in order to receive a German clearing account. They also open an account at the foreign bank where they will make their deposits, but this process is easier.
With some banks, a few clicks are already enough. The customer can select an offer and the amount they wish to deposit, and the platform transfers the data to the foreign bank.
At other institutions, the customer has to print out and sign a form that has already been filled in by the portal and written in German, then either scan and e-mail it back or send by post.
The platform Zinspilot, offered by the Hamburg software developer Deposit Solutions, functions a little differently.
“We don’t handle customers, but instead deposits,” says Tim Sievers, the founder and managing director of Zinspilot. “The customers identify themselves at one of our two partner banks – BIW or Sutor Bank – in order to open a deposit account; they don’t have to open any subsequent accounts.” Instead they select with a few clicks an offer from the platform and thereby issue an instruction to the partner bank, which then functions as a fiduciary and invests the customers’ money at a bank of the customer’s choosing.
Zinspilot is only just getting started. At the moment, there are only two German banks that offer day-to-day or fixed-term deposits on the site. “In the coming weeks,” said Mr. Sievers, “there will also be offers from banks in other European countries.”
The three Fintechs currently offer their services to customers for free; they receive a commission from the banks they work with instead. This could change, however, as they develop more products.
“It is conceivable that at some point there will be other products on offer, for example funds traded on the stock exchange,” said Björn Jüngerkes, the head of business development at BIW – a special bank that handles the transactions of Savedo and Zinspilot.
Expanding their business models could turn out to be crucial for the survival of these start-up firms. That’s because consultants consider the potential profit margins to be quite low for simply acting as a go-between for day-to-day or fixed-term deposits.
“In that business segment, no particularly favorable margins can be achieved,” said Andreas Feiden, a consultant at Finnovativ.
Mr. Feiden notes that this could change in times of higher rates of interest, but those are not currently on the horizon. The European Central Bank has kept interest rates in the euro currency bloc at record lows to help the continent’s struggling economy recover, and isn’t expected to change course for a number of years.
Moreover, Mr. Feiden has doubts about the added-value of the portals: “Various other platforms already offer savers a sufficient overview of the market and the terms on offer,” he said.
While he acknowledges that bank customers today often need a second or third account in order to benefit from more favorable terms for day-to-day or fixed-term deposits, Mr. Feidan argues that online banks have been the dominant player in this market.
A further problem in acquiring customers could be the issue of the security of the deposits. The three Fintechs plan to include only banks from the European Union in their portals, and they point to the new, harmonized European securing of deposits. This specifies that in all E.U. member states, €100,000 per customer and bank must be guaranteed by national security funds.
But it’s not clear how iron-clad these guarantees will be in times of crisis.
Users of the Weltsparen portal already had quite a scare twice last year: the Portuguese bank Espirito Santo, or BES, had to be rescued by the Portuguese state, and there were rumors about a possibly precarious situation at the Bulgarian Fibank.
For a while, the Fibank offers were removed from the Weltsparen Internet site. They have since been restored.
“With both banks, an early contract cancelation was possible from the very beginning,” said Mr. Georgadze. “In the case of BES, the customers’ deposits are in the meantime being handled by the successor institution Novo Bank; and at Fibank, the government stepped in quickly and provided liquidity.”
Max Herbst, owner of FMH-Finanzberatung, said he is optimistic that deposits will remain safe at banks across the European Union – at least for short-term deposits.
“I currently have trust in the deposit guarantees and in the unwillingness of the E.U. to let any bank go bust; but I wouldn’t invest my money for more than five years abroad, because over that time much can change politically.”
Niels Nauhauser from the customer-protection agency of the German state Baden-Württemberg is less convinced.
“The providers claim that there is a European-wide deposit guarantee – but in fact, this does not exist,” he said. While he acknowledged that over the entire E.U., €100,000 are supposed to be protected, he warned that, behind every national fund for guaranteeing deposits stands the nation’s respective banking system.
If the funds aren’t sufficient in the case of a bank failure, the state must fill the gaps. Mr. Nauhauser, said he is skeptical as to whether a state would also come to the rescue of foreign customers.
“Money that savers want to invest securely should be put in the hands of a domestic bank,” said Mr. Nauhauser.
How the number of customers develops will determine whether the fintechs can ultimately survive without their own products, but simply as mediators between investors and banks.
Mr. Feiden is skeptical: “The approach of earning money by creating transparency is only partially applicable to this sector.”
Mr. Jüngerkes from BIW is more optimistic: “The platforms will become even more attractive for customers the more banks participate,” he said.
The banking partners have so far come primarily from abroad, but Mr. Jüngerkes noted that more interest could also come from German banks struggling to get their products out into the open. Only time will tell if he’s right.
Anke Rezmer covers the investment fund industry for Handelsblatt out of Franfurt, Germany’s finance capital. Katharina Schneider is a finance editor focusing on investor rights and investments. To contact the authors: firstname.lastname@example.org; email@example.com