Frankurt: Europe’s New Fintech Hub?

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This is a guest post from Marguerite Arnold.

Frankfurt is one of the oldest business centres in the world. From at least Roman times, the low-lying city, bifurcated by the welcoming River Main, has been a hotspot for global endeavours that changed the nature of many industries – including but not limited to banking. Mayer Rothschild, a courtier to the German king of Hessen at the time, used the famous freedoms of the city to launch a global banking empire in the 1760’s.

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These days, Frankfurt is not just Europe’s banking centre and home to the European Central Bank. It is also on the verge of leading another revolution – in Fintech.

Why?

The first is just geography. In no other city where Fintech has taken hold are the presence of financial types and large banks so concentrated in such a small place. Frankfurt is roughly the size of Charlotte, North Carolina (the second largest banking centre in the U.S.) However, its residents, few in number compared to other large and influential cities and banking hubs, are both highly international (40% of the city is from somewhere else) and highly financially literate.

Further, with Fintech taking hold as a revolutionary force in banking and insurance, the large banks here are considering how to transition in a digital world which will change their business operations and market footprint – and that is not limited just to corporate banks, but global powerhouses like the ECB itself.

Frankfurt is an increasingly dynamic hub of Fintech start-ups, with unparalleled access to large banks. Even in London and New York, both financial superpowers in their own right, Fintechs do not have the same ability to reach power brokers and decision makers so easily and directly.

Frankfurt is also home to a well-heeled group of investors – whether they be individual “angels” or family offices – who are looking, at this point, for the next digital growth story. That makes the city one of the best places to both live and pitch on a regular basis. The start-up scene itself here is relatively tightly knit but, critically, also open to newcomers. Most advertise meetings on the Meetup Platform. It is possible to go to (at least) one event every day of the week.

Cross promotion of different kinds of events is also beginning to happen as the scene begins to mature. While the opening of Accelerator Frankfurt marks the first of such entities, it won’t be the last. Free office space for promising start-ups is relatively easy to find.

Unlike Berlin, Frankfurt also promises to be a city that promotes the growth of more B2B financial endeavours. While there are digital entrepreneurs here with start-ups of every kind, the mix in Frankfurt promises to see an increasing slate of innovative business models challenging every part of the banking and insurance business (which in Germany are more tightly linked than almost anywhere else in the world).

The impact of Brexit is also likely to give the Fintech start up scene here a boost, although it is uncertain at this juncture how much of one and in what form. What it is likely to do, however, besides sending a flood of British expats, is create a banking industry itself that is ripe for change and innovation.

Frankfurt is also (relatively speaking) far cheaper to live and work in (certainly comparable to Berlin). There are regional trains, subways that line up with station platforms and even street trains (plus busses) that make this little gem on the Main a potential start up paradise.

Four hundred years after Rothschild revolutionized banking, therefore, on the banks of the Main, another age dawns that promises innovations that are just as earthshattering, albeit this time, digital.

Marguerite Arnold is an entrepreneur, author and third semester EMBA candidate at the Frankfurt School of Finance and Management.

(Image Source: Wikipedia)

Impending Grexit?

Greek Exit

(Source: Flickr)

We have seen this week some heated negotiations between Greece and its European lenders.

Here are some of the issues facing Greece at the moment:

  1. Technical default: Greece is due to repay €1.6bn (£1.2bn) to the IMF at the end of June. On Wednesday, Athens announced that it is stony broke and will not be able to pay up. As I understand it, this amounts to a technical default.
  2. Troika withholds money: The Troika (i.e. the European Commission, European Central Bank and the International Monetary Fund) are withholding the last tranche of money from Greece’s second bailout until Athens agrees to make a number of painful economic reforms.
  3. Political deadlock: Alexis Tsipras, Greece’s prime minister, came to power on an anti-austerity ticket in January and is refusing to accept calls from the Troika for new austerity measures.
  4. Emergency Liquidity Assistance in doubt: Emergency Liquidity Assistance (ELA) is support which the ECB has been providing to Greek banks as they suffer from dwindling deposits as worried Greek savers continue to pull money out of their accounts. As the name suggests, ELA was intended to be a temporary measure; will the ELA scheme be continued?
  5. Greek Exit?: If debt negotiations remain unresolved by the end of the month, Greece will default on its repayment obligations. If this happens, one possible scenario is that emergency liquidity assistance will come to an end, there will be a run on Greek banks as people scramble to withdraw their money, and the Greek government will impose capital controls to prevent money from leaving the country. Chaos is likely to ensue, and Greece may exit the currency union and the EU. Since the Greek economy is small in relative terms (around 1.4% of EU GDP), failure by the Troika to contain the Greek debt crisis may lead to reduced confidence in the European project and the spread of financial contagion to other highly indebted EU member countries.

Watch this space.

World Collapse Explained in 3 Minutes

Bailouts: a band-aid solution for continuing sovereign debt crises

BAILOUTS were the band-aid solution prescribed for the Greek sovereign debt crisis. And every indication suggests that Greece will require another band-aid early next year.

In this context, Clarke and Dawe raise an interesting and often carefully overlooked question. Where does the money come from to bail out basket case economies? Countries whose finances are in such a state of disarray that they were not only unable be repay their original debts but will almost certainly be unable to repay the subsequent bail out money.

In the case of Greece, the money has come from the EU, the European Central Bank and the IMF, which is all well and good. Saving Greece is possible since it is only the 13th largest economy in the European Union.

Compare this with Italy which is the 3rd largest economy in the Eurozone, and has public debts of around 125% of GDP (second only to Greece). Standing at around $2.5 trillion, Italy’s gross external debt is simply too big to bail out. If Italy should default on its debts, as well it might, then this could spell the end of the Eurozone.

Looking slightly further afield, we see the USA (~$17 trillion of public debt) and Japan (~$14 trillion of public debt). These two countries continue to run large fiscal deficits, to rely on foreign creditors (who for the moment seem happy to continue fueling government excess), and are also the largest donors to the IMF. For these two countries, there are no lenders of last resort.

Both countries appear to be aware of their precarious position, and have engaged in a number of rounds of Quantitative Easing (read: printing money). QE is a remedy of last resort which aims to create price inflation and thereby reduce the real value of government debt. Printing money is often associated with hyper-inflation and is the kind of solution you would expect from leaders like Robert Mugabe (hyperinflation in Zimbabwe was estimated at 6.5 sextillion percent in November 2008).

Bailouts are only a band-aid solution for government excess. They don’t work in the long run, and they don’t work if the country is too big to bail out. We can only hope that Greece, the USA, Japan, and other countries decide to get their fiscal houses in order. Failure to do so may result in more loss of blood than can be remedied by a few band-aids.