June 2017 - Doing Business in Germany | FinTech

Doing Business in Germany: What Does Frankfurt Have to Offer?

If your company is part of the financial ecosystem and you are considering expanding your business in Germany, you are probably thinking: Frankfurt. But why? Take a look at the reasons – and the potential Frankfurt has to offer. Mathias Röckel explains.

© Nikada | iStockphoto

Whether you are travelling to Frankfurt by plane, train or car, the city will make sure you notice its importance long before you reach your destination. Frankfurt’s skyline is unique in Germany. Nowhere else in the country will you find a greater cluster of skyscrapers. Among the towers are Deutsche Bank, Commerzbank, and the European Central Bank. The Deutsche Bundesbank is also headquartered in Frankfurt, as is the KfW. More than 200 banks can be found in Frankfurt. And then, of course, there is Deutsche Börse, the country’s most important stock exchange.

The banks all gather in Frankfurt because that’s where all the banks are. Circular reasoning with a valid conclusion.

Ask any German why all the banks gather in Frankfurt, and there is a fair chance the answer you hear is, “Because that’s where all the banks are.” This kind of argument is called a “Zirkelschluss,” or circular reasoning. The definition of this kind of logic is that there is no logic to it. 

But what if, in the case of Frankfurt and its banking sector, the argument is valid? After all, if you are part of the financial sector, there is no way to avoid Frankfurt.

“Banking is necessary, banks are not.” Bill Gates

What if you are into banking, but not into banks? Why put up with high rents and the sun being blocked by all those skyscrapers if your business does not require residency in Germany’s banking capital? Why is it that so many fintechs are located in Frankfurt?

… for the time being, banks and fintechs don’t compete as much as is often said.

One reason may be that, for the time being, banks and fintechs don’t compete as much as is often said. Both are into banking, and both have assets the other could benefit from. Fintechs are often technologically advanced and agile, while banks have strong brands and profound experience in dealing with customers. They are also very knowledgeable in regulatory matters and have the required licenses. Also, both draw from the same workforce.

Security, Connectivity, and Latency Matter

The banking sector relies heavily on technology and, because of regulatory and customer requirements, needs the highest levels of security, connectivity, and latency. This is true for those who run their business from the city’s skyscrapers and is at least as important for their tech-based challengers.

In Frankfurt, these service levels are fulfilled by a number of data center providers. All the important providers are there; many have more than just one data center in the Frankfurt area; and all of them are expanding their capacities year after year to keep up with growing customer demand. The city’s data centers have recently surpassed Frankfurt’s airport in terms of energy consumption. 

According to Dr. Béla Waldhauser, CEO of Telehouse Deutschland and Leader of the Competence Group Datacenter Infrastructure in the eco Association, all of the larger, well-established data centers will be massively expanding their capacities in 2017, with figures of 5-10 MW of additional capacity per provider

As a result, Frankfurt is not only one of the world’s most important locations for banking, but also one of the most important data hubs.

It has come to the point where networks go to Frankfurt – because everybody goes there.

DE-CIX, the Internet Exchange run in Frankfurt, is among the world’s largest of its kind. In Europe, only Amsterdam and London are similarly important data hubs. More than 700 national and international networks meet here to peer their Internet traffic. The amount of data handled by DE-CIX has been growing year after year, most recently peaking at 5.6 Terabit per second. It has got to the point where networks go to Frankfurt – because everybody goes there.

BREXIT: Less for London, More for Everybody Else

Recently, another factor has emerged when opting for Frankfurt: BREXIT. Much has been written and speculated about BREXIT’s consequences for the UK and its economy as well as for London and its financial sector. Reuters estimates that as many as 9,000 jobs in the industry could move from the UK to other European countries as a direct consequence of BREXIT. Other estimates of job losses are higher; others are much higher

Impact assessments like these tend to agree that London’s significance as the financial industry’s location will decrease, and that others will benefit. It is not a question of if, but of how much and when. The European Banking Authority (EBA), currently in London, is sure to leave the UK as a direct consequence of BREXIT. Politicians have already started talking about the ideal location for a future EBA office, and an application process is in place. Among the top candidates: Frankfurt.