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High banker pay is one hindrance for Frankfurt's tech startups

Monday, August 10, 2015 - 07:14
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A man enters Deutsche Bank headquarters in Frankfurt, Germany.

[FRANKFURT] FinTech Group chief executive officer Frank Niehage is moving the German online broker's headquarters to Frankfurt from rural Bavaria to be closer to key customers and access a better qualified labor market.

While the CEO has been pleased with the wealth of financial knowledge in the home of the European Central Bank and Deutsche Bank, he finds the city is still a long way from fostering the creative environment startups crave.

That's a concern for Frankfurt's future competitiveness as a banking center because the financial technology sector - often referred to as fintech - is one of the growth areas in an otherwise shrinking industry. Providers of digital or online financial services have so far largely avoided Frankfurt, preferring places like Silicon Valley, London and Berlin.

"A conservative culture, a lack of IT skills and bank salaries are hindering the fintech scene in Frankfurt," Mr Niehage said in an interview. "The digital revolution is presently taking hold of the financial sector and Frankfurt needs to keep up if it wants to remain a global financial center in the next generation of banking."

Frankfurt only has 11 fintech firms, lagging behind a number of other German cities. Berlin, little-known for its financial sector, takes the top spot in Germany with 49 fintech companies, according to the results of a survey published by statistics website Statista. Andreas Hackethal - research director at E-Finance Lab, a Frankfurt-based institute dedicated to developing disruptive business processes for the financial services industry - estimates fewer than 300 people are employed at the city's fintech companies.

Martin Hellmich, professor for risk management at Frankfurt School of Finance and Management, attributes the low number to the high cost base and banker salaries, with which startups can't compete.

"I still have the feeling we are over-banked and as banks cut staff, we'll see pay gradually fall," Mr Hellmich said.

The pay component of the equation may change as the city's financial sector shrinks. Banks will reduce personnel in Frankfurt by about two per cent by the end of 2016 to just over 60,000, according to a report from Frankfurt-based bank Helaba.

Deputy Mayor Markus Frank, who is responsible for economics issues, told the city's parliament last month that Frankfurt's economic development society is holding talks with fintech representatives to support the sector.

Berlin Allure Frankfurt can't rely on its international reputation to attract young founders and programmers from abroad, said Jochen Siegert, who previously worked in Berlin and is now chief operating officer of business-to-business payment technology firm Traxpay in Frankfurt. In addition to the lower cost base in Berlin, young people are attracted to the city's freewheeling startup culture, he said.

"Luring a Ukrainian programmer to Berlin is 10,000 times easier than getting him to come to Frankfurt," Mr Siegert said. "The environment where people come together, share thoughts and generate ideas is much stronger in Berlin or London." Others say the city's bankers have some great startup ideas but lack the basic information technology skills needed to make their proposals a reality.

"Sometimes they can't answer basic questions about the IT implementation," said Maximilian Voigt, a co-founder of Frankfurt-based gruendermaschine.com, which supports fintech startups in the early stage. "There's a huge amount of finance knowledge in Frankfurt but we see a market gap on the IT side that we're hoping to fill." As he sets up the new headquarters, Niehage is moving the company's Frankfurt office from what he calls the "old- fashioned" financial district to a more creative environment in the city's Westhafen district. He is also taking matters into his own hands and is currently in talks with universities to start a dual studies and apprenticeship program in fintech next year.

"The market needs candidates with not only banking and finance experience - which you can find plenty of in Frankfurt - but also IT and programming skills," he said. "That mixed skill set isn't easy to come by so we're going to teach young people ourselves."

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