Домашнее задание №2

Состав группы: Бибиков П.С., Буганов Д.А., Гайдук К.А., Шинкаренко

В.С., Рубцов Е.Д., Гладышев Р.Ю., Яцко Е.А., Давидян Н.М., Чварков
В.О., Загуменнов М.О.

Description of the financial services market in Germany from origins to

digital era.
The first FinTechs in Germany emerged in the late 2000s. Research has argued that
one reason for the emergence of FinTech companies was the recent financial crises
(Haddad and Hornuf, 2019). One the one hand, trust in traditional banks was lost,
and customers were seeking alternative ways to handle their banking activities. On
the other hand, the financial crises made obtaining capital more difficult for firms
(Lopez de Silanes et al., 2015), as banks restricted their lending activities. For
many bank customers who did not receive capital from traditional banks,
crowdlending and crowdfunding platforms provided a much-appreciated
alternative. It might further be argued that FinTechs emerged because a bevy of
bankers became unemployed due to layoffs at traditional banks. A first hint that the
financial crises was indeed a trigger for many FinTech activities is that many
FinTech sub-segments started up around the time of the financial crises (e.g.,
crowdfunding, crowdlending) or in the years that followed (Haddad and Hornuf,
2019).
Moreover, the emergence of many FinTechs around the same time indicates that
there was no technological evolution over time, in which one innovation came first
and other companies later built on it. A reason for this finding might be that many
FinTechs are based on online services and algorithms. As with any software,
FinTech innovations are thus a highly context-dependent technology. This means
that innovation is not so much driven by scientific findings as by a constant
process of adaptation. We explain this observation in detail in the next section.
Furthermore, Dorfleitner et al. (2017) show that the formation of FinTechs is
concentrated in specific local areas; more than half of all FinTech formations took
place in only four German cities. The uncontested center of the entrepreneurial
activity is Berlin, which represents around one-quarter of all FinTech formations in
Germany. Berlin is followed by Munich, Frankfurt, and Hamburg. The major 500
FinTech founders are spread over 169 universities. LMU Munich is the university
where most FinTech founders came from (15 founders), followed by the European
Business School (11 founders) and the WHU—Otto Beisheim School of
Management (10 founders). The former employers of FinTech founders are even
more diverse, with founders originating from 268 different employers. By contrast,
the majority (92%) of FinTech founders are male, and thus gender is largely
homogeneous. The share of female FinTech founders is even smaller than the
already low share of women who establish start-ups in the German economy (15%)
(Bundesverband Deutsche Startups, 2019), consistent with the historically low
participation of women in finance and the science, technology, engineering, and
mathematics fields.
Because of the factors listed above, it could be assumed, that the innovation behind
FinTechs is not so much science and technology driven as based on learning and
doing. This distinction comes from traditional innovation studies that claim that the
dynamics of innovation differ by industry (Binz and Truffer, 2017).
FinTechs founders have higher formal degrees than average. About 92% of the
FinTech founders have a degree from higher education institutions. Furthermore,
14% of the FinTech founders hold a doctoral degree, which is far above the
average founder education level in Germany. Given that academics generally have
better job opportunities, FinTech founders are more likely to be opportunity rather
than necessity entrepreneurs. When considering the specific educational
background of the FinTech founders, it becomes clear that the majority have a
business background. Study by B. Brandls and L. Hornuf in 2020 shows that 55%
of the FinTech founders have a degree in business administration or a related field,
such as management, finance, or accounting. Another 19% have a background in
science or engineering, and only 9% have a degree in computer science. The
remaining 18% have a background in law (6%), media (5%), or other fields (6%).
To understand the dynamics unleashed by technological innovation, it is important
to analyze the incentive structure of companies to integrate or license the new
technology. In stark contrast with other emerging industries such as biotechnology,
banks do not predominately use the direct integration of start-ups to gain access to
the desired technology, but rather employ another form of coordinating intellectual
assets: the strategic partnership. Only 19% of all contractual links are actual
investments, while the majority (74%) are strategic partnerships, and 7% are spin-
offs. A strategic partnership is a contractually fixed relationship between two
firms. In general, a strategic partnership between a bank and a FinTech or between
a FinTech and another FinTech means that one company uses the software of the
other company, usually by paying a transaction-based fee. For example, many
banks use the video identification tools of FinTech companies, to verify the
identity of potential customers in a legally admissible way that is convenient for
the customer. In contrast, many FinTechs do not possess a banking license,
because their business focus is mainly on front-end operations. For example, many
crowdlending portals transfer credit requests to a bank, which consequently
originates the loan. Most FinTech-banks such as Fidor Bank, solarisBank, and
FinTech AG—biw Bank für Investments und Wertpapiere have realized the
potential that stems from the FinTech sector and have specialized in “banking as a
service” (BaaS) or “banking as a platform” (BaaP). These banks provide end-to-
end processes that ensure the execution of atomic small financial services on
demand. BaaP works through APIs provided by the respective FinTech-bank. In
other cases, strategic partnerships simply consist of banks making the products of
FinTechs available to their customers, such as Consorsbank, which offers
crowdinvesting products from Seedmatch and the possibility of social trading
through wikifolio. While the bank might only receive a revenue share from the
FinTech, the strategic partnership can help the bank maintain customers who might
otherwise also switch their core banking activities to a new FinTech competitor.
The low percentage of spin-offs (7% of all contractual links) indicates the inability
of the established players to actively take part in the innovation process.
FinTech start-ups are also the active players in reshaping the industry. In other
nascent industries (e.g., biotechnology), the start-ups were largely passive, while
the dominant players appropriated crucial parts of the new technology (Owen-
Smith and Powell, 2003; Powell et al., 2012). German FinTech start-ups
themselves take an active role in M&A activities. Some FinTechs began as regular
start-ups but eventually received a bank license (e.g., solarisBank) or founded a
bank as a spin-off of their FinTech (e.g., FinTech AG—biw Bank für Investments
und Wertpapiere). These FinTech-banks coordinated their intellectual assets almost
exclusively through BaaS or BaaP.
The strategies of traditional banks regarding the coordination of their intellectual
assets differs widely. While banks such as Santander and Commerzbank largely
acquired start-ups from the financial industry, other traditional banks, including
HypoVereinsbank and Deutsche Bank, are more cautious about investing in
FinTechs. These banks more often engage in strategic partnerships.
As the emergence of European FinTechs is a recent phenomenon, further
consolidation in the coming years is expected. However, the dominance of
strategic partnerships as well as the currently missing consolidation is not only a
transitional phenomenon that will vanish in the near future but also has structural
reasons that are rooted in the technology and industry itself.
The first reason consolidation of the German FinTech industry is missing lies in
the regime of appropriability. In contrast with the biotechnological industry, the
appropriability regime of software is tight. Developers of proprietary software
must protect their innovations with a weaker intellectual property right — the
copyright. In many cases, therefore, the software developers do not depend on
intellectual property rights to appropriate their innovations. Software firms often
sell software licenses and keep the source code secret. In the case of server-side
software, the source code is not protected by a copyright but is kept by a trade
secret. Thus, the regime of appropriation is rather tight for software innovations,
not only because of the ease of contracting over software but also because explicit
knowledge is not an advantage per se, as all software products must be adapted to a
specific firm and context over time.
Although the license agreements of software companies are not always effective in
excluding free-riding customers that do not pay for the service, especially at a
business-to-business level, private appropriation of innovations works well in
general in the software industry. One reason is that the documentation of software
usage takes place automatically through networks and protocols. From the
perspective of firms that must contract over technologies, the automatized
documentation of usage implies a reduction in transaction costs. While in
biotechnology the monitoring and enforcement problems associated with the
technology resulted in a structural advantage for large companies that could afford
to engage in patent disputes (Schubert et al., 2011; Gill et al., 2012), the low costs
of licensing and monitoring software have led to opportunities for small firms in
the financial industry. A weak regime of appropriability results in a structural
advantage for large companies, as is evident in the biotechnological industry. In
contrast, a tight regime of appropriability opens opportunities for small companies
(Hall and Zidonis, 2001). Because the contracting over knowledge is reliable,
companies can license their technological assets to other firms. Therefore, the
incentive for companies to fully integrate a start-up is also lower, as an acquisition
is also associated with higher costs and risks.
A second reason that prevents European, especially German banks from fully
integrating FinTechs is the current design of the market infrastructure in the
financial industry. The software that underpins the infrastructure was designed for
digital requirements that were defined decades ago. The lack of coordination
among banks led to siloed data stores maintained by individual participants. Most
experts agree that players in the financial industry must reconcile the current
system eventually. The current lack of coordination in common technological
standards and banking functions leads to a hesitation among banks to fully
integrate FinTechs. The coordination of intellectual assets of strategic partnerships,
however, enables German banks to appropriate the knowledge of FinTechs without
needing to make fundamental decisions about the future of their IT infrastructure.
Finally, strategic partnerships are an efficient way for banks to overcome their
cultural legacy, extensive regulatory provisions, and compliance issues, which also
allows them to approach different technologies without having to commit to a
specific one.
Description of the financial services market in France from origins to digital
era.
Unlike Germany, the FinTech sector in France did not begin to develop in late
2000s, but almost a decade later. The main reason for that was the absence of
required legislation for FinTech in this country. For example, in 2010 less than 5
million euro were raised for financial start-ups in France. However, in 2016 the
situation has started to change, and more than 170 million euro were fundraised in
that year alone. Next year, this amount increased to 338 million euro.
Since 2016 many investors have started to flee from the UK as Brexit was
officially announced. Some of them have decided to move their investments to
France as it was geographically close to the UK and was considered as a suitable
developed country, where their investment are safe and have the potential to
prosper.
In 2019, French government developed and presented a guide on the regulation of
FinTech activities in France, in which the majority of attention was given to
payment systems. The country’s authorities are making efforts to attract new
FinTech sector players who have received an uncertain status in the UK. As UK
continues to lose its attractiveness to start-ups, the main start-up hubs in the
European sector besides France is Germany, Sweden and Spain.
As of 2020, the majority of FitTech companies in France (more than 20%) are
working in the PayTech sector, focused on payment systems. FinTech companies
in insurance sector and in personal and business cash management sector follow
them with market shares around 14% and 10% respectively. French FinTech in
cryptocurrencies is significantly smaller than the sectors listed above, but it also
demonstrates high growth rate and is expected to dominate in the upcoming years.
French and Netherlands government, unlike Irish or German, see their regulators as
an important facilitator of innovations. This could be one of the key reasons why in
the recent years the growth rate of FinTech funding in those countries was positive
while in Germany, Greece and Ireland it was stalling or even negative.
However, despite the regulations, Germany’s FinTech market has a much
friendlier innovation environment compared to France. Because German FinTech
has started to emerge in 2008, it has almost 15 years of experience and is now fully
formed, while French FinTech still needs time to shape and establish itself. This
disadvantage could result in more potential investors choosing Germany instead of
France and thus holding back the development of French FinTech.
Another potential threat for French FinTech compared to German is a lower
internet penetration in the country. As the current main FinTech sector is the online
payment systems, having less active internet users means a smaller customer base
for payment start-ups. According to Statista, internet penetration in Germany is
around 94%, while in France this figure is around 87% as of 2021. This has
resulted in Germany having the highest share of online payment users in the
Europe, which stimulates the overall growth of German FinTech
Summing up, French FinTech is much younger and less developed compared to
German FinTech. Although it has some advantage in legal regulations and had the
significant boost in investment activity due to the Brexit, it has several
disadvantages, which decrease the probability of French FinTech reaching German
in the upcoming years.
Comparative analysis of chosen countries.
Constant innovations in finance and technology and different levels of their
development worldwide necessitate investigating universal integrated indexes. It
will enable a general assessment of the digitization of financial services and allow
carrying out a comparative inter-nation analysis. We proposed to evaluate the level
of digitalization of financial services (DFSI) based on three components: digital
inclusion, financial inclusion, and digital financial services.
The suggested approach includes several steps: 1) forming an array of input data
by eight indicators; 2) establishing the priority of indicators and calculating their
weights by using the Fishburne formula; 3) calculating the integral index of
digitization of financial services by using the weighted sum method.
The values of most indicators selected to calculate an integrated index of
digitization of financial services are published in official statistical databases
regularly, particularly in the World Bank and Eurostat databases (Table 2).

For raising the digitalization of financial services, both financial and digital
inclusion of consumers are essential. We’ve chosen the most general indicators for
this criteria.
The financial inclusion component is taken into account by indicating the share of
respondents who has an account (individual or shared) in the bank or another type
of financial institution or uses the mobile money service for the last 12 months.
The digital inclusion component reflects the share of the population who uses the
Internet regularly, i.e., at least once a week, during the last three months before the
survey. The criterion of using the Internet to calculate this indicator includes all
access methods (computer, mobile phone, personal digital assistant, gaming
machine, digital television, etc.) and any purpose (private or related to
work/business). The IBANK indicator characterizes the share of the population
using Internet banking. It considers all the respondents’ transactions with the bank,
which are carried out in electronic form (for example, payment of bills), and
receiving information about the account status.
The next indicator of the DFSI is the share of the population who conducts other
financial transactions via the Internet (IFA). It takes into account at least one of the
following financial transactions via the Internet during the reporting period: - sale
or purchase of shares, bonds, other investment assets and obtaining other
investment services via the Internet; - the purchase or renewal of existing insurance
policies, including those offered as part of bundled services (e.g., travel insurance
provided with a plane ticket) via the Internet; - obtaining a loan or making a loan at
a banking or other financial institutions via the Internet.
The e-commerce indicator (ECOM) characterizes the share of enterprises’ cash
revenues from the sale of products through electronic networks in the total volume
of sales over the last 12 months. The share of the population making electronic
payments (EPAY) reflects the percentage of respondents who used electronic
means to pay bills or purchase goods (including payments made personally by
respondents through using the money on accounts and automatic payments) over
the last 12 months.
Another indicator representing digital financial services is the percentage
respondents who used a mobile phone to pay their bills in the previous 12 months.
The last indicator to evaluate the level of digitalization of financial services is the
share of traditional loan replacement with alternative online financing (ALTF).
This indicator is proposed to be calculated as a share of alternative online financing
in the total private sector lending. The total amount of alternative financing
includes the sum of all loans attracted by individuals and legal entities through
online platforms in the form of peer-to-peer loans, crowdfunding, balance loans,
and more. Private-sector lending includes all financial resources provided to the
private sector (households, private enterprises, and in some countries also public
enterprises) by financial corporations (banks, financial and leasing companies,
credit unions, insurance companies, pension funds, etc.) through loans, commercial
credits, debt securities purchase, financing of receivables, etc.
 Country
Indicators, %
Germany France
ACC 99.1 94.0
DINC 91.0 87.0
IBANK 61.0 66.0
IFA 21.0 12.0
ECOM 15.0 22.0
EPAY 96.5 89.5
MOB 5.7 6.1
ALTF 0.0103 0.0150

𝑤𝑖𝑏𝑎𝑛𝑘 > 𝑤𝑖𝑓𝑎 > 𝑤𝑒𝑝𝑎𝑦 = 𝑤𝑚𝑜𝑏 > 𝑤𝑎𝑙𝑡𝑓 > 𝑤𝑒𝑐𝑜𝑚 > 𝑤𝑎𝑐𝑐 = 𝑤𝑑𝑖𝑛c

Depending on the priority of each of the eight indicators, they are assigned a
proper rank from 1 to 8. It is necessary to take into account the equality of
priorities of some indicators. The figures of the population who conducts electronic
payments (automatic and online) and the population who uses mobile phones for
paying bills occupy the 3d and 4th positions with equal priority, so they are
assigned an equal rank – 3.5. Similarly, indicators regarding the account in a
financial institution or mobile money provider and the share of the population
using the Internet receive equal rank – 7.5. Thus, substituting the defined ranks of
indicators in the Fishburn formula, we obtain the weighting coefficients in the
percentages and fractions.
 70
64

60

50

41 42
40
35
%

30

20

10

0
France Germany
FinTech Adoption Index, %
Digital Financial Services Index, %

Conclusion
The paper proposes a method for calculating the integrated index of
digitalization of financial services (DFSI) using the weighted sum method
for eight indicators based on three components (financial inclusion, digital
inclusion, and digital financial services). During 2016-2019, the
digitalization level of financial services had increased in most European
countries. In particular, Germany and France are among the countries with
an average level of technologization of financial services
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