First German Fintech Companies Rely on Foreign License

According to Finanz-Szene research, the up-and-coming Berlin-based fintech company Pliant is the first well-known German fintech company to specifically consider applying for a license in other European countries. Founder Malte Rau confirmed on request that his company is currently looking at several jurisdictions for the application. Finland is said to be a strong candidate, according to several sources. The startup, which specializes in credit card solutions for businesses, is currently in the process of founding a Finnish subsidiary and also plans to expand its business there. The corresponding entry in the Finnish commercial register for this already took place on March 22nd.

Another indication: Pliant’s Head of Regulatory, Jenna Tirkkonen, who has been in office since January, comes from Finland and has worked for the local Challenger bank Holvi, among others. Possible alternatives for the license application are Lithuania, the Netherlands, or Ireland, it is said. Germany is also still under discussion, but Bafin does not seem to be the first choice.

The fact that Bafin doesn’t seem to be at the top of the list for license applications for some up-and-coming financial startups sheds light on the growing tensions between Berlin’s fintech industry and the Bonn-based regulator. Bafin, for example, recently took action against N26 and Solarisbank, among others, the two flagships of the scene. The supervisors accuse the two-billion-dollar fintech banks in particular of failing to get a grip on their problems with accounts used for fraudulent purposes.

As a result, N26 was fined $4.5 million (€4.25 million) last year. In addition, Neobank has only been allowed to accept a maximum of 50,000 new customers per month across the EU for months; it is unclear when the limit will be lifted and N26 will be allowed to continue its growth trajectory. Solarisbank, on the other hand, was recently sent a special watchdog by Bafin. The reason given for this was “numerous organizational deficiencies”, which would prove “an improper business organization “*.

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What Pliant plans to do with the license

Now, of course, the strategic considerations at Pliant are not a direct reaction to the problems other fintech companies are having with Bafin. However, the seemingly unusual idea of applying for a foreign license as a German fintech cannot be viewed in isolation from the fermenting overall conflict. Especially since the company founded in 2020 is not just any young fintech. Rather: The founders around Malte Rau (ex-Lendico, ex-Fincompare) are established industry heads; and the circle of shareholders includes prominent investors such as Carsten Maschmeyer, the Main Incubator belonging to Commerzbank and recently renamed “Neosfer” or also Embedded Capital – i.e. the investment vehicle of Finleap CEO and Solarisbank supervisory board head Ramin Niroumand. In other words, Pliant knows what it’s doing.

A year ago, the fintech received $15.9 million (€15 million) in funding and announced plans to expand internationally – according to its careers page, the company is currently looking for sales experts for Finland, the Netherlands, Ireland, France, Belgium, and Luxembourg, as well as Southern Europe. The fintech company has also already advertised positions in Finland itself. Pliant had also recently strengthened its regulatory staff: in addition to “Head of Regulatory” Tirkkonen, Caroline Jenke has also been on board as Chief Legal Officer since April.

The approval being sought is a so-called e-money license. Rau did not want to comment on what exactly Pliant intends to do with it, but an e-money license makes perfect sense for the business model of credit card fintech companies. Without the license, startups like Pliant or competitor Moss are completely dependent on partners for card issuance and transaction management. This tends to make the products inflexible in many places, such as the identification process, and thus less user-friendly than fintech companies might like. With their own e-money license, the fintech companies can largely handle the simple payment transactions – which are central to them – themselves, and without having to immediately apply for a far more expensive and regulatory demanding full banking license.

Pliant’s partner for issuing is currently Transact Payments Malta Limited. The Hamburg-based Varengold Bank (which recently got into trouble with Bafin) currently provides the accounts, the infrastructure for SEPA payments, and the credit line for the fintech. As we understand it, Transact Payment would be the partner that Pliant could replace in the longer term with its own license. The only word from Pliant yesterday was that it expected an e-money license to allow it to operate “more financially flexibly,” including internationally.

In the case of crypto custody licenses, such as Rubarb requires, around 20 providers in this country are waiting, in some cases for more than a year, for a corresponding permit. Bafin justifies this on request with the fact that the permit documents are incomplete in the vast majority of cases, and information and documents often have to be requested subsequently, which affects the duration of the procedure.

Fintech vs. Bafin: Tensions are growing

The tensions between Bafin and the Berlin fintech scene have a long history. The general perception is that the financial supervisory authority – possibly excited by the idea of a global fintech champion emerging from Germany – initially looked favorably on N26 in particular. Surprisingly quietly, Neobank received the hoped-for banking license in 2016. At about the same time, Solarisbank also became a licensed full-service bank, and soon after other ambitious Berlin fintech companies such as the insurance startup Element, the factoring specialist Billie, and the wealth tech provider Elinvar successfully applied for a suitable license. During that time, Bafin saw itself “not only as a supervisor, but also as a companion,” says an insider.

The Wirecard case marked a turning point in the relationship between Bafin and fintech companies. Since the scandal surrounding the Munich-based payment service provider, the top political priority in Bonn has been to avoid further collapses of up-and-coming players – in case of doubt, even at the expense of the fintech location. The Berlin scene has good reasons for refusing to be held jointly liable for Wirecard. Nevertheless, the fintech companies are feeling the effects of the generally tougher stance. In addition, where there were obvious overlaps between Wirecard and the fintech industry, there is still a lack of clear distancing. Austrian investor Stefan Klestil, who as a member of the supervisory boards of both Wirecard and Wirecard Bank had stood idly by and watched the Munich-based goings-on for years, only resigned from the advisory board of N26 Bank at the insistence of Bafin. However, Klestil kept his place on the advisory board of the parent company (i.e., of N26), as well as other fintech posts, even at a licensed fintech like Billie.

Of course, the growing atmospheric disturbances are also based on cultural differences. On the one hand, there are the fintech companies, who are interested in scaling their business models as quickly as possible – sometimes in line with Zuckerberg’s motto “Move fast and break things. On the other hand, there is Bafin, whose supervisory structure is optimized for a specific standard case, namely the classic bank or savings bank – and whose leading heads come not only intellectually but sometimes even literally from the banking world, such as Executive Director Raimund Röseler, a former official at the German Savings Bank Association. The supervisors in Berlin complain that they are clearly having difficulty classifying new, technology-driven business models.

Sometimes, better cooperation also fails because of supposed trivialities. For example, unlike the Bundesbank, Bafin still does not have a representative office in Berlin. Or, another example: There is still no binding English-language translation for the BAIT (i.e., for the “Banking Supervisory Requirements for IT”) – even though the techies in the fintech companies are in many cases not native German speakers. Bafin assumes that highly-funded neobanks should be able to provide this language transfer. In the fintech industry, on the other hand, there is a growing lack of understanding that the supervisory authority is not showing itself to be more cooperative and perhaps a bit more pliable in one or two cases. Reference is made to other European countries where the supervisory authorities also see themselves much more strongly as service providers and where sometimes even active location policy is pursued. By way of comparison: in its recently published risk report, Bafin devoted an entire chapter to the “future risk of digitalization”. In contrast, there has been little talk of the “opportunities” of digitization in Bonn recently.

Going abroad as a fallback option for fintech companies

Just retracing the “Bafin vs. N26” case is now a full evening’s work: Among other things, there is the appointment of a special commissioner for supervision to the largest German neobank in May 2021 (see here). The aforementioned fine of millions was imposed for deficiencies in money laundering prevention. The second special representative. And, of course, the aforementioned new customer limit of 50,000 last fall, which the Italian financial supervisory authority recently even followed up with a temporary complete new customer stop with regard to the Italian market (see here). The action against Solarisbank at the beginning of this year fits into the overall picture – and fits in with the interpretations tending towards conspiracy theory that are now circulating. In Berlin, for example, you can meet decision-makers who seriously claim that Bafin has made it its business to protect the established financial industry from fintech attackers.

In the past, it was rumored that N26, Germany’s largest fintech company, was not necessarily bound to the Berlin location – especially since there is an obvious alternative in Vienna, where Neobank has a growing branch (not to forget: the founders of N26 and a number of other top managers are Austrians). By all accounts, the idea of a license or even relocation was never seriously considered.

When asked, Bafin emphasizes that it is not putting the brakes on its cooperation with fintech companies, that it is in active contact with the companies, and refers to the fintech contact form, which the supervisory authority used to receive 282 inquiries last year. Will it help? The “Pliant case” next to Rubarb shows: The fact that local fintech companies are evading Bafin is no longer a purely theoretical option.

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(Featured image by Michael_Luenen via Pixabay)

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First published in finanz-szene.de, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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