Home Policy & Governance Germany’s public sector and fintech: game on?

Germany’s public sector and fintech: game on?

Germany: Europe's largest economy is typically reported to be the second largest fintech market in Europe behind the UK | Credit: noelsch; Pixabay

Governments worldwide are increasingly championing the fintech sector. Daniel Tost in Berlin examines for Global Government Fintech the extent to which Germany’s public administration is itself investing in fintech solutions

The price-tag to fight the economic consequences of the Covid-19 pandemic has taken on historic proportions in Europe’s largest economy.

Germany’s Bundestag, the lower house of parliament, last month passed a supplementary budget for 2021 that pushed new borrowing to a record high of €240 billion (about £207bn).

Like in most countries, Germany’s government has taken a large number of innovative digital measures to deal with the crisis. Initiatives include the development of a contact-tracing application, hackathons to source tech-based Covid response tools, a symptom-checker chatbot and a so-called intensive care registry where hospitals log ICU capacities.

Against this background, the necessity of accelerating the public administration’s level of digitalisation has also come into focus. A study has found that during 2020 for the first time more Germans had used e-government services than not, attributing this to contact restrictions and closed administrative offices due to the pandemic. Usage growth was particularly high among 18- to 34-year-olds.

But according to the UN’s 2020 E-Government Development Index (EGDI), which ranks the 193 UN member states in terms of digital government – capturing the scope and quality of online services, status of telecommunication infrastructure and existing human capacity – Germany only comes in 25th, a significant drop from its 12th place only two years prior.

Germany ranks 12th out of all European Union member states in the 2020 edition of the European Commission’s Digital Economy and Society Index (DESI). Based on data prior to the pandemic, Germany performs well in most DESI dimensions – except in digital public services, where it ranks 21st.

In the vanguard? UK government and fintech
Global Government Fintech has published a series of stories in recent months about how UK public authorities – for example, HM Revenue & Customs and Crown Commercial Service – have been investing in fintech solutions (as well as stories on MPs and Lords championing the sector).

Fintech integration ‘not yet as natural as UK’

Against this background, several German fintech companies saw an opportunity and contacted the federal finance ministry as the Covid-19 pandemic took hold in March 2020.

Their aim was to offer their services in order to accelerate the application process for funds intended for small- and medium-sized enterprises (SMEs) or the self-employed. More than one year on, the finance ministry tells Global Government Fintech that work on establishing such a co-operation “continues at full speed”, but declined to answer questions regarding the status of the discussions or why things seem to be taking such a long time.

Fintechs themselves are also generally tight-lipped, perhaps understandably. A spokesperson for London-headquartered alternative finance lender Iwoca in Germany explained to Global Government Fintech: “For the most part, we are encountering an open attitude. However, it is also noticeable that the integration of fintechs is not yet seen as natural as it is in the UK, for example.”

Düsseldorf-based digital-lending platform auxmoney also said that fintechs in Germany have so far not been in included in assistance programmes “despite constructive exchanges with the relevant ministries” and pointed out that this is different in other countries.

There are certainly a sufficient number of private sector fintech companies champing at the bit. Germany is typically reported to be the second largest fintech market in Europe behind the UK in terms of funding deals / billions invested, currently comprising some 900 companies with enormous growth potential. Furthermore, chancellor Angela Merkel’s grand coalition deal (signed on 12 March 2018: DE; EN-language summary provided by Konrad Adenauer Foundation) specifically states an intent to strengthen Germany’s role as a leading fintech location.

Federal priorities lie elsewhere

Public administration in Germany is divided into three independent levels: the federal administration, the administration of the states (Länder) and the administration of the local authorities.

Overall, there are 969 federal authorities and institutions. The highest federal authorities include, for example, the 14 federal ministries and the Federal Chancellery. The 16 federal states constitute the main level of public administration. As the highest state-level authorities, the state ministries are much more involved than the federal ministries in the actual implementation of policies. The organisation of the state administration is up to each individual state.

Germany’s Online Access Act (‘Onlinezugangsgesetz’), enacted in August 2017, obliges all federal and state governments to provide online services for citizens and companies by the end of 2022. Two programmes were set up covering 575 services, grouped in 14 subject areas and addressed jointly by the federal government, the states and the municipalities.

In 2019, the federal cabinet re-organised the project to modernise the IT infrastructure of the federal public authorities since the project faced considerable delays and cost increases. Implementation is proceeding slowly and currently it seems it will be a challenge to meet the goal of digitalising all 575 services by the end of next year.

As part of this modernisation, procurement of fintech solutions does not – yet – seem to be much of a topic at the highest federal level.

The ITZBund (Informationstechnikzentrum Bund) is one of the largest IT service providers for the federal administration, providing interdepartmental IT services for the work of public authorities. It currently provides services for the Office of the Federal President, the Federal Chancellery, the Federal Council, federal ministries and federal authorities and institutions.

Dr Marina Greve from the ITZBund’s executive management team tells Global Government Fintech that Germany’s so-called KONSENS Act (‘Gesetz über die Koordinierung der Entwicklung und des Einsatzes neuer Software der Steuerverwaltung’, which translates roughly as ‘law about co-ordinated new software development of tax authorities’) has been pushing the standardisation of procurement and production of uniform software across the federal states with the strong involvement of the federal government since 2019. However, currently the modernisation of existing procedures and so-called core procedures are the focus. “In this context, innovative financial technologies might possibly be evaluated,” said Greve but referred to the Länder for examples of fintech solutions potentially being used in practice.

Hamburg, Cologne and Berlin explored

Cologne: the city authority has partnered Berlin-based viafintech | Credit: Thomas B; Pixabay

Looking ‘state-side’, the city-state of Hamburg is one of Germany’s largest fintech hubs.

“Financial innovations in the capital market – including technological ones, such as the use of blockchain technology, digital platforms for promissory notes or their digital settlement – are presented and their potential applications discussed as part of regular exchanges between the federal states on capital market topics and at specialist conferences,” a spokesperson for the financial authority of the city told Global Government Fintech.

She went on to explain that innovative financial technologies are used only selectively in Hamburg’s administration, for example recently in connection with the payment of a subsidy for beneficiaries for medical masks using the Barzahlen.de payment service from Berlin-based fintech Cash Payment Solutions. The service enables deposits and withdrawals, as well as invoice payments, at retail cash desks.

The company, which changed its name to viafintech in 2020, also announced that it had found a partner in public administration with the city of Cologne’s administration last year making it possible to pay fines imposed by the city at more than 12,000 retail partner branches (such as pharmacy chains or supermarkets). Later last year, it was announced the service was being rolled out nationwide.

Viafintech has also been working with the federal employment agency for several years in administering unemployment benefits, making it possible to have these paid out at retailers’ cash desks. The agency had issued a public tender because maintenance of the previous payout machines was becoming problematic (they were susceptible to malfunctions and their operation was associated with high costs).

But aside from the example of viafintech, the city of Hamburg is mainly relying on internal solutions in the further development of digital management. In 2019, the city’s annual report explained: ‘By 2025, the enterprise resource planning (ERP) system landscape for budget preparation, management and accounting is to be further developed from the ground up, both functionally and technically, and adapted even better to the needs of modern digital administration.’

When dealing with the electronic payment of charges and fees (for example, a resident’s parking permit), the city-state of Berlin, on the other hand, uses an established ICT service provided by the company BerlinOnline Stadtportal. This privately-owned company also operates Berlin’s city portal (as its name would suggest), which has caused a stir due to its owner recently and surprisingly expounding on his vision of digital citizen services. Then only a few months ago, Berlin decided the city portal is to be restructured under entirely public ownership. The website is to be further developed and modernised under the ‘principles of data protection, open interfaces, accessibility and multilingualism, and free from commercial tracking tools’.

Despite this development, a spokesperson for Berlin’s Senate Department of Finance told Global Government Fintech that other new payment methods as well as innovative financial technologies were regularly being monitored together with BerlinOnline and examined for use in the capital’s administration. He added: “With regard to credit management, it should be noted that participants on money-market platforms do not represent the required high volumes for the state’s needs. Our test-runs have shown this. These are more suitable for municipal financing due to the small size of the individual trading segments.”

Fintech’s foot in the door?  

Indeed, the business model of fintechs that offer digital marketplaces for municipalities seeking financing has been gaining traction among local authorities.

According to a recent study, 84 per cent of municipalities and municipal enterprises are aware of the possibility of tendering their financial requirements online and receiving loan offers via digital marketplaces. Twenty-six per cent had used a digital marketplace or platform to meet their financial needs last year and the trend is positive. Several fintechs, such as CAPVERIANT, CommneX, Firstwire or komuno, have developed platforms since 2017. There, municipalities define their needs, potential investors submit offers and the municipality selects the one it deems most favourable.

While this type of financial intermediation has so far only been able to fill a niche, it illustrates how Germany’s government departments are engaging with fintech: innovations in financial technology are used more frequently and procured in a much more straightforward manner, the ‘lower’ one looks within the public administration.

To a degree, this must be attributed to established and trusted in-house systems in the higher levels that cover a lot of ground, particularly in terms of online payment services.

As fintechs may be forced to re-examine their mission and business models after Covid-19 and the role of digital government is renewed by innovative efforts during the pandemic, government departments’ embrace of fintech-related tools could slowly grow in the future – or at least become more natural.


Global Government Fintech’s news story (30 March 2021) on the Deutsche Bundesbank (central bank), Deutsche Finanzagentur (finance agency) and Deutsche Börse (stock exchange)s successful test of distributed-ledger technology (DLT) to settle electronic securities in a trial involving six major international banks

Global Government Fintech’s news story (10 Oct 2019) on Germany’s publication of a comprehensive blockchain strategy as the country seeks to be ‘at the forefront of innovation’


Global Government Fintech’s exploration (23 July 2020) on the opportunities and obstacles facing governments as they explore the possibilities of open banking for improving public service delivery