New York, Frankfurt The moving boxes are piling up, numerous computer screens are standing around: At the Berlin financial start-up Raisin, a spirit of optimism is spreading on Broad Street in the New York borough of Manhattan. So far, around 25 employees at the fintech have worked from home during the corona pandemic.
The interest platform wants to change that in the future: “After our merger last year, we are now merging the offices and want to offer our employees the opportunity to return to the office,” says Marcel Bock, US boss of Raisin. In the middle of last year, the fintech merged with competitor Deposit Solution.
The idea of the interest platforms: to offer savers better interest rates than the financial institutions in the respective home market. To do this, they cooperate with banks from abroad. Financial institutions can also use the platform as their own marketplaces for savings products.
However, the scenery of the laborious return to the office is symbolic of Raisin’s growth story to date: the Berliners have not really arrived in the USA yet. Since the official launch in 2020, Raisin has only won seven banks as customers. For comparison: In Europe, the young company claims to have more than 400 partner banks with more than 750,000 customers.
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Raisin is not alone with the dream of a thriving US business. In addition to the interest rate platform, the identity service WebID Solutions is one of the few German fintechs to venture into the USA – and is struggling with the same problems. The Berlin fintech, which is one of the first companies to advance the topic of online identification, has only acquired five customers since its US launch in 2018.
And that in a market environment in which fintechs already have difficulties collecting money from investors. Turnaround in interest rates, inflation and the war in Ukraine are also leading to layoffs at some fintechs. Instead of growth at any price, the focus is now on profitability.
The situation is most explosive at the Berlin crypto bank Nuri, which is currently in urgent need of new capital. After Nuri has already laid off 45 of its 200 employees and has also changed its strategy away from pure user growth towards higher sales and correspondingly lower costs, the talks are still difficult.
Nevertheless, both Raisin and WebID want to establish themselves in the USA. “We want to become the largest market for Raisin,” says Bock. According to Max Flötotto from the management consultancy McKinsey, they now have a “bigger opportunity than ever before”.
Due to the market environment, fintechs are currently primarily taking short-term measures such as reducing marketing expenditure and focusing on their own product. “As a result, competition for customers has become easier, and even more so in the United States,” he says. If capital is available now and investments are made, fintechs could secure large market shares, says Flötotto – provided they have a business model that proves to be sustainable and profitable even in times of crisis.
But Flötotto also names the reasons why German fintechs have been struggling with growth difficulties so far. “They are attracted by the allure of the world’s largest economy and the prospect of big business.” The tough competition, the regulatory hurdles and the changed market conditions were quickly forgotten.
Nils Beier from the management consultancy Accenture adds: “Things that work in Germany do not necessarily also work in the USA.” The states are quite different in terms of target groups or regulation.
According to Beier, they also need a dedicated market entry strategy. But working on these isn’t exactly their thing, says the Accenture consultant. Their focus is usually on being able to get started quickly. The necessary preparation is greatly underestimated.
N26 failed after only two years on the US market
The most prominent example of a failed expansion into the USA is the smartphone bank N26. The Berliners started in the USA in mid-2019 and announced their withdrawal at the end of 2021.
Among other things, N26 was confronted with tough competition in the US banking market. Big banks like JP Morgan or Citi are investing billions of dollars in digitizing their offerings. There are also US neobanks like Chime that are attracting customers.
As a result, N26 was only able to grow slowly: in January 2020, the smartphone bank reported 250,000 customers, and at the end of last year, when the bank left the market, there were 500,000 customers.
According to Beier, the offer did not meet the expectations of US customers: “There was little added value compared to local providers.”
Due to the great competition, Raisin relies primarily on cooperation with regional partner banks – and wants to offer added value in this way. “Big banks like JP Morgan or Citi have enough reach to market their savings products nationally,” says Bock.
That is why they advertise in particular for regional banks that want to increase their deposits nationwide and, above all, also want to set up a digital offer. “That’s the added value we can offer: we support banks, and savers get better interest rates,” says the US boss. Raisin himself earns through commissions.
However, management consultant Beier from Accenture notes: “Among Americans there isn’t this savings mentality that we know from Germans.” According to the Experian credit report, Americans have four credit cards on average, and the average debt amounts to almost $97,000 (about $95,000 Euro). For comparison: According to a study by the Bundesbank in 2020, an average of two debit and credit cards were issued in Germany.
Poor prerequisites for a platform aimed at savers. Nevertheless, Bock believes in US expansion. The main reason for his confidence is the general market environment. There was hardly any interest during the corona pandemic, but this is now changing. In addition, the stock markets are extremely volatile. His goal is therefore to gain more than eight partner banks this year. “The banks are more in demand than ever,” says Bock.
WebID wants to revolutionize with digital ID
The WebID identification service also has growth plans. With the video identification process, customers can have their identity confirmed from the comfort of their own home. They hold their identity card in front of a webcam, answer a few questions in the video chat – and in this way can legitimize themselves, for example to open an account.
While Deutsche Bank or the online bank DKB are among the customers on the German market, WebID only has a handful of customers in the USA. In September last year, the British financial investor Anacap took over the majority of the identity service. “The goal is that we can take over the customer check for companies worldwide,” said WebID boss Frank Jorga at the time.
But more than nine months later there is no sign of growth, and the company has not gained a single customer. When asked by the Handelsblatt, WebID did not want to answer any further questions about customer growth in the USA or overall.
Moonfare has a top target group in mind
The Berlin start-up Moonfare has only been in the USA since the beginning of the year. The new office on 24th Street in Manhattan is actually too big for the 15 employees, who until now have hardly filled half of the open-plan office.
Moonfare enables private investors to gain digital access to private equity funds, venture capital funds and infrastructure funds. Moonfare thus has a top target group. US assets under management are currently around $100 million from just over 150 clients.
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Moonfare boss Steffen Pauls estimates the market environment in the USA to be even easier than in Europe. “In the USA there is uniform regulation as far as investment strategies are concerned, in Europe it still differs from country to country,” he says.
But Moonfare has only been on the market for a few months. According to Flötotto, the reason for the slow or failed expansion into the USA of the other players may also lie in the market itself. “German fintechs have difficulties with internationalization. The German market is exactly the wrong size: too big to want to leave it immediately, too small to just stay in the market in the long term.”
He warns fintechs against always following the demands of lenders: “Investors are also putting pressure on them to scale quickly globally,” says Flötotto. Sometimes that’s a bit too hasty.
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