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allenovery.com

2017

FinTech Germany

FinTech Germany | 20172

© Allen & Overy LLP 2017

“Marketplaces have systemic advantages over traditional banks and are better placed to meet the needs of consumers and small businesses.”Samir Desai, CEO and Co-Founder Funding Circle

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Anticipated user numbers for mobile banking services in 2019: Almost two billion

Europe is lagging behind on FinTech investment

Source: Bloomberg, KPMG, Jupiter Research

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1,800 – It is anticipated that as the level of digitalisation of banking services increases, the number of people who conduct their banking business online will also increase.

– Experts in the sector estimate that user numbers for Mobile banking will multiply by three between 2013 and 2019.

– If the user numbers do increase as expected, this will give FinTech another boost.

USERS (IN MILLIONS)

Source: Life SREDA Venture Capital

– The investment volume (Venture Capital and other investments, such as by private equity firms and mutual funds) in the FinTech sector has increased dramatically since 2013.

– Only 10% of global investments are made in Europe.

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INVESTMENT VOLUME (IN USD BILLIONS)

Global developments

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Strong increase in the number of FinTech start-ups in Germany

NUMBER OF FINTECH START-UPS

ANNUAL VENTURE CAPITAL INVESTMENTS IN FINTECH COMPANIES 2012-2016

– Digital change is in full swing. It is expected that the number of new FinTech companies being established will increase in the next years.

– The ever growing number of incubators and accelerators will probably lead to more companies being established in the FinTech sector.

– The threshold for founding a FinTech is very low; minimum seed capital is required and know-how is broadly dispersed.

– The FinTech sector is now not only attracting the interest of private companies, but also the academic and political worlds offer a broad base of support for the sector.

33% Growth

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Data source: Comdirect, Barkow Consulting

– Since 2012, EUR1.3 billion in venture capital was invested in the German FinTech sector. With over EUR507 million, 2016 sets a new record, even though growth has slowed down.

– The increasing pace of digital change will continue to make higher investments necessary. We therefore expect an increase in investment rates also in the future.

– The number of FinTech start-ups in Germany grew by 33% between 2015 and 2016 to 544 companies.

– In previous years the growth rate was in excess of 50%. Maybe the sector was taking a breather in 2016 or maybe the decline of the growth rate simply reflects the increasing inhouse efforts of the established players in the FinTech sector.

Data source: Statista, Comdirect, Barkow Consulting*Until September 2016

*Until September 2016

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FinTech locations by comparison – Frankfurt is catching up

DISTRIBUTION OF VC INVESTMENTS TO FINTECH SEGMENTS SINCE 2012

NUMBER OF FINTECH START-UPS BY LOCATION NUMBER OF NEWLY ESTABLISHED FINTECH COMPANIES BY LOCATION SINCE 2014

– In a national comparison of the top FinTech locations, Berlin is clearly in the lead and is unmatched at the top with 179 companies.

– It remains to be seen which city will rank second after Berlin. At the moment Munich, Frankfurt and Hamburg are almost at a par.

– Between 2014 and 2016 most FinTech companies were newly established in Berlin.

– In Frankfurt, 31 companies were newly established within that time frame, most of them in 2016. On the basis of most recent figures Frankfurt is apparently growing at a faster pace than the other cities.

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– Almost half of the investments in the FinTech sector are going to FinTech companies in the narrower sense, ie to credit platforms, vehicles for investment broking and consulting services as well as payment service providers. The remaining investments are going to PropTechs (real estate software products) and InsurTechs (primarily digital solutions for the insurance sector) and Others.

– New companies are successfully stablished in all segments. So far, there is no clear trend regarding future developments.

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FinTech companies in the narrower sense



FinTech – Business modelsThe term “FinTech” covers a range of innovative business models that primarily fall within the finance sector and in places overlap with traditional business models, complementing them by exploiting the potential of information technology. Increasingly, new business models are also being developed, however. As a whole, the sector is characterised by a unique dynamism. We include business models in the fields of PropTech and InsurTech under the umbrella of FinTech.

Establishing a FinTech as a business model is facilitated by the following circumstances:

The business model is digitalised. Thanks to technical developments, the entry barriers (including financial ones) are low. The internet is accepted as a medium for conducting business. It offers a platform with broad coverage. The business model is competitive. It offers high speed, transparency and low transaction costs for users. The high level of complexity of financial transactions offers many possibilities for developing technical support mechanisms that can be sold as services.

Certain legal criteria must be met on establishing a FinTech:

Before establishing a company, it is necessary to be familiar with certain requirements under corporate, social, employment and tax law.The planned business model may be subject to regulatory requirements. It is advisable to investigate the regulatory environment in advance. It may be possible to make certain adjustments to the business model and thus to avoid requiring a licence. If this is not an option, considerations on the possibility of taking on a business partner who has the necessary licences can be made at an early stage. Data-protection regulations may also play an important role. Are the necessary details available, can they be processed and made available in the necessary way?Ultimately, there are also questions on protecting the business model. On the one hand, it is necessary to consider which measures should be adopted to protect one’s business model, and on the other hand it is necessary to ensure that the ideas and business models of others are not infringed.

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Fintech: Market segments and key issues

Banking– Online Banking– Realtime and

Mobile Payment

Insurance– Big Data/Data Analytics– P2P-Insurance/

Sales platforms– Digital sales models– Damage auction platforms

– New marketplaces and auction platforms, eg secondary debt trading

– Portfolio Management

Payment– Digital Currencies– Payment Systems– Cashless World/

Non-traditional Payment Systems

Trading

Capital Raising– Crowdfunding– Alternative Capital

Raising Platforms– Working Capital

Management and Cash Pooling

– Factoring

Deposits & Lending– Alternative Lending

Platforms– New sources of

corporate financing– Banking services

provided by internet companies



Typical instructions in this field include:

– Legal opinions on whether your business model requires a licence and assisting with licence applications

– Efficient and regulatory-compliant structuring of the business model, for example by way of cooperations with licence holders, outsourcing and distribution systems

– Constant communication/consultation with regulatory authorities (eg BaFin, ECB, ESMA, EBA) and associations representing common interests

Banking regulatory law

A key driver of “FinTech” business is compliance with regulatory requirements and typically requires detailed regulatory advice from the initial development of the business model onwards. In some cases it is possible to structure business models such that they are either not subject to regulation at all or at least fall into a category of less “intense” regulation. Often, the business model can only, however, be realised by way of cooperation with a suitable licence holder (eg via outsourcing).

We are familiar with the interfaces between the various laws (eg between CRD IV, CRR/EMIR, EMIR/AIFMD) and can provide excellent advice on optimising your business model and point out potential stumbling blocks at an early stage. “Gathering capital”, for instance, may easily qualify as establishment of an investment fund, or the arrangement of new synthetic trading structures may include

derivatives which must be reported under EMIR. If such aspects are not taken into account at an early stage, a number of road blocks can be encountered that can jeopardise entire projects, often due to the ensuing compliance costs which had not been included in planning.

It is certainly advisable to consult with the competent regulatory authorities at an early stage, in order to avoid consequences under criminal law (eg in case of the unauthorised operation of banking business, for instance, or illegitimate provision of financial services) or extreme liability risks under civil law. Our regulatory law team has long-standing, close contacts to all the relevant regulatory authorities; indeed some of our lawyers worked there for several years. We are close to the market and can build bridges between theoretical background and practical application.

Our services

SELECTION OF PAST TRANSACTIONS

Microsoft on the Belgian and international regulatory restrictions applicable to cloud computing in the financial sector.

VimpelCom on international laws applicable to mobile payment schemes.

A supplier of cashless transaction technologies in relation to data protection officer reports and various other data protection issues.

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– Assessing whether the business model requires a licence under the German Insurance Supervision Act (Versicherungsaufsichtsgesetz) or German Trade Regulation Act (Gewerbeordnung)

– Legal review and optimisation of the business model (in particular under regulatory and brokerage law)

– Legal structuring of information, advice and documentation on selling insurance contracts and service packages with insurance elements

Corporate insurance/Insurance regulatory law

The specific legal framework conditions for InsurTechs are highly dependent on the selected business model. Regulatory or trade regulation issues play a very significant role in respect of almost every business model because it is only possible to completely rule out licence requirements in advance for very few business activities. Thus, in respect of peer-to-peer insurance platforms, for instance, the question is raised as to when the threshold is passed and a licence is required. The same applies in respect of certain brokerage-related services, for example. In order to avoid risks of administrative and criminal charges, it is advisable in case of doubt to contact the competent regulatory authorities (in particular BaFin or the Chamber of Commerce (IHK)) at an early stage.

Specific issues relating to sales and general contract law also often play a central role. Numerous InsurTechs face the challenge that they need to observe all duties of information and advice with brokering insurance contracts in the digital environment. It is advisable to anticipate the changed framework conditions upon implementation of the Insurance Distribution Directive into German law today.

Ultimately, there are numerous aspects of contract law that need to be taken into account, in particular in respect of the offering of service packages. In the case of business models based on the collection, evaluation and use of data, such as the utilisation of wearables data for health insurance, it is necessary to ensure that the requirements governing the treatment of extremely personal data are observed.

Corporate-law issues are often also relevant when optimising business models, since in such cases it is necessary to balance the interests of the founder, the investors and other stakeholders.

Thanks to its wealth of experience in the insurance sector, our corporate insurance law team can offer legal advice on all the relevant aspects, from insurance regulatory law, through corporate law, right up to data protection issues and offer valuable legal support, including for specific sectors, to guide companies through the process from the development stage onwards.


A P2P-Plattform on insurance brokerage law issues.

An international insurance broker firm on establishing a platform for industry covers.

An InsurTech on the permissibility of linking insurance and other service offerings



Corporate developments in the FinTech sector do not only happen organically. FinTech companies also participate in M&A transactions, form joint ventures or strategic alliances or restructure their corporate or group architectures. As a leading European M&A firm, we can assist you in your strategic transactions, irrespective of the markets or geographical areas you wish to enter.

Only the very first signs of the potential for change presented by digitalisation in the finance industry can be identified at present – new participants are coming to the fore, old markets are dissolving, while new ones are being established. And in all this, FinTech is a development that stands alongside others, such as the increase in private debt. The forms of financing are changing and require new standards.

We provide market-leading advice on structured financing options, including ABS transactions or factoring, private debt placements,

all forms of credit, capital market financing (such as high-yield bonds) and on financing structures that combine various products.

Thanks to our leading position, our international market knowledge and cross-practice expertise, we are confident that we will continue to be a market maker for documentation standards, also offering advice on future developments, in particular regarding the new forms of financing, such as crowd funding, peer-to-peer lending and other internet-based financing arrangements.

We are able and willing to advise you on establishing your financing and trading platforms, on your financing options, on restructuring your portfolio management or the increased cash management possibilities in order to exploit the potential of these fundamental changes.

Business operations and financing


– Corporate-law support on establishing companies

– Corporate restructurings, including the sale and purchase of interests, joint ventures, IPOs and post-merger integration

– Traditional and alternative financing models

– Tax structuring


Barclays Banks, Goldman Sachs, Credit Suisse and Liberum Capital as the underwriters’ counsel on Equiniti Group plc’s (“Equiniti”) prospective initial public offering (IPO) and admission to the premium listing segment of the Official List and to trading on the London Stock Exchange (LSE).

Crédit Mutuel Arkéa on its acquisition of an 86% stake in Leetchi.com, a France-based FinTech group providing a digital solution to collect money for group gifts and events and an API solution to accept online payments and manage e-money for marketplaces, crowdfunding and collaborative consumption (Mangopay).

National Bank of Abu Dhabi on a service agreement with Oxigen Services (India) in relation to mobile banking services to be provided in India by Oxigen for NBAD customers.

Rabobank on the acquisition of a stake in Fin-Force, a third party processor of cross-border payments on a white-labelling basis, from KBC.

Telenor, Telenor Financial Services and Telenor Myanmar on the establishment of a mobile financial services provider in Myanmar by way of a joint venture with a local Myanmar bank.

Telenor on its joint venture with MicroEnsure Holdings, a provider of insurance products in Africa and Asia, to form MicroEnsure Asia, which will distribute insurance products to low- and middle-income customers in Asian markets using, among others, mobile phone technology.

Worldpay a leader in global payments, on its potential IPO.

Worldpay Group on the acquisition of Brazilian payments provider Cobre Bem Tecnologia, a gateway provider of payment solutions in Latin America.

BACS and Faster Payments the UK inter-bank payment systems, on their scheme rules, settlement arrangements, technology development and maintenance contracts for processing of payments in the UK.

Western Union LLC on the terms and conditions of the MyWU Card loyalty programme.

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Minimising risks

Companies are increasingly focussing on regulatory compliance and risk management, with particular emphasis on an implementation of regulatory requirements with the necessary legal certainty in an environment where the legislator and regulatory authorities establish the relevant standards at an ever increasing rate.

Whether your innovative solution really does represent an entirely unique step or the software, processes or data used do in fact breach third-party rights can often only be seen once a certain level of market success has been achieved, by which time it is often too late for simple solutions. Thus it is essential that the relevant property rights are analysed at an early stage and either sufficient licences purchased or a “design-around” developed in order to avoid breaching existing property rights. At the same time, a company’s own developments and, if applicable, corporate structures, must be protected, either as business secrets (with the corresponding contractual and physical structures) or as property rights, with different mechanisms being

available for this purpose in different countries. Our Global IP/IT team has comprehensive experience in all these areas and is in a position to implement the legal aspects efficiently and with a clear focus on the practical reality without causing creativity and initiative to suffocate in the face of bureaucracy.

In view of the strict and constantly changing legal requirements, the issue of data protection and data security (in particular in respect of sensitive financial data) is highly relevant. Data protection regulations must be strictly observed when using cloud computing, data analysis to improve a company’s offering or data on peer-to-peer platforms or in the context of blockchain technologies. Breaching data-protection laws can not only trigger substantial fines and criminal charges but can also cause substantial damage to a company’s image and lead to a loss of trust. Our experienced Compliance & Data Protection team can guide you through the jungle of requirements relating to data protection and data security.


– Regulatory compliance and risk management (eg German minimum requirement regime for risk management, optimising internal business processes, compliance reporting)

– Avoiding IP violations

– Data-sharing processes, data management and data protection

– Competition law


Corporate and investment banking division of a US bank with regard to data protection law in connection with the introduction of CCTV video surveillance in customer and staff rooms; official procedures.

American multinational banking and financial services holding company and one of the largest banks in the world on a global project of implementing log-in tools on its websites and mobile devices to use biometric data of employees and customers.

American multinational investment management company regarding requirements for banks under data protection regulations in terms of appointing an Information Security Officers.

American multinational investment management company regarding the legal requirements on privacy notices in case of data roaming.




– Disputes and legal action

– Internal investigations

– Protecting intellectual property and business secrets

Defending values

The Allen & Overy team regularly represents clients from the finance sector in court and has long-standing experience in protecting interests in conflicting matters.

Allen & Overy’s Dispute Resolution team focuses in particular on financial services litigation, including the performance of internal and external (often regulatory) investigations. In this context, much emphasis is placed on ensuring comprehensive expertise in controlling and coordinating interdisciplinary teams in order to be able to process FinTech transactions, which frequently comprise complex structures and involve numerous parties across several legal fields, in an efficient and targeted manner. Comprehensive experience of disputes in the field of payment services and with investors in the finance sector, as well as disputes over damages claims against management consultants, IT service providers or project managers in connection

with business liability actions guarantee that we can provide comprehensive legal advice even in the particularly dynamic FinTech sector, where the requirements are different from those placed on traditional business models.

These advisory services are further augmented by the expertise offered by our IP litigation team. No sooner has an innovative company begun to enjoy market success than they are pursued by imitators and free riders. Our team has excellent knowledge of pursuing and defending legal rights in national and cross-border situations, including securing preliminary injunctions and inspection orders for securing evidence and defending against negative PR, trademark dilution and damage to reputation.


Representing and advising a leading international payment services provider in a dispute over damages claims raised by a client due to alleged unjustified withholding of money under a contract for the provision of payment services and a notification which was allegedly erroneously issued to a credit card company.

Representing a leading international payment services provider in a legal action against a client due to the payment of a forex claim for several millions under a contract for the provision of payment services.

Representing a leading international payment services provider (credit card acquirer) that had withheld millions under a contract for the provision of payment services in order to pay fines charged by Mastercard and Visa due to misconduct by the payment recipient. After the action had been successfully defended in the first instance, the higher regional court ruled in favour of the acquirer. The case is now pending before the German Federal Constitutional Court.

Representing a leading international payment services provider in a legal dispute against a European airline for damages due to the breach of an exclusivity agreement for the provision of payment services.

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An online financial services provider on issues relating to the German Banking Act.

A bank on the synthetic packaging of the performance of a CFD platform (connecting to market makers via bundled OTC derivatives).

An online retailer in connection with credit card issues.

A bank on questions relating to synthetic portfolio management via platform-based apps.

Deutsche Börse Group on its investment in Digital Asset Holdings, a venture-stage financial technology company developing blockchain technology to support recording and settling financial transactions.

An online retailer on expanding its payments service to the UK and Germany and on regulatory and licensing issues in connection with offering this service in these countries.

A bank on implementing a rolling project-financing platform using structured deposits.

Discovery Limited on its joint venture with Assicurazioni Generali (Generali), the listed Italian insurance group, for the distribution of integrated insurance and wellness products across certain European markets.

Ongoing advice for major and minor players within the finance sector on innovative business models and products, including the optimisation of capital requirements and communicating with regulatory authorities.

A bank on questions relating to whether licences were required to process certain stock-exchange data.

A FinTech company on developing new online and app-based social trading systems.

A bank on implementing an innovative trading platform (bitcoin trading) including drafting the trading rules for a multilateral trading facility (MTF).

New providers on developing innovative exchange platforms with integrated bitcoin.

A bank on developing new online and app-based peer-to-peer trading systems (synthetic trading of financial instruments between private individuals).

The provider of a parking app on the reorganisation of its pan-European business activities.

Selection of past transactions



Key contacts



Dr Oliver WaldburgPartner – FrankfurtTel +49 69 2648 5825 Mobile +49 160 8839531 [email protected]

Dennis KunschkeSenior Associate – FrankfurtTel +49 69 2648 5895 Mobile +49 172 5733284 [email protected]

Marco ZinglerSenior Associate – FrankfurtTel +49 69 2648 5313 Mobile +49 174 3400430 [email protected]

Data protection, IP and new technologies

Dr Jens MatthesPartner – DüsseldorfTel +49 211 2806 7121 Mobile +49 173 6260528 [email protected]

Tobias NeufeldPartner – DüsseldorfTel +49 211 2806 7120 Mobile +49 172 [email protected]

Our team

Dr Jan SchröderPartner – DüsseldorfTel +49 211 2806 7220 Mobile +49 173 [email protected]

Anne FischerCounsel – DüsseldorfTel +49 211 2806 7222 Mobile +49 172 [email protected]

Corporate insurance/Insurance regulatory law

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Finance

Dr Franz Bernhard HerdingPartner – FrankfurtTel +49 69 2648 5712 Mobile +49 160 [email protected]

Dr Hartmut KrausePartner – FrankfurtTel +49 69 2648 5782 Mobile +49 172 [email protected]

Dr Alexander VeithPartner – MunichTel +49 89 71043 3120 Mobile +49 163 [email protected]

Corporate/M&A

Capital Markets

Dr Stefan HenkelmannPartner – FrankfurtTel +49 69 2648 5997 Mobile +49 172 6919392 [email protected]

Tax

Dr Heike WeberPartner – FrankfurtTel +49 69 2648 5879 Mobile +49 172 [email protected]

Daniela TrötscherPartner – FrankfurtTel +49 69 2648 5630 Mobile +49 172 [email protected]

Dr Wolf BussianPartner – FrankfurtTel +49 69 2648 5571 Mobile +49 172 [email protected]

Dispute Resolution

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or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP’s affiliated undertakings.

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