Why Fintechs Struggle to Expand in Germany: Cross-Border Realities With Sebastian Henrichs

Sebastian Henrichs has witnessed numerous fintechs enter Germany with proven models and big ambitions, only to retreat with significant losses. As the newly appointed COO of Flanks, former CEO of FNZ Germany (€120bn+ AuA), and recent advisor on major cross-border expansions including Allfunds’ DACH entry, he’s uniquely positioned to explain why the German market remains challenging for international players. In this candid conversation, Henrichs reveals the fundamental misunderstandings that derail expansion plans.

You’ve advised on several market entries. What’s the fundamental mistake fintechs make about Germany?

The primary misconception is treating DACH – Germany, Austria, Switzerland – as a unified market. This mirrors the mistake American firms make viewing Europe as homogeneous. Companies often approach DACH as a single region, when in reality, Switzerland operates mostly independently, not being a member state of the EU. While Austria and Germany share certain similarities, they remain distinct markets with unique characteristics.

But surely Germany itself represents a unified market?

Germany lacks the centralized structure many assume. There’s no single hub that provides comprehensive market access. The country operates on a highly decentralized model. Northern Germany, particularly Hamburg, hosts numerous private banks. Bavaria maintains its own ecosystem of specialized, privately-owned banking institutions – approximately 16 private banks with 50 to 70 employees each. This fragmentation is what kills expansion plans – they look easy on the Excel spreadsheet, but the reality is you’re not building for one market, you’re building for dozens of micro-markets. I’ve worked with various advisory technology providers who wanted to localize their solution thinking they could just change the language and it’ll work. It’s not right.

In your experience, how accessible is the German wealth management market to international platforms?

For international platforms – whether from the UK, US, or elsewhere in Europe – only about 40% of the German wealth management market is genuinely accessible. The remaining 60% operates through different structures – primarily the savings banks and cooperative banks, which maintain their own technology providers and distribution networks. This segment remains largely inaccessible to international platforms under current market conditions. Firms need to identify which segments within that 40% are genuinely accessible and build their strategy around this reality from day one.

Don’t partnerships with local players solve these challenges?

The German market’s fragmentation extends beyond simple geographic divisions. The value chain includes players and intermediaries that don’t exist in other market structures. This complexity represents one of the primary challenges companies face when entering Germany or the broader DACH region. Firms approach partnerships seeking distribution, but the real value lies in learning – understanding local market dynamics before attempting to scale.

Could you provide a specific example of regulatory differences that surprise firms?

Germany applies broader and stricter product-governance rules to all retail product distribution, while Austria applies the full process mainly when a product is actively marketed during advice. These nuances represent just the surface of regulatory complexity.

What’s your essential advice for fintechs considering German expansion?

First, abandon any notion of simultaneous multi-market entry. Physical presence is non-negotiable – you need to be on the ground. Second, understand that the regulatory complexity extends well beyond obvious differences. Consider the variations in taxation systems, savings account structures, and reporting requirements across jurisdictions. Third, recognise that the model that worked in Amsterdam, Stockholm, or London will need fundamental adaptation for Germany. The complexity is substantial but manageable with dedicated resources, patience, and cultural sensitivity.

Approach Germany as a learning opportunity rather than a conquest. The winners will be the ones that invest in understanding local nuances, build genuine partnerships, and adapt their proven models to local needs. If you think you can enter a few markets by entering one, that’s something that is not happening. But if you’re willing to truly commit to the market, the opportunity is substantial.