Piggy Bank, Alarm Clock and Calculator
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Pandemic or not, the time has come for freelancers and the self-employed to be prioritized by the fintech industry. In Germany, freelancers spend an average of 25 days and €3000 ($3,510) a year attempting to organize their finances through disparate banking, accounting and tax advisory services.
Due to a lack of education, complex processes and subsequent delays, the self-employed are deprived of a clear, holistic view of their finances and are therefore, exposed to liquidity bottlenecks and the risk of being cash-strapped, especially problematic amid uncertainty as a result of Covid-19.
A one-stop shop solution is required. To resolve this issue, Berlin-based mobile business bank Kontist has recently launched a service that makes accounting an integral part of bank transactions so that corporate and income tax calculations can be made in real-time.
While accountants and tax agents are ready to help, it is important for the self-employed to account for and remain prepared when the time comes to calculate income tax payables. In most European countries, ordinary workers do not have to file income tax returns as it is paid directly by the employer from wages, making it even more so important for freelancers to use a service that is not confusing.
What must also be considered is the difference between revenue and income, which can get convoluted as there are several types of taxes, social contributions, fees and expenses which must be deducted before the freelancer actually knows what his net income is in Germany, according to Kontist.
As a result, the German challenger is attempting to simplify this process so that when an invoice is paid, the income tax and VAT a freelancer needs to set aside is calculated in real-time and the tax declaration is completed by human tax advisors from the newly founded Kontist Steuerberatungsgesellschaft mbH (a separate firm of chartered tax consultants), for €99 a month. However, users of the app will not see or notice a difference as it is all one access point and they would not interact with the advisor unless they want to.
Eight-time founder and CEO and Co-Founder of Kontist Christopher Plantener highlights that the appropriate services not having been provided to freelancers is a “catastrophe” and it is now high time for action to be taken because “a bank account is not enough.” Further to this, as a father to four daughters, Plantener sees the benefit of partnering with schools to ensure the basics of business and finance are taught.
Discussing why this is not instilled in the educational system, Plantener says that as a society, freelancers are not valued in the same way that ordinary employees are; even though the concept of being self-employed has always been around, we are seeing the rise of the modern knowledge worker and the future of work as we know it will be heavily reliant on technology and automation and this is why freelancers have been able to flourish.
“This segment has been growing. It wasn’t there 10 years ago. It’s a new thing. On the other hand, when looking at this, banks didn’t like [the self-employed market] and focused on bigger businesses where they could make money. The same goes for tax advisors.”
Plantener adds that a typical tax advisor in Germany has around 175 customers, of which around five are freelancers and may have a lot of questions – tedious for all parties involved. All these elements have led to the traditional tax consulting market to be challenged in Germany, especially post-coronavirus.
As more and more people turned to freelancing to keep afloat after losing their jobs, Kontist set up a legal and crisis hotlines so that the self-employed could get access to help that a tax advisor would normally provide. Additionally, as tax advisors would traditionally approve government aid or funding, during lockdown in Germany, tax advisors were inundated with requests and overworked.
Kontist were able to alleviate some of this pressure and launch their tech-enabled tax advisor feature on their banking app. Plantener explores how their offering is indicative of the evolution of the fintech industry, and that “in the first wave of fintech, it was very much a B2C movement with broad services being offered. What is actually happening now is that we are seeing more and more niche offers.”
He goes on to explain that with Kontist, freelancers no longer have to concern themselves with bookkeeping as data is transferred and analysed by the bank instantly. “If the likes of Revolut or N26 were to launch a feature like this, they would not be able to provide a focused, targeted proposition to the freelancer market – it would of course be open to small and large businesses, as well as the self-employed. That is the strategy we are following: focus, focus, focus, and then offer a broader offering for this group and then start to monetize rather than trying to serve a lot of people with mediocre product,” Plantener says.
Continuing to look to the future, Plantener concludes by saying that while the sheer size of the German tax advisory market should keep them busy for two or three years, if they were going to attempt to enter another region it would be the U.S. because of the similarities between the two countries.