In our interview Christopher Schmitz, Partner and FinTech specialist at Ernst & Young (EY), evaluates the characteristics of the Rhine-Main FinTech ecosystem and explains why, in the near future, we can expect to see even closer cooperation between emerging FinTechs and established companies like banks, insurers and asset managers.
The investment volume in FinTech start-ups, measured by average deal size, has grown over the past years. Do you think this development will continue?
We estimate the trend of growing deal sizes will continue. Several of the FinTechs founded in Germany in recent years have been able to achieve success on the market side in the B2C or B2B segment. Investors who are operating globally have detected German FinTechs as profitable business cases. Based on these extensive investment rounds FinTechs have been able to grow and expand their businesses internationally. Parallel to this success, the valuations of several FinTechs have risen enormously – most recently to around €2 billion for the most successful start-ups. Therefore, average deal size will continue to grow.
The Rhine-Main FinTech ecosystem focuses on “Enabling Processes & Technology” and “InvesTechs”. Besides this, what else exactly makes the Rhine-Main FinTech ecosystem unique?
Compared to other German FinTech hubs, the Rhine-Main FinTech ecosystem is characterised by a strong focus on B2B business models, a very grown-up start-up network and the proximity to and the active exchange with potential investors and clients. A significant proportion of the founders in the ecosystem benefits from many years of experience in banks, insurance companies or asset managers and use this experience to tailor their business models to the specific problems of their clients. B2B business models for example require significantly less capital in the seed and growth stage compared to B2C business models because customer acquisition is not carried out via the classic online media with correspondingly high marketing expenditure, but through direct customer relations. While this makes the B2B sales cycle considerably longer and more complicated, B2B service providers often achieve a faster break-even. The proximity to regulators, customers and the structure of the ecosystem as well as the good international network enable a rapid evolution to the range of services offered.
What is your outlook for 2019? Which FinTech trends are you particularly interested in and which trends should we prepare for?
We will observe even closer cooperation between emerging start-ups and established companies. Because of their legacy infrastructure and the growing innovation speed, banks, insurers and asset managers won’t be able to ignore emerging financial technologies. However, purely disruptive approaches can only be found in a few successful start-ups. Cooperation will take centre stage. Open banking and the API/platform-economy will become central fields for the future positioning of established players as well as new players entering the market. The beginning convergence of value creation across industry boundaries in emerging marketplaces like mobility, digital health, smart cities or smart home requires a rethink in the financial services industry. Advanced analytics and artificial intelligence will become even more important in this context, and FinTechs will drive much of the customer-centric innovation as a partner and service provider to the financial services industry.