arp. FRANKFURT. Max Flötotto takes up the cudgels for German fintechs. “Look at the apps of the classic banks. They have become much better in recent years. That is also thanks to fintechs, which are role models in the digitalisation of financial services,” says the head of fintech consulting at McKinsey in Europe and co-author of the recently published study “Europe’s fintech opportunity”. He also concedes that the fintechs in this country are talent incubators, as he attests to their great – yet to be tapped – potential. Flötotto emphasises that the study looks to the future. Because the past six to nine months have been “the perfect storm” for fintechs.
The list of well-known fintechs that have said goodbye to the market in the recent past is long: the cryptofintech Nuri has to be wound up. Even in insolvency, no investor wanted to be found under the currently prevailing conditions. The insolvent US crypto bank Celsius is also partly responsible for Nuri’s demise, where German customers brokered by Nuri must also fear for their deposits. The fintech Rubarb and the securitisation fintech Acatus also had to file for insolvency. The small investor platform Neufund, which used blockchain technology, went out of business, as did the pension start-up Vantik.
“After the interest rate turnaround, the future monetisation of a business model must certainly be assessed differently,” says Flötotto. At the same time, however, he points out that venture capitalists still invested more in fintechs in the first six months of this year than in the same period in 2020. On the other hand, he sees last year as an exceptional year in two respects. Firstly, in terms of the volume of acquisitions and sales of start-ups. Secondly, in terms of the capital that flowed into fintechs. “Some of the money was transferred virtually unasked,” the consultant puts it exaggeratedly. “Some investors did not always act rationally,” says Flötotto, who also suspects the fear of missing out on a trend as a motive.
Those times are over, investors are currently asking questions carefully, examining business models thoroughly again, and for Flötotto the consolidation phase in the fintech sector is not over yet. “Nobody certainly needs the eighth or ninth neobank with an undifferentiated business model,” the consultant says, and continues:
“Fintechs, however, can move into niches faster. The digitalisation and data expertise and the speed with which fintechs can react is higher than that of traditional banks.”
The trick for fintechs is to find a market that is large enough and insufficiently covered by traditional banks from the customer’s perspective – for example, currency transactions. Another way is to enter a niche with a top offer – but then expand the range of services.
The management consultant is convinced that “anyone who expands his offer in a focused way and is profitable at the same time can make it”. However, past mistakes should not be repeated. “The tone makes the music, and some fintechs chose the wrong tone towards the regulator, for example. In addition, there was sometimes a lack of expertise due to the lack of experienced staff,” says Flötotto, adding, however, that fintechs have clearly strengthened in this area over the past 18 months. Flötotto observes that people continue to invest in some fintechs regardless of an increase in the cost of money. In particular, founders in the areas of infrastructure, core banking systems and platform operators have been solid. A development the consultant explicitly welcomes, as he also cautions:
“Europe must be careful not to miss out on a development. We can lose innovative power. Fintechs are an innovation driver for the entire financial sector.”
This is an automated translation of the German article.
Source: Frankfurter Allgemeine Zeitung (8 November 2022): “Wir können Innovationskraft verlieren”, Author: Archibald Preuschat. © All rights reserved. Frankfurter Allgemeine Zeitung GmbH, Frankfurt. Provided by Frankfurter Allgemeine Archiv.
Photo: McKinsey.
