Financial affairs have always been a matter of trust – and that will probably not change in the future. While traditional banks have been able to build on this for decades, the young fintechs still have a long way to go. And too often it has been disappointed in the past.
Deutsche Bank’s advertising strategists emphasized in various television commercials in the mid-nineties what banking has always been about: trust. After all, you entrust the financial institution more or less money that you had to work hard in most cases previously.
Classic banks such as Deutsche Bank, the savings banks and the Volksbanks have built this trust over the last 150 to 200 years and have been able to justify it again and again over a wide variety of wars and crises – even if the last financial crisis has missed one or the other of these scratches , (The fact that the mentioned commercials come from the Deutsche Bank, looks almost like satire today.)
However, at the end of the day, German bank and savings bank clients have been on average pretty good with their confidence in credit institutions over the past 200 years. This customer confidence is probably the biggest pound with which the top dogs can proliferate when it comes to the emerging competition from the fintechs.
“Can I trust fintech?”
After all, the fintech scene is characterized by young startups with a short history and often thin risk financing. In addition, many fintechs think their offers are based on the customer’s problem and not on a possible monetization.
What is really great for the customer at first glance, however, irritates many customers. When bank services, which have so far all had their price, are suddenly given away, many potential users are left with a lot of thinking. “If I do not pay with money, then what? Can I trust Fintech? “.
That these concerns are not entirely unjustified, show various cases from the recent past. As a keen fintech interested, I was allowed to experience this quite a few times on my own body. With bankruptcies, bad luck and mishaps – but luckily they only caused incomprehension and annoyance.
Not every fintech has a sustainable business model
My first bigger moment of shock was the bankruptcy of Cashboard, one of the pioneers among the German Robo Advisers. Their business model looked at first glance even solid and fair at the same time for the user. However, customer growth at that time was apparently too low to generate the ongoing costs from the low commission income. When then no further investor money flowed, the bankruptcy was there. Fortunately, this bankruptcy was a minor one for users, as the assets under management were held as a special fund with ebase. So there was the fright and the inconvenience of liquidating his investment later.
The two peer-2-peer services Cookies and Cringle have let me experience their bankruptcies. Admittedly, I only used it out of curiosity and for testing purposes – simply because I had no natural use case for it. This should have been one of the main problems for the respective bankruptcies. Although superficially there were also financial problems, because necessary investment rounds could not be completed. For cookies, a dispute among the founders paralyzed the negotiations until the round had to be called off and at the end of the end. And for both services was: the monetization was not successful.
That should actually be much easier in the payment area. Nevertheless, my favorite mobile payment service Glase (formerly SEQR) was discontinued in late 2018. With the Android app, you could pay at the POS with a virtual MasterCard – long before GooglePay launched in Germany. Users were lured with the promise of up to 3% cashback. It was clear that this could not be expected in the long run. Late and, at the end, completely lacking cash back payments had in the end unnerved even loyal users. With the German launch of Apple Pay came the end of Glase.
A fintech turns completely on the wheel
While business failures in the startup sector are now nothing unusual, a German fintech managed to lavish the reputation of an entire industry for a short time: Savedroid, the Spar app with the little droid. The app itself was well done and with me a lot and regularly in use. The savings account ended up with a low four-digit amount.
Then, however, came the ICO, with which the app should be expanded to an app-app for cryptocurrencies. After all, it was a medium double-digit million amount taken. Actually a huge success for the young startup. But then the founders have to go nuts a few synapses. In a rip-roaring PR stunt, the founders blamed the appalling investors for having blown up the money from the ICO.
Although the action was quickly revealed as advertising for a new pillar in the ICO consulting: the PR damage was immense – for the fintech itself, but at times for the entire industry. Many established fintechs were forced to distance themselves in an open letter from the machinations.
Active fintechs under observation
All these experiences ensure that those fintechs who are still active in the market are constantly under critical observation. As UK credit card provider Curve recently failed to provide its users with access to accumulated rewards for weeks by migrating its payment engine, social media quickly drew parallels with Glase and speculated on a potential bankruptcy.
Meanwhile, the technical problems have been resolved and it was at least traceable reasons can be named. Nevertheless, this example shows how careful the (potential) users are towards the young fintechs. This hampers the startups noticeably in their growth.
So it is not surprising that even one of the stars of the local scene, the Robo Advisor Scalable Capital, has also really kicked off when first the industrial giant Siemens and then the direct bank ING DiBa have featured the company. Such collaborations, in which the young savages contribute innovations and the established firms the customer confidence, therefore seem to be the preferred way for fintechs.
Nobody can get past GAFA
This is all the more true if the US Internet giants around Google, Apple & Co. continue to gain a foothold in the financial sector. Because they are the real threat – for both banks and fintechs, they are innovative and at the same time enjoy the trust of their users.
For the fintechs it gets damn hard (if not impossible) to stand alone. However, they are in a comparatively comfortable situation: they are as interesting for banks as for the GAFAs: for the banks as cooperation partners and for the GAFAs as a potential takeover target. In this respect, it will be exciting to see who will count among the purchasers in the anticipated wave of consolidation in the fintech scene.
Quo vadis?
After all: a few fintechs could do it without a big partner (or buyer). The neo-bank N26 e.g. has won the trust of many customers worldwide, despite all the glitches in the past history. However, so far only with manageable account deposits.
However, it remains broad: trust does not grow overnight, but has to be hard-earned and earned over a long period of time. Are we curious to see who will do it lastingly?