Millenials love FinTech
When we are interviewing people for our Internship and Analyst positions and we ask them which sectors they want to focus on, roughly 80% of the applicants say FinTech. My colleagues do not really understand why they all want to dig deeper into FinTech and I also asked myself the question why is that the case?
My uneducated answer is, and it is not proven by any data except my own, that FinTech is a space that is very concrete and not that difficult to understand. AI and VR are cool as well, but there are not that many people understanding the fundamentals. Whereas Bank branches and online banking are oldschool, complicated and useless. No matter where you are in Europe (maybe except Estonia). They don’t look good and according to a study millenialls rather would go to the dentist than to their bank. That pretty much sums it up and I could stop here. Or as one of our founders once put it: „The shittiest app you have is probably your banking app.“
On the other hand FinTech companies are wearing pretty clothes and most of them look kind of sexy. They are attracting a lot of good talent from top universities all accross Europe as they are hungry to change an industry that is somehow waiting for a call to action.
Only banks do not agree on that part. This also leads to hardly any big FinTech acquisitions of banks (Except our Holvi Exit to BBVA of course ;)). Lots of VCs are therefore asking the question: When do banks start their shopping tour? It seems like most of them are still playing wait and see.
In a Bloomberg Interview the CEO of Erste Group Andreas Treichl said he is more afraid of FinTech companies than of any regulation. But it seems the fear is still not big enough, as he also mentioned that it is pretty easy for FinTechs to pick one vertical and make it look pretty. When you talk to most FinTech companies in private they would most likely agree. Tech is rarely the key differentiator. In the end it is a brand and UX game. So at the next interviews applicants should say consumer. As there won’t be that much difference between classical consumcer plays and FinTech companies.
The key USP of any big bank is still the fact, that they can offer any service in house: from Wealth Management to FX Trading to Consumer Banking. And bankers like Mr. Treichl think this will stay like this at least for the next couple of years. Or even that banks will be able to win that game. But what happens when FinTech companies are starting to build an all in one place platform on their own? Like Number26 is doing it now with Transferwise and other FinTech companies. And they are not they only own trying to build a One Stop Shop. But with more than 150.000 customers Number26 is still far away from even a regional bank with 1M+ customers.
But getting their and surviving on their own means a lot of funding for most FinTech companies as it is a consumer and user play. And building up a consumer brand is cost intensive. Without any monetisation strategy this could be difficult for a lot of companies in the ecosystem. On the other hand the main benefit is that once at a bank (or other vertical) the users probably will never go back to classical retail bank again. So it is a bet on the future. And it looks promising. In 2015 nearly US $ 1.5 bn have been invested in European FinTech companies, according to data from CB Insights. The second year in a row with more than US $ 1bn investments. However, this is not really a European number as there are hardly any big FinTech hubs in Europe except London, Stockholm and a bit of Berlin.
I could start digging deeper now but will save it up for future blogposts. At the end of the day there are a lot of open questions. How does blockchain technology change the banking ecosystem and FinTechs? What other technologies will pop up? When are the main Tech companies officially taking over the payment space? And what’s left for the rest when they start entering the Financial Services market? What about regulators and government? As they are acting very slow and sometimes thoughtlessly, I am able to tell from my own experiences, this could hit FinTechs like a slap on the back of the head when regulation is hitting them within the next years. What about the insurance industry? What is the best deal for banks, cooperation or acquisitions? And there are many more questions that need answering.
However as more and more top talent wants to work in this sector and more and more young people are interested in changing the landscape of financial services and banking I am convinced that this will lead to the success of a lot of FinTech companies in the end. Building up an employer brand, restore trust and try to be agile takes so much time for banks and financial service companies that in the meantime they pass by on the right and left hand side as most of the top talent is working for their younger and fitter challengers. So the next time somebody says he wants to work on FinTech projects we should be happy. This just means that our portfolio companies are on the right track.