Max Flötotto takes a stand for German fintechs.

“Take a look at the traditional bank apps.

They've gotten a lot better over the past few years.

This is also a credit to fintechs, who set an example in the digitization 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”.

Archibald Preuschat

Editor in Business

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He also concedes that the fintechs in this country are also talent pools, as he attests to their great – and yet to be leveraged – potential.

Flötotto emphasizes 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 left the market in the recent past is long: the crypto fintech Nuri must be wound up.

Even in the insolvency, no investor wanted to be found under the current general conditions.

The insolvent US crypto bank Celsius, where German customers brokered by Nuri also have to fear for their deposits, is also partly responsible for the end of Nuri.

Fintech Rubarb and securitization fintech Acatus also had to file for bankruptcy.

The retail investor platform Neufund, which used blockchain technology, went off the market, as did the start-up Vantik, which specializes in pension provision.

Different assessment after the turnaround in interest rates

"After the turnaround in interest rates, the future monetization of a business model must certainly be evaluated 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 of 2020. However, he sees the past year as an exceptional year in two respects.

On the one hand, in terms of the volume of acquisitions and sales of start-ups.

On the other hand, in terms of the capital that flowed into fintechs.

"Some of the money was transferred almost without being asked," the consultant put it exaggeratedly.

"Some investors have not always acted rationally," says Flötotto, who suspects the fear of missing out on a trend as a motive.

The times are over, investors are currently asking detailed questions, examining the business models thoroughly again, and for Flötotto the consolidation phase in the fintech sector is not yet over.

“Certainly nobody needs the eighth or ninth neobank with an undifferentiated business model,” says the consultant, and continues: “But fintechs can penetrate niches more quickly.

The digitization and data competence and the speed with which fintechs can react is higher than that of traditional banks.”

Finding the right market is the art

The trick for fintechs is to find a market that is big enough and is insufficiently covered by traditional banks from the customer's perspective - for example currency transactions.

Another way is to venture into a niche with a top-of-the-line range – but then expand the range of services.

"Anyone who expands their offer in a focused manner and is profitable at the same time can do it," the management consultant is convinced.

However, past mistakes should not be repeated.

“The tone makes the music, and some fintechs have chosen the wrong tone with the regulator, for example.

In addition, there was a lack of expertise due to the lack of experienced staff," says Flötotto, but adds that fintechs have significantly strengthened themselves in this area over the past 18 months.

Flötotto observes that investments continue to be made in some fintechs, despite an increase in the cost of money.

Founders in the areas of infrastructure, core banking systems and platform operators in particular held up well.

A development that the advisor expressly welcomes, because he also warns: “Europe must be careful not to miss a development.

We can lose innovative power.

Fintechs are an innovation driver for the entire financial industry.”