“APIs in banking are the key to the future” — The FinTech way
The execfintech conference in Frankfurt/Main just concluded, but the ideas presented throughout the one-day event linger as one cannot help but notice that the future belongs to the FinTechs and the financial industry will have to keep pace with them in order to progress.
The financial industry is facing probably the biggest changes in decades. After having rapidly embraced Online banking in the late 1990s, the pace of digital innovation in relation to end customers stopped being impressive. Until now.
This lack of growth opened a window of opportunity for startups eager to offer innovative solutions. The FinTech startups took the world of banking by storm, started doing the heavy lifting and ultimately sent a shiver down traditional banks’ spine.
About FinTechs and banks
In Frankfurt — one of Europe’s major financial capitals and home of the European Central Bank – the FinTech crowd recently met for execfintech, a one-day conference for founders, investors, corporate people and business angels.
One idea that was consistently presented during most of the panels and keynotes was that banks originally considered the FinTech movement as a threat — but today “we have the same focus“, said Jürgen von der Lehr, who coordinates the FinTech investments at Deutsche Bank. “FinTech was a wake up call for all of us“, he added, and now they are seeking ways to either cooperate with the FinTechs, invest into them or learn from their power to change the market in order to develop a similar dynamic.
Payment is a commodity, not a business
“The key strength of the FinTechs,” said Erik Podzuweit, co-founder of Scalable Capital, is to “radically cut costs, and give a broad access to sophisticated services to the masses”. He also stated that most Venture Capitalists (VCs) do not really understand FinTech and tend to evaluate financial startups just as they evaluate e-commerce startups, for example. The main difference, Erik explains, is that in FinTech you cannot measure the value of a customer in euros and cents like you do in e-commerce. You need to take a closer look at the existing customers’ potential in order to measure their value. This is because millionaires tend to spend the same amount of money on e-commerce as average wealthy persons do; but as far as financial services are concerned, millionaires have the potential to generate dramatically more money than the average population.
In another panel, the role of payment in the current FinTech revolution was discussed, and most of the panelists agreed that payment is just a commodity, not a business case. Payment makes sense when creating some kind of vendor lock-in, which might help banks to offer existing customers additional (money-making) propositions. One of the main differences between banks and FinTechs’ modus operandi is that the second group understands the need to focus on the user at all times in technology, design and business processes.
It’s the focus, stupid!
While banks exhibit an entire product portfolio on their websites, which is hard to explain and even harder to do the right way, FinTechs concentrate on just one product. “We only invest in teams that make only one product, but who make it right,” said Simon Schmincke, Principal at Swedish investment firm Creandum.
An interesting example for that is Number26; this Berlin-based startup describes itself as a „Mobile First Bank“ although they don’t even own a banking license. But Number26’s secret lies in their app, which is designed for maximal convenience and usefulness. With a handful of developers and designers, they can create a world-class mobile banking app which outperforms all attempts by the global banks that have more than 40.000 developers on their payroll.
However, we see the same pattern here — payment is not the business case, as Schmincke, who invested in the startup, states. It’s the additional business opportunities, which arise as soon as a critical mass of customers considers the app as their primary hub for banking activities.
Obsession for user experience
Maurizio Poletto is Chief of BeeOne in Austria, the Research and Development Center of Erste Group, with branches in Austria and six countries in Eastern Europe. The interesting thing about Maurizio is that he’s a designer, not a businessman or engineer. Together with his team, he focuses completely on User Experience.
And he has another story to tell — one which does not exactly comply with the statement that only teams which concentrate on one product are always doing it better. BeeOne created “George“, a dashboard for customers which gives them access to a multitude of services and products.
The team followed an 80/20 rule: Knowing that 80% of the customer’s focus is on only 20% of the products in the portfolio, they concentrated on making those 20% better. They left the rest to their partner ecosystem, which can also be plugged into “George“ via an open API.
Their goal was to create a User Interface which was not based on lists and pure numbers, but on icons, well-chosen colors, understandable product names, and meaningful graphs and charts. The result is a clean dashboard, which customers of Erste can use to access their accounts, plan their personal budgets, use some transaction intelligence in order to gain a deeper understanding of their spendings & incomes.
And if customers are, for example, also using PayPal, they can integrate a PayPal widget into their account dashboard in order to have as many financial services as possible under one roof.
Clash of cultures: FinTech innovation and banks
In terms of technology, the core systems of Erste Group and the modern User centric web applications and mobile apps are only connected via APIs.It’s not necessary to change the core banking systems in order to radically change all user interactions, Maurizio Poletto stated.
From a cultural perspective, there’s definitely a deep gap between the traditional line of business and the unit for customer-facing systems. When asked how they managed to transform their group into a key factor of the wider organization, Poletto just answered: “We had to fight, fight, fight until we came into that position“.
Is there a FinTech bubble?
So are we facing a FinTech bubble these days? Dr. Christian Nagel doesn’t think so. Nagel is a FinTech investor at EarlyBird and doesn’t see any indications of a bubble: according to him, there were 17 billion USD investments in FinTechs versus global banks’ nearly 200 Billion USD IT spendings in 2015. As an investor, he believes there is still “room to grow“ for the FinTechs.
In his keynote “Who will survive the FinTech bubble“, he shared some pieces of advice that can be summarized in a few words:
- Grow at least 10% per month – or remain in this 10% range
- Take as much money as you can get
- Think about merging with your competitor to become more attractive
- Focus on Customer Acquisition Cost (CAC) – profitability is key
Last but not least, Nagel recommended to get rid of the current banking partner — “apply for your own banking license or look for a partner whose system is not from the online banking era, but has at least been developed in the iPhone time. All the rest is crap, as it’s too old-fashioned to innovate“, he said.
Hard work is always rewarded
The conference also included a pitch competition where innovators presented their stories in front of a selected jury. At the end, our friend and advisor of our own JAX Finance conference, Eric Horesnyi won the first prize with his company streamdata.io. Congratulations for this, Eric!
The conference made it clear that the FinTech movement is a vibrant place for business innovators and full of opportunities for talented developers, software architects and UX experts. There’s plenty of enthusiasm, money and opportunities to focus on the latest and hottest stuff in technology as well.
At our own JAX Finance conference, which focuses exclusively on the deep tech aspects of Finance in general, but also of the FinTech world, we examine how tools and methodologies can contribute to an ultra modern finance business.