2019 Fintech Review Germany Talkshow by Startuprad.io (VIDEO)

The tradition

This is a Startuprad.io tradition. Every year close to Christmas Joe gets together with smart people from the German fintech scene and talks about what was going on. Usually, the discussion drifts fast in a talk show and does not stick to the usual news format. None the less it is very informative and there are great ideas for fintech entrepreneurs and investors here.

Trust is repeated positive experience – Frank Schwab during Startuprad.io’s 2019 Fintech Review

This episode was made possible by Hessen Trade and Invest, learn more at www.invest-in-hessen.de

To digitize the relationship with clients in banking, that will be the unicorn – Paolo Sironi during Startuprad.io’s 2019 Fintech Review

Our Guests

(in alphabetic order)

Mario Hachemer, CTO Fastbill (https://www.linkedin.com/in/mahachemer/)

Luka Ivicevic, Co-Founder / Chief of Staff at Penta (https://www.linkedin.com/in/luka-ivicevic/)

Frank Schwab, Co-Founder Fintech Forum (https://www.linkedin.com/in/frankschwab/)

Paolo Sironi , Author and Thought Leader IBM (https://www.linkedin.com/in/thepsironi/)


Jörn “Joe” Menninger, Founder and Host Startuprad.io
joe@startuprad.io / Twitter  / LinkedIn / Video Interview (2018)

To succeed in Fintech you need to digitize the client relationship – Paolo Sironi during Startuprad.io’s 2019 Fintech Review

Further Reading

During the discussion we are touching:

Challenger Bank / Neo Bank https://en.wikipedia.org/wiki/Challenger_bank

Share of Wallet https://www.investopedia.com/terms/s/share-of-wallet.asp

Tiktok https://www.youtube.com/watch?v=mQEGJMmqBTw

Mortgage: https://www.investopedia.com/terms/m/mortgage.asp
Mortgage market shares in Germany. Statista has only numbers for 2015, but online banks had a 40% market share: https://de.statista.com/statistik/daten/studie/661264/umfrage/entwicklung-der-marktanteile-der-vertriebskanaele-in-der-deutschen-baufinanzierung/

Goldman Sachs’ Marcus: https://www.marcus.com/us/en


Having a good user experience is ok, but it will not lead to a transformation people will do banking – Paolo Sironi during Startuprad.io’s 2019 Fintech Review





Was Lukas forecast a spot on, or will it take more time?

  • In an article published in Heise, the author argues that the biggest winners of PSD2 will be the large internet companies like Google, Facebook or Apple https://buff.ly/2Pg1ZkG Given the recent success of Apple Pay in Germany, he may not be too far off.

Companies / Fintechs / Banks

Established Credit Rating Bureau Schufa buys into the core of banking with FinAPI:

(Jan) Established German credit scoring agency Schufa takes over munich-based fintech FinAPI. FinAPI allows to access current accounts http://ow.ly/P7RR30n4x1M



Market / Global

Subjective point Joern: It feels like the blurring of fintech and banking continues. There are now cross mergers all over, admittedly more fintechs investments by banks than otherwise, but it keeps blurring. Do you think in 5 years one will still distinguish beyond the point regulated or not?

Also: Fintech becomes really european, think expansion of N26 to UK or Klarna to Berlin.


Fintech Trends: Five Insights For Now And The Future | Deloitte US https://buff.ly/34ckc6W

Financial firms are jumping into fintech

Potential blockchain benefits are growing

Regulators are showing interest in fintech

Implementation can lead to operational challenges

The industry is realizing this is a marathon, not a sprint


A look at the UK, since the system is more mature. Neobanks are currently looking like they are not winning writes Sifted – What does this indication mean for the German challengers?

“NeoBanks / Challenger Banks Are they going to make it?” From Sifted.com
-Traditional banks — Nationwide Building Society, HSBC and NatWest — still have the highest net switching gains

-Contrary to media hype, people aren’t leaving Barclays for Monzo. Most are leaving to go to Nationwide and HSBC. Indeed, Nationwide saw more net gains than Monzo and Starling combined, showing the big banks have still got “it.”

– Nonetheless, the two digital banks came in fourth and fifth respectively for net gains. To their credit, they’ve overtaken several big banks like Lloyds and RBS who are losing current account customers overall.

– Monzo also trails just behind HSBC for net gains, and could well overtake it in the coming quarter

– Metro Bank – the brick and mortar challenger bank that faced accounting issues earlier this year – did not provide their switching datahttps://buff.ly/2RxZ5JF

Related point from Frank Schwab:
„The path towards profitability of NeoBanks / FinTech“

We haven‘t seen much yet …


In financial services the psychological play is very different [from ecommerce] – Paolo Sironi during Startuprad.io’s 2019 Fintech Review


Global Ranking of #Fintech #Hubs is good for Germany https://buff.ly/2Ym7VeQ

Global Positions:

  1. Berlin
  2. Frankfurt
  3. Hamburg
  4. Munich
    Out of 238 cities. Not bad, but there is room for improvement. 


Deutsche Bank has asked, “will fiat currencies survive,” in what it calls the “multi-trillion dollar (or bitcoin) question.”

“The forces that have held the current fiat system

together now look fragile and they could unravel

in the 2020s. If so, that will start to lead to a

backlash against fiat money and demand for

alternative currencies, such as gold or crypto

could soar.

Link opens PDF https://buff.ly/2Phpg4s?utm_source=-custom-by-source-0-


Frank’s point of PayPal becoming a lender in the US
PayPal and Square quietly grow small business lending using data as their edge over banks https://buff.ly/2qXNcyh


Fintechs succeed because they are not overvaluing the trust – Mario Hachemer during Startuprad.io’s 2019 Fintech Review


Market / Germany

  • There is a study by the online bank comdirect, which is a subsidiary of Commerzbank, headquartered close to Hamburg.

Almost 900 Startups, of which are 202 proptechs, 172 Financing startups, 114 insurtechs, 96 investments, 76 Blockchain, 72 accounting and 166 others (ID, API/Banking, Accounting, Gastro, Regtech, …). Payments are losing considerably in startup count and popularity

124 of those fintechs have been founded in 2018

25% fintech sector growth since 2017

Market / Germany / Local Hubs

Germany leads the way as banks might embrace crypto – NEDEROB


Next year Germany is very likely to accept a law that will make it possible for institutional banks to offer crypto services, including bitcoin custodial wallets. Handelsblatt reported the news earlier this week. This would make Germany the first major European country to embrace cryptocurrencies at an institutional level, and likely more countries will follow. Because the Germans have been the leading force behind the European economy for decades.


I think in 2020 we will see fintechs and neobanks opening up branches – Luka Ivicevic during Startuprad.io’s 2019 Fintech Review



83 Fintechs (comdirect)


WELT writes about the deterioration of the city of Hamburg, as a financial hub within Germany and Europe https://buff.ly/2NYGJhn Banks and insurance companies are shedding headcount



105 Fintechs (comdirect)

I think in 2020 we will see much more shakeout [of fintechs in Germany]. Many runways running out – Mario Hachemer during Startuprad.io’s 2019 Fintech Review



106 Fintechs (comdirect)

Deutsche Bank started Fyrst. Anyone heard anything?



295 Fintechs (comdirect)


Other cities / hubs (according to comdirect)

Cologne 35

Düsseldorf 20

Stuttgart 12

Leipzig 7

Dresden 6

Dortmund 6

Essen 6

Bremen 6 


295 Fintechs (comdirect)



What did the underperforming IPOs (WeWork, Uber, Slack) do to the exit route for fintechs?

  • E.g. The Spectacular Rise and Fall of #WeWork by Bloomberg on YouTube https://buff.ly/36HaxYt


  • #US venture capitalists: here are 10 tips if you want to make it in Europe | Sifted
  1. The first piece of advice is to get out of #London

https://t.co/76JMPQQ220 #VentureCapital #VC #Europe

From the Startuprad.io News (aggregation)

From our October news:

As #neobank #valuations bubble up, some investors think there’s an even better bet in #fintech https://buff.ly/33MPBgB

“…Based on current valuations and recent funding rounds, it is clear that there are still plenty of smart people who see immense promise for neobanks in the West. Eighteen of Europe’s biggest fintechs are now valued at more than $1 billion, according to Richard Diffenthal, a partner at Hogan Lovells. Investors are lining up to give them even more money.

Eugene Danilkis, founder of Mambu, takes a more nuanced view. The company makes “core engine” software for banking, and it’s used by digital upstarts like OakNorth and N26 as well as traditional institutions. The company’s software sits in the background and provides servicing for accounts—things like calculating interest—while clients still build their own apps and develop their own credit models and analytics. …”


Venture Capital Investment

Fintech Investments in Germany only going to a few startups, but in 9M of 2019 almost 1.300 mn Euros (1.438 mn US$) in 103 Financing rounds. 

Study comdirect: 

  • 8 fintechs with more than 100 mn investments. 
  • The No 1 fintech (N26 most likely) raised almost 600 mn Euros, which is 13% of the total fintech funding since 2012. 
    • Which leads to approx 4,6 bn Euros investments in German fintechs since.
  • Half of the investments go to the top 20 Fintechs


Half of VC investments in German fintechs go to a select group of startups

  1. N26 / 2019 / 412 Mio. Euro
  2. N26 / 2018 / 130 Mio. Euro
  3. Friday / 2019 / 114 Mio. Euro
  4. Kreditech / 2017 / 110 Mio. Euro
  5. Wefox / 2019 / 110 Mio. Euro
  6. Raisin (Weltsparen) / 2019 / 100 Mio. Euro
  7. Deposit Solutions (Zinspilot) / 2018 / 86 Mio. Euro
  8. Kreditech / 2015 / 83 Mio. Euro
  9. Solarisbank / 2018 / 57 Mio. Euro
  10. Smava / 2018 / 54 Mio. Euro



#Shmaybe Unicorns from January


March #Buy a bank

  • Raisin, the marketplace for savings and investment products, acquires Frankfurt-based bank MHB Bank https://buff.ly/2IWK55n now the lines between the former enemies fintechs and banks are blurred.


April had lots of news of #N26

  • Handelsblatt writes that N26 had a special audit by BaFin (German finance watchdog) and found problems with staffing, management of outsourced services and technology. Some banks also see more N26 accounts used in fraud  https://buff.ly/2uTqdGn?utm_source=-custom-by-source-0-


  • Customer service of N26 has deteriorated – examples collected by Gründerszene found. All got started with an entrepreneur who had stolen 80.000 Euros, could not pay salaries and was locked out of his own account https://buff.ly/2OAArV2


  • N26 client gets 80.000 Euro stolen and the only way to communicate is via chat. Customer service is unable to help. He can not pay his employees or his suppliers. No one is there to talk to him since N26 stopped the phone support https://buff.ly/2uyrh2l



Another topic at N26:

Summer News (July, August, September)

  • #Munich

ScalableCapital, Germany’s largest #Roboadvisor raises 25 mn Euros in a Series C round  https://buff.ly/2GRvPHG



    • Wirecard sends letter to „Financial Times“, to stop publishing articles and conduct an internal investigation. It appears #Wirecard got hold of an audio recording of #shortsellers discussing the unfavorable article days before FT publication  https://buff.ly/2XXMGTF



    • No results are known yet, but this is quite interesting. Especially since FT had some problems with Wirecard reporting in the past, and they are not usually an outlet known for sloppy reporting
  • Check24 Attack 

We live in interesting times – Startupradio will keep you updated on this

  • #Check24 used to be the top dog for #B2C #financialservices platform. Now #Finleap is rolling out the challenger Joonko https://buff.ly/2ZAJ0ag


November News: A lending platform raises a credit fund


  • InsurTech ottonova raises additional 60 mn Euros #VentureCapital for private health insurance in Germany, currently less than 500 clients writes  deutsche-startups https://buff.ly/2pR08J8


December: Germany has a new fintech unicorn

  • Omers Ventures, Merian Chrysalis, Samsung Catalyst and others invest 110 mn US$ #VentureCapital in #Berlin-based wefox, valuing the fintech likely beyond 1 bn USD. Investments in wefox now total  270 und USD. https://www.deutsche-startups.de/2019/12/11/wefox-unicorn/



Welcome to Startuprad.io, your podcast and YouTube blog covering the German startup scene, with news interviews and live events.



Joe: Hello, and welcome everybody. This is Joe, from Startuprad.io, your startup podcast and YouTube blog from Germany in English only. Right now, as you can tell from either the sound or the order looks, I’m right now traveling, seeing friends and family shortly before Christmas. See, ugly Christmas sweater, and just want to give a big shout out to our enabler, InvestInHessen.com. Without them, it wouldn’t be possible to do this. Go down here in the show notes and learn more about them. I would say thank you, thank you to all the guests we had in 2019. You guys are amazing. You’re now going to participate in a real tradition, so to say Christmas tradition of Startuprad.io. Every year I talked to a lot of people, get their input, invite a few guests and we get together and discuss the startup news, especially Fintech news from the last year. Usually, it ends up like I’m doing a lot of preparations, get all the news together in the show notes and then my guests start discussing, and actually that’s so fascinating. So, I don’t want to interrupt them, and we usually get a talk show out of it. Right now, it’s the 25th of December. This is going to be published. I hope you enjoy it. I hope you enjoy Christmas and the New Year’s Eve. And since this is a very special time around Christmas and New Year, we’re going to interrupt a little bit our regular publication schedule, and publish more than the usual amount you’ll see on our YouTube blog, and on your favorite podcast or streaming service. Looking forward to see you again in 2020 where we have a lot of plans. Merry Christmas. Happy New Year.



Joe: Hello and welcome everybody. This is Joe from Startuprad.io, your startup podcast and YouTube blog from Germany. Right now I’m here with four other people split across Germany and the world, from the Middle East. And we are doing right now, live recording of the Fintech review. So, forgive me if there is some trouble with the settings of the Skype screen. We just already had problems with that and I tried to correct it. Let’s go to our guests. Guys? Hey guys. Here’s troubles I’ve been telling you about because at one hand, the video resolution jumped and with it the Windows as you can see here in the video, as well as we had some trouble in the audio. Because sometimes it sounded pretty much like this. So, I decided to go with the Skype recording I started a few minutes into all of the discussion. You’ll only miss the introduction of the respective interview partners as well as the start of the discussion concerning beobanks versus incumbent banks. We start there, almost in the middle of the sentence. I’m very sorry for Frank. He’s been added by the automatic Skype recording pretty small down here, but nonetheless, you could see him and what he says is audible.

Frank: So, I detect that we have a couple of hundreds. So, I would still say we’re in a very, very early phase of the whole change in banking. The traditional banks still stand. They still have a relevant balance sheet. They still own many, many customers. But you can see here and there, that especially the large platform players, so, especially now apple in Germany, once they enter the market, they gain fast traction on the usage of their service. And to me, if I then look and think about Fintech, what Fintech basically has done so far, it wakened up and prepared for the large platforms. And banks now understand that there is a real threat. The real threat comes when the large platform apply services and the whole thing obviously starts with payments. While it’s very difficult to earn money with payments, because you need billions of transactions in order to make a profitable business out of it, right. And therefore, let’s say, I would say we’re still in very, very early phase, but let’s say the party of the first three, four years is a little bit over right now. Many Fintech see how difficult it is to develop a sound banking business, especially, as Paolo said, if you don’t have a clear understanding of your profitability, and how to achieve profitability, and also scale it up.

Paolo: Exactly. I would just not say profitability but how to achieve it because it is clear that when you are a start up, you may not be profitable for a while, that’s okay. But you need to have a consistent strategy and you need to be capable of explaining this strategy to understand how to grab a higher margin relationships with clients. And there is not being a issue like an app store for API’s or a hub for financial products, because this is not the way most of the people consume our financial services so far.

Frank: Yeah, I agree. I call it the path towards profitability. If your startup at some point in time, you need to know what the path towards profitability is. Because otherwise, at some point in time, people will pull the plug.

Mario: One thing I want to differentiate here you’ve talked about partnerships and, well, relationships between Fintechs and corporate. There’s the big divide here. I’ve seen out there there’s like one group of startups that are basically just software windows. Like you should take a look what Clark does with Aaron V Insurance, They’re basically selling tailor made versions of their product to those corporates. And that’s not a joint innovation, partnership, whatever you call it. And then there are these let’s say intrapreneurship kind of events where startups go into corporates and basically just sell the product outside of the corporate like with IMG had that with SmartShare, I think. So, there’s different models out there and they are just by the way this works like, by the way the Fintech boards on completely different types of piece. Like if a large corporate goes out there and is looking for a solution and has like five to 10 startups that are in the space, then that’s kind of a vendor relationship. And then we’re not talking about any Fintech innovation kind of sense, we’re talking about somebody just wanting to buy a solution. I think where that path just Fintech, what we are usually used to talking about, that’s established companies selling product. And what I’m finding really interesting is that it’s a sign of maturity that is happening out there with the different types of industries. It happens in our industry, it happens in the industries of insurance, it’s happens with lending, like you’ve seen that with I think Vamo that have built a solution back then…so last year and so on. So, that’s something that has changed. And we will see more of that, because the solutions like the categories, it doesn’t become wider, much wider. You don’t see like 10 different types of Fintech companies coming up next year, as you’ve seen the past two, three years. But you rather see a professionalization of how to sell those, how to go up market.

Joe: Luka, you are running a Fintech that is also a platform or you co-founded one. You also got bought by [??? 9:33] what’s your take on that talking about platform…Fintechs, and would you consider yourself as a platform, as a band or as a software vendor or something in between?

Luka: Yeah, I mean, so I kind of look at it as the conversation was earlier, the types of Fintechs that are out on the market. So, there’s the ones that are trying to essentially find a product market fit, where they’re building a completely new solution, like let’s say a personal finance management tool or a PFM, right, versus an existing product that just made much better, which is for example, a Penta, right. So, Deutsche Bank and Commerce Bank already basically do provide a bank account, but we’re fighting more on the execution risk our business model is based on, it’s not necessarily based on a product market fit, right. So, I think that the first way to look at it as is are you building a Fintech that is about execution risk within the team? Or is it about product market fit, right? Because we’re not recreating the wheel. Or essentially, it’s not very creative if you want to put it very bluntly. On the other hand, our relationship with– So, I mean, we’re definitely the execution risk type of company is what I want to emphasize. The other part of the piece is, are we a platform, are we a bank, how do we look at it? So, for our customers, we’re the bank. Our customer support is done by us. We charge our customers so you know everything is going through us you even though we do have SolarisBank in the background, but the reality is, is that SolarisBank is basically our outsourcing partner that develops and build stuff for us. So, SolarisBank has a couple of dozen people that actually mainly or if anything only work on Penta stuff, right? Because we are their largest SME banking partner, both for onboarding as well as for different products. So, I mean, the way– I think it’s irrelevant how I look at it, it’s more important how the customer looks at it. And that it’s a pure bank to business relationship.

Joe: I really feel Paolo wants to say something about it. He was moving on a seat, right?

Paolo: No, no, I was listening carefully.

Luka: So, yeah, I mean, I think that’s really the crucial difference. But I find that the conversation earlier was interesting about– I keep repeating the execution risk because a lot of these 200 Fintechs died, some of which died because of execution risk, which is fair. And you know, it’s name of the game, and the other ones that died also probably died because they were building something that people simply didn’t need. So, it’s really finding what do people need and you know, and either making it better, like in the Penta’s case where we just basically copied an existing business model and made it 10 times better, or you go into the other path.

Joe: What do you guys think are the solutions the clients will need from especially Fintechs in the future? I would guess Luka says a good SME banking. I would say Mario says a good billing invoice financial management solution, but what Frank and Paolo say?

Paolo: Well, I’ll go first. I think that clients need transparency across the board. Whatever is the relationship with a Fintech or with a banking and insurance institution, transparency means understanding the cost, the incentives, and the consequences of every transaction. And this is where I guess technology can really help, because it might facilitated the industrialization of these process, which is the only one that can generate trust and value for [??? 13:30] clients.

Frank: Yeah, I have a slightly different perspective. So, for daily banking, customers just don’t mind. So, the Uber or My Taxi or or Hello Approach is the approach we will see going forward. Which basically for example, means for payments, payments trust happen as you use the Uber as you use Amazon for buying stuff, the payment method is somewhere in the back, you just don’t know once you have configured it, and that is the future of daily banking. And whoever does the service for the merchant, for the shop, for the app, the customers don’t know because they are not interested in as long as it works properly. Because the brand will be the brand of the retailer, that’s for the daily use. But there’s other thing, which is if you have money and you need to somehow save money, and prepare for retirement and all these things, then it’s a different thing. Then it’s about transparency, understanding costs, but also about diversity, and risk reduction. So, portfolio management. And then it’s a matter of fact, let’s say if you look at not only in Germany, globally, there are not so many people who have that actually need because they just don’t have money they can invest. That’s actually from most of the people, the case. And only, let’s say 20% of the overall population are targeted to that, let’s say, portfolio methods and other things. But of course, these are the ones who also will be profitable and I think, and that’s a big difference. Over the last 150 years, more or less, banks and traditional banks were the only ones mainly providing solutions to that for for mass market like family office and other things aside. But going forward, these solutions will come from the ones with the most trusted brands, and that may not necessarily be traditional banks anymore. I think every significant platform player has now a fair trend to get also a part of that share of the business.

Paolo: That is something that we can say, though here, Frank, and is the needed link between the daily banking and the non-daily banking, if you like. I have worked with a guy that ran a little PhD researcher on 1,000 clients of challenger banks here in Europe. And that research is targeted to understand why most of the people that have a challenger bank relationship, don’t move the salary there. And a very high number which is above the 90% of people that responded to the question, why didn’t you move your salary there was because they’re not too big to fail, so we don’t trust them. So, now you see, since the payment is the entry point of a relationship, even though payment becomes a bit more contextualize than inside the non banking relationships, if you did not resolve this problem, you will not be able to transform a challenger bank from in hyper volume business, which can have the survivor face in a competition of Uber volume businesses, which are the Amazon and the Alibabas of the kind into something else. So, exactly. This point is where most haven’t thought through properly, and that’s where most are in the end going to fail the Fintech journey.

Frank: Yeah, I totally agree. And that’s why I believe that the brands which already have the trust, are and already have the customer connection and who are going into financial services are in a very good position. Well, for example– [crosstalk]

Paolo: [??? 18:08] …trusted reputation is slightly different.

Frank: Yeah, that’s true. But look at PayPal with 20 million accounts in Germany. At this point in time, they don’t offer salary accounts and they don’t have an [??? 18:28]. But let’s start thinking, if they introduce that into their, let’s say kind of wallet for Germany, I can think of that there are not few Germans who gained enough trust into PayPal, as well as positive experience to give them more of their share of wallet.

Paolo: Good point.

Mario: But is this really a discussion? Like you just said shelf wallet. Is that really a point where you have more than, like, your main wallet? Like, I’m in talks with employees below 25, I’m in talks with basically everyone interested in the Fintech space that has like all the challenger  banks on their phone, I myself have all the Google pay options there. I always use my main preferred method and so as everyone I know. So, obviously anecdotal data but is there really a share of wallet there to be have? I think there’s just– [crosstalk]

Frank: Yeah, I think there is. Look at– Today, PayPal does not offer that I put my salary there and PayPal does not offer assets, does not offer mortgages. And if they would do it as effective– they don’t do it in Germany. Don’t get me wrong, they start doing stuff in the US. And they are, for example, they are for SME lending, they are number five in the US market. This is really something. And nobody realized that, at least nobody here in Europe. So, what I’m saying is, there are players who may– So, right now as a customer, you don’t have the choice because they just don’t offer the product.

Mario: So, for instance, my main option to pay is PayPal, simply because PayPal– [crosstalk]

Frank: [??? 20:46] to pay is gigantic.

Mario: Yrah, I know, gigantic masterpiece of a strategy to roll out Google pay on Android via MasterCard and so on was brilliant. And yes, over time people will go into these markets as they will. The question goes back to who owns the platform, like, who owns my– Like, back then and the marketing guys who owns the eyeballs, when I have my phone in my hand, who I’m going to pay with, who’s going to be the first on the screen when it comes to either payments, but also like the more interesting high margin stuff. Like, if I’m already having my money in my paypal account, or in my neo bank account, or wherever I have it, is to 80% chance to place where I’m going to invest stuff, we’re going to park my money, we’re going to buy whatever solution I’m going to have with that. If I’m already a [??? 21:44], I’m going to buy ETFs. I’m not going to compare that much [??? 21:50] do that, but a majority, the main majority does. So, I see this, is in that part of platform game that you have to own the mindshare. It’s what we’ll see on our platform as well.

Luka: Yeah, I think this is forgetting that most of these products like payments, loans, FX now like you said, ETFs, and things like that’s all becoming a commodity. Right. So, KYC is falling, becoming super easy, KYB as well, right. So, all like regulation is becoming much easier, there’s more and more products popping up. And you know, having five bank accounts today is much more common than it was 10 years ago, because it’s much easier. So, I think that I don’t even know if it is a platform game. I think it’s actually more, you know, who has the best product? And does somebody have tolerance to have– try three or four products because it’s so easy to get on-boarded and to also close the account.

Mario: Yeah, that’s what– I was rather going to not platform in the sense that a bank is a platform or a different product is a platform, but rather, my phone is my platform, my user interface is my platform. I have my main user interface on my phone and it’s there. If I’m a browser using SME, I’m mostly in my accounting software. Of course, I would have to say that, but that’s what I see as a platform. It just happened– depends on what state of mind the customer is in, because the customer is not always just a private individual who buys this stuff [??? 23:25]. There’s corporates that have their own, let’s say platform where they work from. Some college SAP, I don’t know why, but some by software SAP. That is something that is currently overlooked that the user interface is what guides the user. And the product is important, but it’s not always the deciding factor. Because the user buys what he sees, not what he could technically see if he pressed 20 buttons.

Luka: Yeah, and that can be summarized as the switch cost. You know, what is the price to switch, right?

Frank: Yeah, and it is also not– I would guess it’s also not one platform taking it all. I think the discussion right now is exactly what we will see. There will be different needs and the ones who serve it most holistically are the ones who have a very good opportunity to win many, many customers. So, Apple will not win, let’s say Android’s users, right? So, that’s a very, very few. But within the Apple world, right, if they increase their offering, now they come with Apple Pay and Apple credit card, and if that can be managed in my Apple account, and let’s say and that’s my primary interface, then for these kinds of customers, Apple has a very good luck in including probably a lot of financial offerings; directly, indirectly, combined with your offerings. Yeah. And there will be other things which are driven by other– So, for example, Instagram or even Facebook or Twitter, let’s say the people who are living on these social media platforms and for them, that will be the way they configured also their financial life. And if there is something they have– Trust is from my point or from my experience, trust is repeated positive experience. So, the moment you can repeat and experience and it’s positive, you create trust. That’s why we enter planes, right? Not because we understand the technology but because we see people going out alive. And once we experience– and the same from my point of view is true for banking. The moment somebody has good experience on Instagram with banking and that’s they lived for the last 15 years, so the ones who basically raised up with it, why should they not use it if the service is good?

Paolo: Okay. I think we’re mixing up a little bit some concepts here because we need to understand that when it comes to e-commerce, we can discuss marketing. When it comes to banking and insurance, we need to discuss advice. Because the real source of revenues for financial intermediation is the [??? 26:49] of information. And if you position the banking offers on the asymmetrical information line, you have on the left side where is less asymmetrical, so more symmetrical payments, then you have credit, then you have investing, and then you have insurance which is the most asymmetrical. What does it mean? It means that if I tell you click on my app and I give you 1,000 euros net of commissions, zero interest rate, you give me back the money whenever you want, be sure that a lot of people will sign up, but I end up with a huge risk management problem which I don’t want. We’ve seen it already with a lot of peer to peer lenders in China. If instead, I tell you, click on this app and give me 1,000 euros I will invest into [??? 27:27] portfolio, a lot of people out there will restart frowning, thinking I need to talk to somebody and not many will basically sign up because it wasn’t symmetrical. So, therefore, you need to understand where does the motivation of somebody comes from when it comes to higher margin banking, and insurance solutions. Because if I want to succeed in Fintech, I need to digitize the relationship. Making things just convenient, creating a good user experience is okay, but is not going to lead to a transformation on the way people do effectively banking for the most important elements for their life, therefore, the financial services industry. That’s why I insisted that the platform discussion was not thought through because it was really product-oriented. In any case, all of this platform discussions I saw ended that into marketing of products. But this is not the way people consume, because they call it marketing, but instead it’s a pushed, oriented mechanism that is based upon relationships. They wanted what? Well, they need to resolve the problem, the man is emotional. And so far, people look for relationships, which are human to overcome these emotional elements. Now, banks can use or abuse, Fintech can use or abuser these elements and concept, I hope with transparency that people will not abuse it by use it for the benefit of clients. But that’s exactly the difficulty we have today to see the scale up of Fintech offers to become not just the Uber volume businesses which can be attacked by big tech players. But to become differentiated value proposition, they digitize the relationship declines. That will be the unicorn.

Mario: I think that, like there was something in there, which is something that we’re currently heavily looking into. There’s this trend of generations that kids in China that are riding the wave of TikTok to basically create a presence like they’re creating a persona, and writing the meme or whatever comes up and already pushing and selling via TikTok products and already do automated in the background, they can do accounting, they already get a bank account provision at that point in time, like the whole business, in a sense, just starts and is created on TikTok. I expect all of you know TikTok, it’s something like Instagram just [??? 29:57] nicer for the young kids. That is something that, basically is a very, very, very highly valuable business model. Because at no point in the chain, was there any comparison to any other offering? Like, there was no other t-shirt printing company in the chain, there was no other bank account provider in the chain. You were taking, like you said, you’re using the information asymmetry of how to build such a business completely from beginning through the end and wire that way, enabling somebody to do something which you wouldn’t have done before via employing financial services, via employing all the digital business models, but in the end, you end up with a financial product. They are lending because they need to buy a new– they need to pay for the just in time production, and so on. All of these kinds of projects in there, they are much more expensive than on the open market, but they’re enabling them.

Paolo: Yes. But you see we are talking e-commerce here if you like. I have a question for you guys and my answer. Do you believe Amazon is a distribution channel of products on the internet? It is not. When Jeff Bezos in the 1990s was asked that on 60 minutes, what is Amazon? He said Amazon is not a distribution channel of books on the internet. So, the journalist asks, “So what is Amazon?” At the time, some of you were younger, Frank is older. So, you will remember that he was only selling books. So, he said, you see, the publishers are sending me letters complaining saying that don’t understand marketing, because they allow the users of Amazon to put positive and negative reviews. So, they say only publish the positive reviews, right, it’s good marketing, we will sell more. And they said no, they don’t understand it. They don’t understand because they are not my client. So Jeff Bezos said, “I’m not the distribution channel on the Internet of their books.” So, the question is “Can a bank be a distribution channel of financial products and digital?” So, he said “What am I then? I am an advisor of my clients because I helped them to understand which is the best book to buy, because since they cannot touch those books by adding positive and negative reviews, I create a mechanism that builds trust on the fact that the book will be built.” So, then he said, “The moment I start with the professional books and then I move into novels, then I can go forward. I can start selling more products because then I have build the trust. And so I can use analytics in order to optimize the relationship.” But you see, in essence, he had to resolve the initial problem of creating trust on people that never use the medium to do something. Now, for us, today it’s obvious because if you create something in the internet, many people might start trusting that because now they got used to it. But at the time, that was not the case.

So, what happens with TikTok is that these people are basically building trust in a different way and they’re used to do that. So, they can buy this product even though they have higher prices because they create that element of participation. But this is way more complicated for financial services. That’s what I’m saying. Because it doesn’t necessarily start that way. In financial services, the psychological play of people is very different, at least that when it comes to products with high margins. Now, since those products are getting more and more commoditized, that is the trauma for everybody is good for the consumers. But at the same time, if you don’t build a relationship with the consumers or the banking clients, they themselves will not be able to onboard on digital. So, they will be in a sense left out. So, we need to make sure that we resolve this problem. There are techniques for doing that, but it’s not about user experience.

Frank: Yeah, I agree and disagree. I had exactly these discussions in 2002 with all the heads of the departments for mortgage for example. They said you cannot buy a mortgage without having let’s say discussion and good advisory a with a banker. And I said, that’s not true, you can. And by now we know that most mortgages are just bought– [crosstalk]

Paolo: Remember what I said, the asymmetry symmetry towards symmetry, I said payment, credit is loans and mortgages, investment and insurance. Now when it comes to payment and mortgages, banks are not making money with zero interest rates especially in Europe, after the price for risk there’s no value for the shareholders. They cannot even support their risk for those relationships. So, mortgages can be very poor because you know you’re buying a house and you know that if you pay 10% it’s worse than paying 5%, but the banks are not making any money there and there’s no Fintech that can make money there because interest rates are too low, and the prices are too compressed and the cost of capital is too high. That’s why all banks are trying to move the other direction towards the intermediation margin. But you need to find a way to make the two together. That is the planning story. Because you cannot drop but the primary relationship with your clients, which is very sticky and the sticky relationships are the salary and payments that comes with the mortgage. Right? This is more relevant, the loans in a sense, and then you’ve got retirement or everything that relates to that. And I cannot as we’re listening, you see, this is exactly the strategy of Goldman Sachs.

And if you look at that carefully, and that differentiates Goldman Sachs, even those a difficult journey from most of the challenger banks. Because the challenger banks have these problems of having client relationships on payments but not being capable of onboarding salaries. So, having the difficulties moving gap into the relationships to sell higher margin products that come with be the relationships. Now, what did Morgan Stanley, Goldman Sachs do? Well, Marcus clearly is a digital onboarding clients is like a challenger bank [??? 36:00] on sold personal loans and so on so forth. But then they got Ico. Ico is a company that provides payroll for employees like the Google employees. Now, why does payroll matter? Because the moment payment and…gets contextualize, you don’t see the brand anymore. You will still receive every month an email saying Goldman Sachs email, this is your salary. And when you look at that you see what people do with the 401K that is retirement or health insurance. We have two relevant relationships for US population. Now thn that is when Apple added the [??? 36:39] technology but because at the moment they have these three pieces; digital payments, the non-banking relationship for the salary, and the onboarding on a challenger bank solution, they can tell it the Ico clients, “Hey, I see you have your salary here and your salaries with these banks such and such. What about you move your salary to Marcos and you can get the Apple credit card?”

So, you see that that’s the only way where they can grab primary relationships. But then what did they decided to do? They decided to buy United Capital in May for $750 million. Why? Because that is planning. And ultimately, the only way to grab higher margin products with clients– sorry, revenues is to look at the planning mechanism because everything – is commoditizing very fast. You see it with the ETF, you see with the passive investing all across the board. There is hyper volume business, which is very, very difficult to manage these days. So, I think that they have a point of view, which is consistent now should whether we be capable of onboarding these – digital the right way, but at least to me differentiates from many other banks. They simply look at Fintech in terms of the technical enablement, but did not understand how to basically cross all of these elements.

Joe: Personally– Sorry. Most of the time I’ve been busy trying to get your windows adjusted. Most of people who actually will listen to this audio podcast will never see and I will do my best to actually make people who watch the video also not see it. But basically what interest me is talking about trust and complexity of solutions, and selling them. The position of Luka as well as Mario because they actually have a hands on experience in there.

Luka: Sorry, what was the question?

Joe: My personal question would be something like how does this calculation relationship and trust versus complexity does actually play into your product offering? Because I assume highly complex, like letter swaps or something is where you need a really close personal relationship and very much trust. So, does this figure in, in what you’re offering, very plain easy to understand product on your platform, guys?

Luka: Okay, I’ll go first. I mean, I think it depends on what type of product you have. I think inherently being some sort of bank you– I mean, you require a bit more trust from your customers than anything else, right. But I also don’t want to use marketing tool that has a high risk of going bankrupt. So it’s not only about banking, it’s also about any product that you’re using. But I think with Fintechs, which deal with people’s or businesses’ money in particular– So, I mean, for example, like us, we follow the same regulations that a Deutsche Bank does right or [??? 39:52] or anybody else. So, deposits are secured up to 100,000. We have the same standards and practices for security and compliance than any other bank does. So, I think in that sense, there’s definitely– I mean, there is not a difference, right? In terms of perceiving it, I think that as long as you act and talk and actually behave like you should, I think that’s something that builds trust, but I think trust is really just built over time. So, we definitely have some customers that probably don’t join us because of trust angle. But we also see pretty high growth on a daily basis for customers that do trust us, right. And but also use us as their main bank account. So, I think a lot of this comes with time, essentially where you balance the two out. Right.

Mario: I would like [??? 40:43] has been on the market for a little bit over 10 years now. So, we have a little bit different view on this, not in the sense that we don’t also see the trust is built over time, but also that trust means something different for the different types of services you provide. For us, it started out as a simple tool to write invoices, you could also do the same with Word. By now we do business, we do accounting, like if people are doing the accounting actually go looking into your finances, knowing about your finances. So, there’s a different level of trust that doesn’t have to– it doesn’t have to actually mean that there’s money accessible or something. Just the knowledge required to do a proper type of service is sometimes something where trust is important. And so, for us, we kind of saw and witnessed, actually a reduction of the necessity of trust, especially in past five years. When we started out in 2009-2010, there was like just doing accounting in the Cloud was nearly unthinkable. People didn’t want to put any paper online. Our friends from the States always call it the German answer of the Cloud. That is something that’s like disappeared now, dissipates. And every year, we see a trend towards neobanks like, especially Penta with lots of customers wanting to onboard on Penta. So, or [??? 42:23] or whoever is currently out there. So, that is something that is actually of the interest simply because they see they don’t find themselves served in a qualitative manner by the existing solutions. And the, what can I actually get out of this relationship calculation is something that starts to become much, much, much more important. You could say, the customers, not only– they started to trust everyone less. And so the trust of a new one or a new challenger appearing is just as low as the trust I have of Deutsche Bank. Like if I go to Deutsche Bank, I don’t get my loan there, I will– I don’t care if I get my loan at [??? 43:13] you know. So– [crosstalk]

Luka: Yeah, this is what I meant about the commodity at the end of the day. You know a lot of these– yeah. But it’s also trusting the service, right? I don’t think just trusting with somebody go bankrupt or not. I think like, I would never open a Deutsche bank account given that I know the customer service is shit, you know, the products I’ll get are terrible, I can’t do anything with it. Right? So, I think that it’s more about trusting like does this product help me solve my problem?

Mario: Yes.

Paolo: As [??? 43:40] said before, banks may not have a good reputation these days, but lot of clients trust them because they are not too big to fail. Okay. So, you can keep the money there up to the 100,000, then you may open up three or four different bank accounts. It doesn’t mean that you believe that reputation is nice, but you had believed they are trustworthy institutions, at least when it comes to security for the main elements. Whether this is right or wrong, that can be debatable, but I believe that this is what is exactly happening these days in the head of most of the banking consumers. And if you do not resolve these element, he will not be able to digitize the relationship. Because ultimately, my point is, if Fintech succeeds truly is because it’s capable of digitizing the relationship so effectively, you don’t need the branch anymore. So, far, you still need.

Mario: I would completely disagree. Like, I really think Fintech succeeds because it doesn’t overvalue the trust relationship. Like, at the first moment, like, maybe a generational topic, but at the moment in time, you could do ID now, you could do all those contracts online, and just saw the product quality the same or better than you had with your old trust relationship, that point in time was when people started losing that, the importance of that trust relationship. Because you actually found out, hey, I got a better deal somewhere else. Maybe he wasn’t looking after me as the way I wanted to. The moment in time I get a better deal with a direct online solution, I start to value my trust relationship with somebody else less. And that is something that where Fintechs, we look at the most successful Fintechs right now, they are not the ones with the best customer service out there. Like look at N26, which was in the news with hey, that customers lost 50,000 euros. And well, it’s still one of the fastest-growing neobanks. So, if you can actually– [crosstalk]

Paolo: How much does it cost you?

Mario: What do you mean?

Paolo: N26.

Mario: Nothing,

Paolo: Okay. So, they cannot go below [??? 46:11] when it’s free, maybe you don’t care about the customer services, again, my point here. But then if you have to pay for something then you better make sure that you have good customer service in order to understand how to make that relationship valuable. The two things don’t go together.

Mario: I would say the customer relationship and customer service is part of the equation of product quality at this point, because that’s how the customer understands it. And the bar has not been very high to raise that or to jump over that. So, I really think the Fintechs that can really work out the best processes to get a cheap customer service, they will win in the end. I don’t think the– I’m not a number– I know this person at this organization really means something to the generation that’s out there working right now and spending money, earning money.

Frank: I would subscribe what you said. If you look at who was really successful over the last 15 years in Germany, it was [??? 47:34]. And if you ask customers what they value, and that’s unbelievable, they say the best advice. But actually – does not offer advice, but they deliver almost an error free service. So, the highest service quality and customers experience high quality service as good advice. So, I fully subscribe to what you said. If the customer experience is totally seamless in all the fulfillments and you have a positive, then you think, oh, that’s a good bank, or that’s a good financial service offering. When we talk about insurance, the moment of truth in insurance is the moment you need the insurance. Do they pay? Yes or no? And if they don’t pay for good reasons, because of the contracts and all that stuff, then let’s say you lose reputation. And if you pay even if it’s contractual and not covered, that then you raise, and the question is, how many of these moments of truth as a financial service provider, can you generate in order own to gain this–the customer relationship? And I think this is– the ones who get that right, whether banks, Fintechs and insurance companies, big tech, they are the ones who will run a successful business.

Paolo: That is it, Frank, it’s in your words. They said they gave me the best advice. Now it is a given that the process needs to be seamless, efficient and effective. Even though when I open an app from an airline, for example, it doesn’t work well. I’m asking myself, how can it be that in 2019 they’re not even capable of making an app for travel that makes any sense, but it still happens. Okay. However, nobody said that it is frictionless. That’s why I love NGD. But no, they use the word advice. Now, we should go back, we don’t have them today, in the 1990s when they started to understand what advice meant to them when the interest rate were much higher, but were there to resolve in terms of being successful and creates the key relationship is the advisory role of the digital play that hits on a very specific nerve of clients of financial institutions, which is different than the clients of Nike, Gucci, or Bosie?

Joe: That’s been very good [??? 50:20] I just love the conversation. I’ve written down a lot of notes and action…how to run a Fintech, which is also…in the show notes…for what’s happening [??? 50:50] Fintechs… Guys, thank you very much for having…before you drop out, just one last set, what is your expectation for , whatever the Fintech…of the next year and…hot coffee for 2020?

Paolo: Okay, we just wrapped at the year and the Fintech review Startup Radio. I hope [??? 51:25] more next year.

Frank: I think this is a very nice, let’s say a word. I think crypto becomes more and more relevant. So, we see a lot of parameters significantly changing, so crypto is becoming more serious.

Joe: Luka.

Luka: I’d actually see that we’re going to see neobanks and Fintechs opening up branches and things like that. I think that marketing is going to be a bit more creative. And branches may sound a bit counterintuitive, but I think that 2020 will be about alternative marketing, let’s call it.

Joe: I would agree with Luka here, just thinking of Amazon opening physical stores would be my analogy. Mario, last but not least.

Mario: I think 2020 is going to be the year with a much larger shakeout. We’re going to see lots of, let’s say, runways running out without being continued. I think we’re at the tail end of that curve, and it’s going to be very interesting to see what’s going to happen there, and who’s gonna, like try to, on the cheap, extend around, lower some valuations. It’s going to be fun for investors interested to getting in, I think.

Joe: Very great last words, guys. It was such a pleasure having you. I would have listened to you for another hour. My timer says we’re now running recording one hour and 42 seconds. Thank you very much for sticking with me. Hopefully, you come together next year and we continue our course in how to manage a Fintech 101.

Mario: Thank you.

Paolo: Sure, it’s very nice.

Frank: Bye-bye, guys.

Mario: Bye-bye. Thank you.

Luka: Merry Christmas. Happy Holidays.

Joe: Yeah. Merry Christmas. Happy New Year.

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