Fintech start-ups at the end, as dead as the banks: not at all.

Time and again, voices are heard proclaiming that fintech or fintech start-ups are a phenomenon that is now slowly but surely disappearing. That fintech is “at an end”. Most recently, for example, the head of HSBC Germany, Carola von Schmettow. I think that’s complete nonsense. Quite glorified nonsense that is dangerous for the established finance players.

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“You’re fintech now, dude!”

When we started with Accounto, a colleague came up to me and jokingly said “Hey, you’re Fintech now, dude. Have you gotten used to it yet?”. My colleague, who was in contact with various fintech start-ups, had no idea that I had no idea what he meant at the time.

Although I had been running a small tax consultancy in Switzerland for years, I didn’t really have a plan for the business, thanks to good employees. I was (and still am) technically competent, i.e. in terms of accounting and finance, but until then I had very little idea of how to run a traditional tax consultancy as a business. And that turned out to be an advantage. We simply did things in the way that was easiest for the client and as logical as possible for us. Something that we have retained at Accounto to this day.

A pot of honey in the bear sanctuary

The fact that we chose the financial sector for the use of our machine learning technology was no coincidence (and was by no means a foregone conclusion, btw). The reasons why we went into it were simple:

1. The transaction costs are sickeningly high compared to other industries. By this I mean the total costs of all participants.
2. The customer experience in the entire finance area is simply catastrophic. It seemed very easy for us to make things better
3. Nevertheless, large profits are still possible in the industry.

All of this seemed enormously attractive and is still a great opportunity to use new technology to do exactly these things better. In many areas, I believe there are real paradigm shifts to be initiated and that’s why I’m in this area with Accounto.

What the established players have done through their inaction and sluggishness is to set up a honeypot in the middle of the bear forest. People like us start-up entrepreneurs, let’s call ourselves bears for once (although we’re not usually 😊), are pretty quick on the draw when the opportunity arises.

This is a general pattern in the disruption of industries. The reason why new players suddenly launch new, much better products and thus underpin the established business is always the inactivity of the established players. Inaction, lack of speed, lack of courage. Call it what you like.

“The reason we exist is because of you, the established players”

Start-up people sometimes never tire of preparing the topic and portraying the established players as particularly stupid. I’m not on board with that because it’s not fair. Anyone who has achieved a position in the market has the burden of defending this market position in addition to innovation.

Start-up is easy in this respect. There is nothing to win because there is nothing to lose. And it’s also very easy to have a big mouth. It’s no wonder that the Schmettows of this industry then announce the end.

The future of banking

But what I completely underestimated was the level of desperation and helplessness, especially on the part of the banks. Meanwhile, I think there is practically no bank that has not contacted me directly or indirectly. I have had countless sessions with bank representatives.

I am used to being asked by managers for input on digitalization and if it fits into the calendar, I am happy to meet with you.

However, many things were and are different at the banks. A certain heightened panic about closing doors is palpable. And my comments on how I see the exchange of values developing in the future didn’t exactly help, of course. And when we had been public for three months, the first banks already wanted to discuss a partnership. With a company that was around six months old. I maintain that five years ago I wouldn’t even have gotten an appointment if I had wanted one.

The great search for the role of banks is in full swing, and rightly so. It is simply becoming apparent that many of the traditional banking areas will become completely superfluous. Or do you have the feeling that we will capture and exchange our values in the same way as in the last 100 years. In my opinion, we have a development with cryptocurrencies that is only really being slowed down at the moment by the enormous energy consumption. In a 1:1 comparison with conventional methods, however, we are not doing so badly (I haven’t found any studies, just a rough estimate). It all boils down to physics. Think in terms of decades, things are coming at us fast.

Buy me, need me

This desperation means that fintech start-ups very quickly find themselves in the position of having to sell their venture. And young entrepreneurs always think it’s great to “put a little money behind the firewall”, as a colleague recently put it. This is currently a special feature of the financial sector. We too have already received corresponding, albeit rather vague, offers.

To conclude from this that the end of fintech start-ups has come is complete nonsense. Because there are enough people out there who are always doing new things. And the established players are simply not doing enough to close the gaps. Moreover, if a fintech entrepreneur is able to realize an exit, he will probably soon plunge into the next venture in the current situation. But this time better financed. This further increases the price of innovation internalization for existing players.

In addition, new transactional models, which I consider to be the most “dangerous” for the finance and legal sector, are immune to “sweet money”, so to speak, thanks to ICOs. Even if these fairy tales will (and must) become less common in the future.

Building infrastructure

But perhaps we also have a distorted view of the financial sector. It’s all about what the infrastructure for value exchange will look like. I believe that in a few years – 20 to 30 years – this infrastructure will have been completely rebuilt. Transaction costs will have fallen enormously and the players of today will either have changed or will no longer be at the table.

Like many things in transformation processes, the interplay between all the players is too complex for this transformation to be carried out consciously. Following the physical foundations, it will develop independently over the long or short term. Fintech start-ups in this area are the thousand little helpers that initiate upheavals in many places. And as long as there is potential for optimization in the finance sector, there will also be start-ups. In this sense, I think we are only at the beginning of the fintech start-up movement. There is still a lot to do.