What drives disruptive technology in fintech?

The user experience is decisive! The fintech scene - an interim balance

Contactless payment, real-time payment processing, trading in cryptocurrencies and social trading - all of these innovations have overturned the financial sector, marginalized traditional institutions or mergers, and minimized redundant professional groups. Fintechs have shown their disruptive effect like in no other industry. Which aspects have shaped the development of the past few years - and which factors will determine the future of the almost 1,000 German financial startups?

Banks & Co. have been working with the latest computer technology for decades, mostly behind the scenes. Customers didn't notice much of this. Online banks began their triumphal march a good 20 years ago. Then nothing happened for a long time - until the financial crisis in 2008. The negative image of the industry and lost trust opened up opportunities for new players. It was the time when every company received advance praise that "API calls" could translate into supposed user experiences. However, this was hardly accepted by customers; it was more of a trending word for investors. Startups that specialized in payment services, such as PayPal in the past, worked differently. The new generation around TransferWise and N26 restarted the fintech and financing wave and opened the floodgates for all of us.

In the phase up to today the industry focus has broadened: In each category we now have more companies with a fintech approach, such as taxes, payments, investments, robo-advisory, asset management and cryptocurrencies. PropTech, Financing and InsurTech were the largest divisions in 2019 according to the Comdirect. The companies are properly financed. The lion's share of the more than 1.5 billion euros in risk capital in 2019 went to financial aggregation, i.e. companies that market products that bundle financial information. However, it is more expensive for all fintechs to get going. A lot revolves around licenses or strong white label partnerships, without which it is hardly possible to do business. The API landscape is also more open now. A wealth of services has emerged that offer Open Banking, Open Apis and Accelerating Programs, such as the “VISA FinTech Program”. At the same time, customer service has become more important. User awareness is higher here than in other industries. Banks and the established ones are seen by consumers as slow and rusty. Therefore, you also have better access to deliver the sales pitch to the customer.

In the future, even more, yes, everything will revolve around the user experience: the app / product with the simplest solution and the most complex operations in the hinterland will win. Super apps will take over the market. People don't want six finance apps, they want one that has everything in it. In addition, regulation, including anti-money laundering requirements, is becoming ever stricter. With the RegTechs, a sub-division was even created here. Increasing competition, however, is causing acquisition costs to explode. For all of this - super apps, regulation, and stiff competition - businesses need more funding and traction. Automated processes will be the key to the best possible user experience. "Conversion time" is becoming a success factor. Because users are driven by the question: "How quickly can I open my account with you?" Know your customer processes are therefore more important than ever.

Fintechs with their customer and technology focus and smartphones and tablets as a simple access level have reinvented the industry. And how did the big names in the industry react to all of this? You have set up your own development departments, entered into collaborations or bought up start-ups. They have also opened incubators and hubs, such as Deutsche Börse and Deutsche Bank. At the same time, many young companies have failed, disappeared from the market or have filed for bankruptcy. In the meantime, the scene in Hamburg, Frankfurt and Berlin in particular has consolidated and differentiated. The fintech areas that are most mature to date are probably payment transactions, lending and trading. Future areas of application and technology will be shaped by blockchains, even cheaper and almost unlimited computing power and clouds. Robo-Advisor, Smart Contracts, Artificial Intelligence and self-learning algorithms represent the next level. Crypto currencies simplify and make money transactions cheaper - Blockchains however every imaginable transactions from the conclusion of contracts to complete supply chains. I'm looking forward to the next interim fintech review.

About the author
Benjamin Bilski is CEO of NAGA Group AG.

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