Hitting the ground running
The emerging market for fintech was quite unique. The start-up mentality, innovation and a new generation of entrepreneurs made it an Eldorado for investors long before the pandemic gave this industry another mighty boost. Capital seemed to fly into the offices of people with a vision to reinvent the financial landscape and the drive to modernise services and user-experiences. It almost felt like the relatively small fintech time-warped the European financial industry into the 21st century. The agility, disruptive approach, and lean structures of fintech companies allowed them to develop more relevant solutions, react quicker and pace faster in a market that had been dominated by big players. For the broad public new fintech solutions redefined their interaction with finances or allowed access to new services.
No boom lasts forever
Seemingly endless investor-capital attracted more companies, especially because the most important KPI was growth, not profitability. So, it was only a matter of time before the investors started to ask about their return. Recent geopolitical crises and the pessimism regarding the economic climate made money more expensive and investors rethink the KPI and their shares in unsustainable business models. Additionally, some of the fintech services are causing concern regarding privacy and safety. The strict EU-laws also set a limit to the realisation and thereby monetarisation of innovation.
It might be exaggerated to claim that this was when the bubble burst, but it surely deflated a lot when the investors started to look at the companies’ profitability. Even well-known fintech companies had to reduce staff, up to 25%. Taking stock of this industry branch showed that there were a lot of companies with the same product or products that were innovative but didn’t sell or had no profitable sales proposition. Creative people are not necessarily the best sales-representatives. Innovation on its own tends not to be a sustainable business model. Borys Storck, Partner at Marktlink Düsseldorf, has a rather pragmatic view on fintech’s prospects. He observes a return to traditional investment values. “Investors need to understand how fintech makes money. Innovation and vision are not enough. One must sell the product, too.”