Fintech startups don’t just take business away from the banks. The next generation of companies is building its own financial system – without any money houses.
Morten Lund thinks it’s cute what Deutsche Bank is doing. At the WIRED Money 2016 conference the Skype investor and venture capitalist had only one message: “It is not enough to only play a little with Fintech.”
Shortly before Markus Wieser Pertl, Head of Digital at Deutsche bank, presented his plans for digitization. The bank intends to put 750 million into its digital restoration in the near future. They are exploring the power of the block chain, and this week put a rather successful app for their customers on the market. Pertlwieser used words like Bank as a Service, Crypto-currency and Cognitive Analytics. That sounds modern and goes far for many conference guests but the efforts are not far enough. For Lund, a kind of rock star of the investment scene, they are just “mumbo jumbo”. Referring to the major financial institutions he says, “I’ll come for you.”
About 400 German Fintech startups have chosen this way to compete against the banks with their banking apps or investment robots. They are using technology to demerge the banking business and present it in a nicer way, at cheaper prices. However, they still use the old infrastructure of the banking system; a development that does not go far enough for other startups. The second generation of fintech companies are working on a financial system that can dispense with the banks as intermediaries.
The second Fintech generation is on its way
The founders of the banking app Number26 and Roboadvisers Scalable Capital stood on the stage of WIRED Money as representatives of the first wave of fintech. Instead of a banking consultant, an algorithm decides where to invest money for customers of the Munich startup. Thus, the risk-earnings ratio can be determined and their service is 50 to 80 percent cheaper, says founder Florian Prucker. For its Roboadviser Scalable Capital collaborates with the Baader Bank.
With Estonian startup Funderbeam there are early signs of what the business models of the next fintech generation might look like. The platform enables funding through a crowd using the block chain. “Between me, who wants to give money, and the company that my money would go to, there are still far too many middlemen,” says Funderbeam founder Kaidi Ruusaleepp, speaking about the disadvantages of the old system. These middlemen could be set off by a decentralized database – the block chain.
Like many others, she sees great opportunity in this technology for the next real disruption. “The block chain is the next stage of the revolution after the introduction of the Internet,” says Ruusaleepp. While internet was about the exchange of information, the next level is the transfer of value – through the block chain. You don’t need an accurate understanding of what the block chain is, she says. “Who knows how the Internet works?”
Block chain is a buzzword, which comes up on almost every fintech-conference panel with preliminary ideas on how the technology can be used. One example is music rights, said Christian Reitwiesser of Ethereum. Whoever has saved the rights on a song in the block chain, gets part of the price paid for each download which is the idea of a block chain startup. Even if you re-use that song in a remix, there is a reward for the creator of the original title. Once the block chain technology has arrived in the mainstream, it will lose its name, he adds. “Many will then use the block chain without knowing it,” Reitwiesser predicts.
Reaching other target groups through block chain
It’s not only technology enthusiasts who are convinced by the new system. Thanks to the block chain Peter Smith said he was able to reach more people in the world. He is making waves with the Bitcoin Wallet which was named after the technology. For many people in Asia and Africa who have no access to the financial system, the block chain offers great hope. “The block chain is fucking complicated, but it is a game changer,” thinks star investor Morten Lund.
This article was originally posted on Gründerszene. Compiled by Caspar Schlenk Tobias, Gründerszene, in colloboration with Max Biederbeck and Timo Brücken, WIRED Germany.