Fintech industry has entered a downward spiral

Berlin The German fintech industry has had a true year of crisis, with bankruptcies, layoffs and reduced company valuations. This low continues, at least according to Bundesbank board member Joachim Würmeling. The industry is always in a cycle. It is currently “in a downward spiral,” he said at a fintech event organized by the Berlin Finance Initiative, Messe Berlin and the Handelsblatt in Berlin. “We see a bottoming out, but no real uptrend yet.”
According to the Bundesbank board of directors, the reasons for this are: the uncertainties after Corona, the risks from geopolitical tensions and the interest rate turnaround.
Investors are clearly holding back in this market environment – and have been since last year. Fintechs have to fight for the next round of financing. In the first quarter of this year, venture capital investors (VC investors) invested a total of 235 million euros in local financial start-ups, according to figures from the analysis company Barkow Consulting. That is three times as much as in the last quarter of last year – but still 46 percent less than in the same period of 2022.
In the phase of low interest rates, there were hardly any alternative investment opportunities for investors, said Würmeling. However, they already exist. However, he does not see the current weakness in the financing rounds in the fintechs themselves. “It is rather a weakness of the entire economy – and that worldwide,” said the Bundesbank board member.
Jessica Holzbach, co-founder and CEO of the Berlin fintech Pile, also said at the event in the capital: “The times for fintechs are still difficult.” Holzbach herself completely changed her company’s strategy after just one year.
Pile was originally founded in April last year to make decentralized financial products (Defi) suitable for the masses. A completely different business model followed in March of this year: The company is now trying to enable start-ups and VC investors to spread their capital across several banking providers.

Wormling: Banks at an advantage

Despite the current crisis, Holzbach still sees fintechs as competition to banks: This is mainly due to increasing digitization – and the founders’ view of believing in “building something big”.
Bundesbank board member Würmeling sees the classic financial institutions at an advantage, especially in the basic offers: the basic functions of the banks, bringing together the supply and demand for capital, is still what the banks represent, he said. “I don’t think this basic function will be tampered with much,” said the Bundesbank board member. “The death of the banks has long been predicted. That was obviously premature,” he said.
The rapidly growing companies and the new business models have also caused increasing difficulties for the German financial supervisory authority Bafin in recent months. “We, as supervisors from the Bundesbank and Bafin, have to adapt to this new environment,” said Würmeling. The business models and the risks of the banks have been the same for years. Now there are new companies with different topics.
However, he assumes that “in the future we will find it easier to deal with fintechs, that the processes will become faster, that our understanding will increase”. “We have recognized the need: If we want to maintain and expand the competitiveness of the German financial industry and the German tech sector, we as supervisors have to go along with it and understand the development,” said Würmeling.

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