Joachim Würmeling explains the low-interest rate turnaround, among other things. He believes that the Bundesbank and BaFin still have some catching up regarding supervision. The German fintech industry has had a real crisis year, with bankruptcies, layoffs and reduced company valuations, he explained.
This fintech low continues, at least if Bundesbank board member Joachim Würmeling has his way. The industry is always in a cycle. It has “entered a downward spiral,” he said at a fintech event hosted by the Berlin Finance Initiative, Messe Berlin and Handelsblatt in Berlin. “We see a bottoming out, but not a real upward trend.”
According to the Bundesbank executive, the reasons for this are the uncertainties following Corona, the risks posed by geopolitical tensions, and the interest rate turnaround.
Investors are holding back in this market environment – and have been since last year. Fintechs have to work hard to raise the next round of funding. In the first quarter of this year, venture capital investors (VC investors) put 235 million euros into local financial startups, figures from the analysis firm Barkow Consulting show. This is three times as much as in last year’s last quarter – but still 46 per cent less than in the same period of 2022.
During the low-interest phase, there were hardly any alternative investment opportunities for investors, Würmeling said. Now, on the other hand, there are. However, he doesn’t see the current weakness in funding rounds as coming from the fintechs themselves. “It is rather a weakness of the entire economy – and worldwide,” the Bundesbank board member said.
Jessica Holzbach, co-founder and CEO of Berlin-based fintech Pile, also said at the event in the capital, “Times are still tough for fintechs.” Holzbach herself has wholly changed her company’s strategy after just one year.
Originally, Pile was founded in April last year to make decentralized financial products (Defi) suitable for the masses. In March of this year, a completely different business model followed: the company now seeks to enable startups and VC investors to spread their capital across multiple banking providers.
Despite the current crisis, Holzbach still sees fintechs as a competitor to banks: This is mainly due to increasing digitization – and the founders’ view to belief in “building something big”.
Bundesbank board member Würmeling, however, sees traditional financial institutions as having an advantage, especially in terms of primary offerings: the essential functions of banks, bringing together the supply and demand for capital, continue to be what banks represent, he said. “I don’t think there will be much shaking of that basic function,” the Bundesbank board member said. “The death of banks has long been predicted. But that was premature,” he said.
Fast-growing companies and new business models have also been causing increasing difficulties for Germany’s financial regulator Bafin recently. “We as a supervisory body consisting of the Bundesbank and Bafin have to adapt to this new environment,” Würmeling said. The business models, as well as the risks of the banks, had been the same for years. Now, he said, there are new companies with different issues.
However, he expects that “in the future, we will find it easier to deal with fintechs, that the processes will become faster, that our understanding will become greater.” “We have recognized the need: If we want to maintain and expand the competitiveness of the German financial industry, of the German tech sector, we as supervisors have to go along with it and follow the development,” Würmeling said.
