Today’s FinTechs Will No Longer Be FinTechs Of Tomorrow

Good ideas don’t happen at the drawing board or in a quiet room — thinking and working creatively requires inspiration, discussion and stimulation. The partnership between Aareal Bank and TechQuartier is a real-life example of how new life is being breathed into innovation management.

As a platform for networking, inspiration and visibility in the startup scene, TechQuartier brings together startups, established corporates and young talent. Aareal Bank has also been on board since spring 2017, and not only has their collaboration changed since then — Frankfurt as a FinTech location has also become increasingly professional.

To talk about innovation in FinTech and data availability, Dr. Sebastian Schäfer, co-Founder of TechQuartier, and Daniel Höfelmann, Director — Innovation Management at Aareal Bank AG, share their insights about partnerships, the Financial Big Data Cluster (FBDC) and FinTechs.

How do you think the partnership between Aareal Bank and TechQuartier has developed in the last four years?

Höfelmann: There was a great deal of curiosity amongst all the participants at the start. We met all the partners (also those from various banks) at the initial meetings and spoke openly about the innovation activities going on at the time — this may seem completely normal today but it was extremely unusual back then. Our team also used TechQuartier as a workspace, for it was clear to us that we have to get out of the Bank from time to time and sit in an open space in order to identify new topics and network in the community — that brings fresh input. Then, for a while, there were a great many events at TechQuartier: content-driven meetings, for example, or events with start-up pitches featuring banks or partners on the stage.

Schäfer (laughs): Yes, we put on around 300 events in 2019 alone.

Höfelmann: There were also exciting phases in which we sat together with the partners and deliberated on whether and how a larger accelerator program could be created for Frankfurt. One result in TechQuartier from this time, which still impresses me, was the creation of the Plug and Play Fintech Europe start-up accelerator, which we’re still closely connected with today via our Group-wide Start-Up Program. In my view, that’s still a strong signal for the location. With the aim of advancing digitalization in the property industry further, we’re also involved in the blackprint PropTech Booster (which is located at TQ as well) via our subsidiary Aareon. And I’m sensing that the next phase is coming right now — for the programs are getting bigger and everything is becoming even more professional.

Schäfer: That sums up the development very nicely. When I look at where we are today, I see that our concept and model have indeed evolved a great deal. Nowadays, we’re no longer focused solely on the physical interaction at the location but can also, for example, be involved in initiatives like the Financial Big Data Cluster. Little by little, our role has evolved. Today, we’re a broker of innovation: we connect, enable, accelerate and manage — depending on the project.

Within its partnerships, Aareal Bank is involved in many projects aimed at developing the industry further — and via TechQuartier, it has recently become an Associate Partner of the Financial Big Data Cluster (FBDC).

Which issues do you think the FinTech sector will be concerned within the near future? What do they mean for the competitiveness of the Frankfurt financial market going forward?

Schäfer: In the years to come, few topics will concern the FinTech sector more than data, and the same is true for the established financial sector. The Financial Big Data Cluster, for instance, is doing important groundwork here: we have to create the foundation for using Artificial Intelligence now. This is also pushed forward by our involvement in the EuroDat project, which aims at creating a neutral, unbiased data custodian. This whole topic is also a huge magnet for the international startup scene and an important step for the location of Frankfurt.

Höfelmann: In the case of the established banks, I’m sensing them looking at the startup scene and thinking something that can be best summed up as: “All the B2C FinTechs that can be founded have now been founded.” They, therefore, believe that so many new topics and completely new ideas for business models have already come from the FinTech sector in the last few years that we’ve gradually come to see pretty much everything. Yet there’s also an expectation that the already successful startups today are likely to become even more successful and bigger in the coming years. This requires investment, and investments are clearly being made too: in the first few months of 2021 alone, there have already been nearly as many funding rounds as there were in the whole of 2020. That’s no coincidence; digital business models are going through the roof, especially now during the coronavirus pandemic.

Will the innovative developments from the FinTech scene soon be at an end, then?

Schäfer: I think that we should be prepared for further innovations — customer preferences change, sometimes even due to external shocks like a pandemic. Modern technologies are allowing us to think in ecosystems today, and we will see more platform models as a result. Due to their culture, IT issues, legacy, etc., established companies find offerings of this kind hard to copy, so companies that manage to think in platform logic will, I believe, become increasingly successful in the future. Today’s FinTechs will no longer be FinTechs of tomorrow — but companies that offer additional services, thereby reinforcing the trend of disappearing industry boundaries. To sum it up, I think that there will definitely be new, interesting ideas in the future, and therefore new business models too — but not along the value chain of banks.

Höfelmann: Absolutely. In the future, more and more platform topics will spill over from the B2C into the B2B world. In the B2C world today — as already mentioned — there’s already a platform for practically every need and any situation in life. In the B2B sector, however, things are just getting going, really, with specializations and “niche” theme platforms — behind which are often major corporates trying to translate platform models into the B2B world, albeit frequently in collaboration with startups or technology companies. In my impression, however, it’s often a challenge for these players to think as openly as an independent startup. As you’ve already said, Sebastian, they have a different culture and legacy, and also a different way of looking at things from a legal and reputational perspective.

TechQuartier is one of the patrons of FBDC, in which industry players are pursuing the common goal of establishing a cloud-based data platform for the financial sector. Why do we need a platform like this?

Schäfer: There are many challenges — from anti-money laundering to market integrity issues and assessing climate risks — for which we still have no satisfactory answers today. This therefore prompted the idea to combine data from companies, authorities and the academic/scientific community — data that are already available in isolation — and make them available as a basis to analyse and deal with precisely such issues.

An absolutely fundamental prerequisite here is that the data are handled securely and reliably, which requires appropriate infrastructure and associated models, among other things. The consortium has now been established to set all this up: fulfilling all the regulatory requirements and technical conditions here will be a highly complex task that can only be overcome in the form of a cooperative project and in close consultation.

Aareal Bank is supporting the FBDC with data. Why is the Bank involved in this field and how does this partnership work in concrete terms?

Höfelmann: Owning certain data in our “silo” does not necessarily give us a competitive edge, so why shouldn’t we be able to share (provided the laws and regulations permit) these with others via a platform? When it comes to sustainability and ESG, there’s now an incredible amount of data on market participants, markets and properties, so instead of this information merely sitting here with us, it could be made securely available to the market in the form of anonymized raw data and used as a basis to create exciting use cases. This is why we’re involved in the FBDC — and the fact that the German Central Bank is also on board gives the project a whole new significance again, of course.

The FBDC is still in its infancy. What, in your view, are the critical factors needed to turn the initiative from a pure vision into a successful project?

Schäfer: There are two issues here. First, the stakeholders need to have a shared vision because the project is, after all, not solely geared to banks, to supervisory authorities or to startups — it will only function if everyone works together. I see the regulators, in particular, as a critical factor here as it will take courage to think one step ahead together.

Second, we must succeed in clearly identifying the added value for all the participants from the public and private sectors. There’s much diversity here, so developing suitable, data-driven pricing and business models for all of them will be a critical factor. Past projects have failed frequently on this point. The participants usually have technical and regulatory challenges on their radar, for these are all issues that can be resolved. When it comes to developing incentive models for data collaborations, however, there’s still some work to be done.

Can the FBDC succeed where others have failed?

Schäfer: Yes, I believe so. We must also bear in mind that both the time and a certain pressure are playing into our hands in the FBDC — it’s a great deal easier to find common solutions today than it was five years ago. Furthermore, there’s currently a lot of discussion about the fact that big techs are increasingly taking on a “deep state” role and simply defining rules themselves. Pressure is growing on the industry to develop solutions here because we want to find alternatives.

Höfelmann: In contrast to other initiatives, the FBDC has also fought long and hard for the budget pot, and state support in the form of tax revenues can now be used as well. For this reason alone, I can sense great commitment to this issue from the inner circle. All in all, there is great determination to advance the targeted issues together.

Schäfer: Overall, the FBDC will be getting 16 million euros, ten million of which is coming from the federal government. To be clear, I don’t believe that this will allow us to realize the big picture and vision, but it will make us work together for three years and do justice to these funds. On the positive side, I’m pleased to see that the federal state of Hesse, for example, is already committing to going a step further, which is why a feasibility study has been commissioned. This means that we’re already thinking beyond use cases, and beyond regulatory, technical and business issues/requirements — all under the overarching question of how these areas can be developed further towards the creation of a shared data platform. That’s a start, a first block to build on — and while this first block is being put in place, the next promotional projects are already waiting to be dealt with.

Find them on LinkedIn:Dr. Sebastian Schäfer and Daniel Höfelmann.