Digitization Redefines the Rules of the Game

In the digitization of financial services, the German financial and insurance sectors are still at the beginning of these revolutionary changes. The current trend is not just mere innovation, but a real cultural change. The task of the day for the technical departments is not only to reorganize proven processes to make them quicker and to use paperless methods, but to completely rethink them. And of course, the new and the old world of finance are communicating in Germany as well: at least 87% of the banks surveyed by the Federal Ministry of Finance stated at the end of 2016 that they had cooperated with at least one finance start-up and that they were planning on continued cooperation or participation in the future. Banks, and of course insurance companies as well, benefit from the customer orientation, innovation and flexibility of the new digital players. FinTechs can, in turn, use the reputation of a bank or insurance company to their benefit. In the end, these synergies will remove any opposition and the result will be that it really does not matter where the customer gets his advice from.

How Two Bankers Became the Founders of a WealthTech

Everyone knows that challenging the status quo can sometimes have far-reaching effects down the line. In the moneymeets founding story, the crucial question was asked in 2010 by Johannes Cremer and it was: “Will client advisory meetings (client consultations) with our bank customers remain effective?” At that time I had more than 25 years of experience in customer services and before I resigned, I was responsible for the entire retail business of the Kreissparkasse Köln, Germany’s third largest savings bank at the time, with total assets of approximately €25 billion. Johannes Cremer, my co-founder, had also gained more than 20 years of banking experience. Customer confidence in banks was low due to the financial crisis and the regulatory requirements had already been tightened. Banks and insurance companies were still largely untouched by innovations. We were soon in agreement that the trend towards digitization which had spread through other industries like trade and tourism a long time ago would not stop at the banking industry either. Why should it? We concluded that banking activities lent themselves well to digitization, and that an online marketplace for financial products could be promising.

Using our own funds, we commissioned an IT company with programming the portal and decided to leave the safety of our workplaces and the colleagues we had grown so fond of, to start moneymeets together. That same year we were able to win the support of two Cologne family offices, with their investment of a seven-digit euro amount in our business idea. At the end of 2012, the first version of the moneymeets marketplace went live – the first financial portal that offered a marketplace with real financial strategies for private investors, a community for exchanging financial strategy ideas, complete cost transparency, as well as the option to purchase more than 20,000 investment funds without an initial fee.

In 2014, the Handelsblatt publishing group invested via the Dieter von Holzbrinck Ventures in our business and moneymeets expanded their marketplace to insurance products. To this day, moneymeets is the only portal where customers can check more than 140 different insurance companies for statistics on annual sales commissions paid for their existing insurance contracts, and where they are able to receive a 50% refund automatically when integrating their current insurance policies with moneymeets or when signing up for new contracts. This offer is unique in the German market. In 2015, moneymeets expanded with a complete financial aggregation service and by offering asset statements for all their accounts, deposits, insurance instruments and other financial products. Irrespective of the bank or insurance company that the customers are maintaining their products in, they can be compiled and evaluated in the moneymeets financial overview. That same year the Swiss Woodman Asset Management Group participated in moneymeets and a new collaboration with Fidor Bank followed. They began to refer any customers expressing an interest in securities and insurance products. In 2016, investor integration from the largest Swiss retail bank (PostFinance AG) followed.

Wealth Management with Moneymeets

Today, moneymeets is the leading independent internet platform for personal finance management (PFM) in Germany. The platform makes it possible for anyone to set up their digital financial home easily and free of charge. Our platform has thereby become the digital alternative to the personal banking and insurance services consultations that are still so common in Germany. The customer’s personal profile allows them to manage all their financial products from just one site. This makes it possible to establish a complete, customized and cross-vendor overview of their finances, their bank account, and even their investments in funds and insurance products. We offer great advantages not only in clarity, but the cost of doing business in investments and insurance products is also significantly lower than in the traditional commission-driven German financial market. Any efficiency gains thanks to our cost-effective digital processes are passed on to customers as a price advantage. In addition, service challenges such as opening hours or lengthy consultations are no longer an issue, as the services are available at any time. This makes our offering a much better fit for the life reality of many customers, plus it provides banks and insurers with the added opportunity of targeting new client groups, or following up and reactivating customers from their existing customer base.

Of course, customer inertia and possible fears are just as great a challenge for the WealthTechs team to overcome. Great trust is required to share one’s own financial information with a start-up business. And we also know that German customers may demand greater trustworthiness than users in other countries. To win this trust, moneymeets consistently relies on user-centred processes and absolute cost transparency. It is normal in the German financial sector to include commissions in the cost of the product without transparent disclosure to the customer. On moneymeets.com, however, all commissions, surcharges and fees for financial products can be compared with complete transparency – which is a novelty for the German financial market. moneymeets uses this to counteract the information asymmetries which exist between consumers and the financial sales sector in Germany. We voluntarily established true consumer protection. This was recognized by the prestigious German consumer protection organization Stiftung Warentest, which recommends moneymeets.

In addition, all commissions that we receive as product distributor are split with the clients. When buying new products, moneymeets forfeits up to 100% of the commission paid by the financial institutions; for existing products, which the user integrates into his moneymeets account, we pass on up to 66% of any regularly received annual portfolio commissions to our customers. This makes moneymeets the price leader for funds, deposits and insurance products in Germany.

Working with Regulators

Regulatory conditions do play a significant role in the growth and innovative power of the industry. In the UK, the Bank of England and the FCA are considered true pioneers. Since 2016, FinTechs in the UK can apply to the so-called regulatory sandbox. As participants of this project they are allowed to test their business model for three to six months in the market and benefit from much looser regulatory provisions. A similar regulatory scheme is currently being tested in Switzerland. Do we need a “sandbox” in Germany as well to provide young entrepreneurs with an experimentation field? There is no doubt that some regulation in Germany does create difficulties for the young industry. And the German insurance and finance industry has a very hard time implementing European guidelines and opening themselves up to the market. In principle, we hold the opinion that regulation can be a real advantage as well. It forces all companies to play on an equal playing field and create insights through standardization of processes and product requirements, especially for innovative digital approaches. Last but not least, regulation does build trust and confidence, which can be a true benefit especially for start-ups.

Following initial reluctance, both the German regulator BaFin and the German Ministry of Finance are now striving for a constructive dialogue and the promotion of the German FinTech scene. In December 2016, BaFin successfully completed its project “FinTech”. One of the project’s aims was to ensure that FinTech start-ups gain assistance, in order to better understand the prudential perspective of BaFin. Depending on the business model, FinTechs also need permission from BaFin and have to meet the corresponding supervisory requirements. A newly founded unit in the BaFin presidential area will focus on new financial technologies and institutionalize contact with the FinTech industry. At the same time, the Ministry of Finance established the FinTechRat in March 2017, which is intended to advise the Ministry on issues relating to digital finance technology. The FinTechRat is so far comprised of 20 members. These are representatives of FinTechs, banks and insurance companies, as well as academics researching the digitization of the financial sector. The FinTechRat is supplemented by supervision and ministries.

I can only recommend that any FinTech founder engages actively with their local regulator as soon as possible, and supports the growth of their local FinTech ecosystem to counterbalance the influence of the traditional financial services sector.

How to Scale a Successful Team

After we began with two permanent members of staff in 2012, our team grew to 40 colleagues by 2017. Long-term personnel planning, an effective and efficient recruitment process, and the founders’ decades of managerial experience were crucial prerequisites for our successful staffing. Attractive employer branding to target top talent and achieve long-term employer attractiveness have been part of our toolkit. We have an ideal network in the media and insurance capital of Cologne, and sought proximity to universities. For instance, we have been cooperating very closely with WHU – Otto Beisheim School of Management since 2015. As part of the joint research project VikoDIA, we conduct research into the investment consulting of the future. The project is funded by the European Regional Development Fund (ERDF). The aim of the project is to develop an innovative visualization concept for comprehensive digital financial advice. To plan and handle the workflow, we rely on agile scrum methodology not only for software development but also for product management and marketing.

Finding “Good” Investors

When we founded moneymeets in 2011, Johannes and I already had extensive experience in the banking world. This is certainly the biggest difference compared with other founders, who are often at the start of their professional careers or are attempting to position their business model in an industry environment that is new to them. As former executives, we were able to draw on a wide network when looking for investors. Our first two investors come directly from our network.

The further search for investors was surprisingly simple. We were one of the first German FinTechs, knew the industry and the investors involved there, and were able to offer a brand new concept. For young founders and start-ups who are starting out as newcomers in an already established industry, this means that they should invest a great deal of time in networking. Those who are recommended by the right people appear trustworthy. This makes a huge difference and significantly increases the likelihood that you will find an investor. Above all, business networks and start-up conferences are suitable platforms for entering into conversation with relevant decision-makers. However, pure industry events without a direct FinTech focus are also an excellent opportunity to become known and make contacts.

But what is a suitable investor? Someone who provides “smart capital”. At a management level, a “smart” investor knows the many pitfalls that threaten a young company. He can use his experience as a kind of mentor and help to prevent founders from making many classic start-up mistakes. At the same time, he understands the business model and uses his expertise to help position the company correctly on the market and make the most of its opportunities. What’s more, he is an important partner when it comes to further expanding his own network – for instance, finding additional investors. It is also extraordinarily helpful to put yourself in the investor’s shoes and really understand his or her motivation for the investment before you sign the contract.

WealthTech Market Germany – A Small Excursion

According to McKinsey, 20% of all savings and investment products in Germany are purchased online. We expect this number to rise to 35% by 2020. According to the current “FinTech-Markt in Germany” study, commissioned by the German Ministry of Finance and published in October 2016, about 1.2 million Germans currently use independent PFM systems to get a better overview of their finances and to manage their assets. The German WealthTech and FinTech industry functions in a very fast-paced and dynamic environment, with a variety of different business models. Since many companies, just like moneymeets, are active in a number of segments (PFM, insurance), their precise categorization is often not easy. Start-ups in the financial sector are developing rapidly, and they continue to boom. The total previous yearly market volume of the financial technology companies currently active in Germany was €2.2 billion; this figure was for their financing and asset management sectors alone. The market value of the German industry as a whole could possibly grow to €148 billion within the next 20 years. This is the forecast of Professor Dr Gregor Dorfleitner from the University of Regensburg and Junior Professor Dr Lars Hornuf from the University of Trier, based on their study on behalf of the Federal Ministry of Finance we mentioned previously. They are not quite a danger to the status of the established financial system yet, as their share is still too low in comparison with conventional finance in Germany. The researchers infer from their study and forecast as follows: “If the dynamic growth of the FinTech sector should continue to grow and their vast growth potential should eventually become exhausted, systemic risks could possibly develop.” Their assumption is an enormous market potential for finance start-ups, currently estimated at €1.7 trillion for the financing and asset management sectors. According to the Federal Ministry of Finance, 346 active start-up companies makes the German market the second largest in a comparison of European countries, right after the UK. They also report growth of approximately 150% annually.