How did it all start?
I have to confess, it all started with aimlessly scrolling through social media.
As I was checking my LinkedIn feed, I spotted a post about the Frankfurt Digital Finance Conference that caught my attention. Its agenda covered my favorite topics in the field, such as sustainability, ESG, green finance, fintech investment as well as cryptocurrencies, blockchain and digital banking. The aim of the conference was to help disruptive companies find corporate partners and investors to scale up faster, and established financial services providers to innovate their business models.
I made a pitch for a business trip and it was accepted! So on February 2, I hopped on a plane in Barcelona and headed to Frankfurt.
The organizers picked a unique venue, the conference was held at the Zoo Palais Frankfurt. The first keynote speaker was Ali Niknam, the founder and CEO of Netherland-based digital bank bunq. Bunq was founded in 2012 and has been a full-fledged bank since 2014, getting the official banking licence from the Dutch Central Bank. The full bunq app was launched in November 2015. Bunq was the first bank to introduce the concept of Freedom of Choice in 2018. It means that bunq users have the freedom to choose where their money is stored, and how it's used. In 2019, bunq was released to all markets in the European Union, Norway and Iceland, which brought its market coverage to 30 markets.
Although Niknam once told Dutch newspaper Het Financieele Dagblad that he would “rather sell a kidney” than accept an external investor, British private equity firm Pollen Street Capital acquired a 10% stake in the bank for €193 million in 2021, valuing it at €1.6 billion. That was the largest ‘Series A’ round for a European fintech company. As part of the deal, bunq acquired Capitalflow Group, a privately held Irish lending company.
Niknam said at the conference that he wanted to “start modest, focusing on clients’ and users’ needs”. The biggest mistake he made was that he wasn’t aggressive enough with his first business, he didn’t go international fast enough. He also believes that banks and politicians should cooperate to ensure that customers get what they really want.
Fintech exits and later-stage funding
The next discussion was about later-stage funding and exits for fintechs. Max Floetotto, a Senior Partner at McKinsey & Company, said that 2021 saw lots of global fintech exits, in the total value of $491 billion.
The largest exits in 2021 included:
- US crypto exchange Coinbase
- Brazilian digital banking platform Nubank
- US online broker Robinhood
- Australian payment firm Afterpay
- US lending firm Affirm
He pointed out that we don’t see Europe here. The question is whether large fintech exits are also coming to Europe?
According to Floetotto, there are 8 tests for a successful late-stage fintech model:
- a highly differentiated customer relationship
- truly privileged data and insights
- substantial and clear bets placed in areas where you are distinctive
- a steady stream of new revenue sources
- a unique strategy on the impact of environmental and social transformations
- a clear vision of how you can build economies of scale advantages
- superior insights and solutions into existing and emerging risk areas
- an attractive investor story that recognizes your unique value proposition
Stephen T. Considine, Managing Director of Financial Institutions Group at Goldman Sachs talked about the financial profile focus areas for late-stage investors as well as non-financial prerequisites. Robust business models with strong revenue generation and a clear path to profitability resonate best, he said. Finally, he compared SPAC mergers with other exit options, such as IPOs and trade sales. Some of the pros include that SPACs ensure faster access to capital markets and potential for greater secondary proceeds.
Cryptos and ESG
In the afternoon, it was hard to choose between the three parallel sessions. After a bit of an inner struggle, I decided to listen in on the session on cryptocurrencies first. One of the speakers, co-founder & CEO of coindex Kai H. Kuljurgis, is currently building the first regulated German platform for passive savings in DeFi/crypto coindex. He wants to make investments in cryptos available to everyone in a simple, transparent way. He pointed out that most crypto investors are inexperienced and young traders get overexcited easily. Another speaker said that volatility is not an excuse to criticize crypto.
At the ESG transformation session, Jürgen von der Lehr, head of strategy at ING, said that ESG transformation is not only a challenge but also a huge opportunity for banks. As banks can steer where the money flows, they can steer it toward more sustainable businesses as well as toward businesses that need to be transformed. Banks can also help private customers, for instance, to modernize their real estate. The main challenges, according to him, come from the regulatory environment.
To assess ESG risks, ESG data science firm RepRisk looks not only at data sources like news articles, social media and government organizations, said Global Head of Sales Antonio Fuentes. They also analyze how the market talks about the company and how the company behaves in the market. They believe that this information is crucial. The company is combining machine learning and human intelligence to identify ESG risks.
The conference ended with the speech of Dr. Roland Folz, CEO of Berlin-based digital banking platform Solarisbank. The bank enables other companies to offer their own financial services using their APIs. An application programming interface (API) is a connection between computers or between computer programs. Solarisbank’s partners can integrate its modular banking services directly into their own product. The platform offers digital bank accounts and payment cards, identification and lending services, digital assets, including custody and brokerage, as well as services provided by integrated third-party providers. The bank’s partners include German online broker Trade Republic.
Apart from the presentations, the event was a great opportunity to meet new people. Since there was no formal closing event or drinks immediately after the conference ended, which would have made it an ideal time to network, we went to a nearby restaurant with a few other attendees. That allowed us to reflect on some of the conference topics and exchange interesting trading tips. And, of course, we had a few glasses of wine to wind us down.
All in all, it was great to learn about the latest insights, gain new ideas and meet digital finance experts face to face. I hope to be there again in 2023!