Possible scalable deal: The fintech industry is finally calling off the revolution

Many Frankfurt bankers have complained in recent weeks about how big the summer slump is that is plaguing the financial metropolis. Because very little happened in Frankfurt – so little that one or the other banker almost gave the impression of dying of boredom. But now the tension is back, at least for the time being – because Deutsche Bank has apparently taken advantage of the calm.

As the “Handelsblatt” first reported on Thursday, Germany’s largest institute is said to have kept an eye on the Munich neo-broker Scalable. This enables investors to trade shares and other securities cheaply and, above all, via an app. Financial circles emphasize that it is not only possible for Deutsche Bank to get involved with the fintech, but there may also be a cooperation. In any case, Deutsche Bank’s interest is a bad sign. And not for the large institute. But for fintechs like Scalable. The process marks a turning point: the best times for financial start-ups are probably just ending.

It was only a few years ago that the fintechs started with so much verve: companies like Scalable or the online bank N26 gave the narrative to revolutionize the money guild. Consequently, the start-ups formed a fight from their business and their growth, which allegedly served a higher purpose: In this struggle, the fintechs were not only the ones who rebelled, and it was not just about young against old. No, Scalable and Co. held for: the good guys. The classic money houses like Deutsche Bank, on the other hand, declared the fintechs to be the bad guys who allegedly rob their customers.

And yes: This interpretation of the circumstances has a core of truth. The fees that some banks still collect for 0815 services and everyday products are outrageously high. And indeed unfair.

The problems of the fintechs

However, a true interpretation of the circumstances also means that a surprising number of fintechs have never lived up to their own standards – with the result that their revolutionary narrative has turned out to be hubris. And some have even become counterrevolutionaries.

N26 and Solarisbank, which is also located in Berlin, have long been struggling with the worst money laundering problems. And Scalable, which initially worked as a digital investment advisor and only later became a broker, has meanwhile caused investors heavy losses with its allegedly superior investment strategy.

The consequence of all this fintech malaise is that customers sometimes lack the right desire to switch to start-ups in droves (and sometimes they can’t, the financial regulator BaFin even closed N26 because of the money laundering nuisance growth limit imposed). Another reason for the reluctance to switch is that the supposedly bad offers from the old banks are apparently good enough for many customers – especially since they have caught up digitally. No wonder that the growth of active app users in Germany and other European countries has slowed noticeably at the neobroker and scalable competitor Trade Republic, as data from the service provider Sensor Tower show.

Also read: That’s why N26 can no longer compete with the old banks

Scalable, on the other hand, has certainly increased the managed customer assets recently, also thanks to bait offers. In addition, the start-up has been offering its services in other European countries for some time – a step that usually leads to more users because some consumers want to try the offer. Below the surface, however, the first cracks are also appearing here: In Germany, customer growth has recently also noticeably lost traction, according to data from Sensor Tower. And in Europe, growth at Scalable, as has already happened with competitor Trade Republic, could also quickly ebb in the future. To make matters worse, the European Union is also threatening the neo-broker business model because it could ban parts of it – with the consequence that Scalable and Co. could demand more money from their customers.

The lack of customer interest is of course bad for fintechs: some start-ups may never be able to make a profit without further user growth. And even if a fintech becomes profitable: the more difficult it is for young companies to find new customers, the lower the profits. And the more likely it is that the company valuations in the billions that investors have conceded to fintechs are proving to be air bubbles. As a result, going public in many cases could turn out to be a daring undertaking.

That’s why expressions of interest from old institutions like Deutsche Bank are just right: Scalable can brag about its alleged attractiveness – and one or the other investor could still succeed in exiting the start-up if the financial institution enters the market. And Deutsche Bank could also benefit from a takeover by incorporating Scalable’s modern IT, which the financial institution can really use given its outdated systems.

At the beginning of 2016, a journalist from the industry service Gründerszene asked Scalable founder Erik Podzuweit whether his start-up could keep up with a digital investment advisor that Deutsche Bank was launching at the time. Podzuweit answered quite self-confidently: “Of all the worries that concern us as entrepreneurs, Deutsche Bank is the least of ours.” This sentence may now turn out to be true – just in a completely different way than Podzuweit might have meant it. Deutsche Bank could prove to be a solution.

Also read: How successful is Trade Republic’s interest rate offer?