Interview with Michael Mellinghoff from TechFluence

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We talked to Michael Mellinghoff, Managing Director at TechFluence. Being a longtime banking professional with several years of experience with FinTech startups, we asked him about some of the key questions in the industry at the moment.

TechFluence is the FinTech pioneer in Germany, by publishing FinTech studies and research already back in 2012. TechFluence is best known for the FinTech Forum in Frankfurt which the founder of TechFluence, Samarth Shekhar, created in 2013 together with Frank Schwab. They realized there were numerous fintech startups all over Germany, but there was no real platform for them to be able to meet investors. After the first events they were overwhelmed by its success and are currently preparing the seventh edition of the FinTech Forum in April 2016 in the Airport Club in Frankfurt. For TechFluence this is also a chance to get in contact with the market. The fintech sector, like many others, is mostly about trust. It’s a people’s business, Mellinghoff says, and TechFluence wants to establish more relationships with the financial industry. According to him, the FinTech Forum is perfect for that.

FTW: Please introduce yourself and Techfluence to our readers.

Mellinghoff: “Techfluence is, in a way, a translator between both worlds: startups on the one hand and the financial institutions on the other. There is a tremendous difference in size and also in attitude between those two worlds. After working in banking for over 15 years, I had the opportunity to work in a startup for more than three years and help shape it as an executive, so I have valuable experiences from both sides.

In my view, it is important that corporate managers and startup entrepreneurs have a dialogue on an equal footing. It is quite a challenge to achieve this, but Techfluence can help here. Both sides need to be open of course. Often this is not the case from the start, as both sides may have their biases.

FTW: Do you think there is a fintech bubble?

Mellinghoff: “I don’t think that there is a bubble. Let’s take a closer look at the arguments. Some of the valuations support the bubble thesis, but it seems mainly a US phenomenon. For example, the valuations we see in the market in continental Europe are significantly lower than in the US. The high number of startups is another example, but if you look into the subsectors you often find that there are only a few competitors. Take robo advisors in Germany, for example. There are only a handful of players yet , but how many banks compete in the same segment? Quite a few more! Given the significantly lower marginal costs of a startup, I believe there is room for many many more. If you analyze the figures, a lot of the Fintech steam came from UK since 2013. A very good reason could be that the government backed – and still does strongly! – FinTech. Do we see other governments act similarly at the moment? Maybe a handful, but not on global scale.

Furthermore the state of many bank IT departments is a great opportunity for Fintech as for example Deutsche Bank CEO John Cryan recently confirmed, there is a lot to do in their IT department.

This does not happen overnight. And lastly: so many people speak about the B-word and seem to be aware of the danger, so that I cannot believe we are in a bubble. We clearly see a hype and and overdue development, but not a bubble. But in the end time will tell.

FTW: I have a pretty bold assertion I would like you to comment on. Some fintechs aren’t concerned enough about the rules and regulations of the finance sector. They just do; they build their product and rely on banks to take risks when partnering with them or having them invest in them.

Mellinghoff: This is not a contradiction but it is a great example, how it makes sense for Fintech startups and banks to partner up. The startups bring the customer friendly experience and the banks bring the expertise on back office and regulation. This is a win win situation for both: the startups gain a reference client and banks gain business and new insights from customers in a new client group.

FTW: Can you imagine a world without banks in the future?

Mellinghoff: Without banks as we know them today – absolutely. The functions of a bank will remain, there will have to be something fungible in the economy, a currency, an asset, to exchange services. Be it Bitcoin or something else, but banking as I learned it during my bank apprenticeship won’t exist anymore eventually, I strongly believe.

FTW: How will they look like then?

Mellinghoff: There will be mixed forms probably. Imagine a petrol station in the 70s. They sold petrol, cigarettes, bubble gum and newspapers. Their main revenue was petrol. Today they look and feel like a supermarket and 80% of their revenue comes from drinks, fast food, frozen pizza, chocolate bars and so on. I guess banking will become a little alike. Brand will be incredibly important and there will be different brands jointly creating a customer experience without being just a bank. I imagine some kind of meeting point, like a lounge where different businesses will merge. Banking will be only one thing for example, a private bank might partner with a watch producer and offer exclusive chocolate to serve the same client group.

Moreover, 99% of customers in future will use their devices for financial matters, but there will always be some cases where customers need a branch and a bank employee to talk in person. There will be cases where technology fails the client at a critical points (e.g. critical payment) and in order not to lose the customer’s trust, the bank will have to serve them otherwise.

FTW: What will happen to the insurance, regarding the developments in banking at the moment?

Mellinghoff: Insurances are definitely behind in terms of digitization. Surprisingly, the InsuranceTech segment is forming only now. Insurances have the advantage that they are able to observe what happens to banking, but the big challenge obviously is still ahead: how to digitize the structures that they built over the last decades and that are even less flexible than those of banks. That will be a huge topic in the future, the insurers will be the last fortress in finance to be conquered, I think.