The banking sector is changing. There are more and more start-ups that offer financial services. Fintech companies challenge established banks by enabling the customers to raise a credit digitally and without a middleman, place funds, or make payments. According to a study by the fintech forum DACH, there are more than 100 start-ups from the field of online finance in Germany today – with upward tendency. Most well-known startups are mobile payment service Payleven, big-data service Kreditech, and Munich-based Fidor Bank. Fintechs believe in new technologies and innovative applications that are easy to understand and mostly handled exclusively online. They use their high degree of specialization to optimize and automatize processes. Thereby, start-ups are able to offer certain products and services cheaper than big banks. These innovators are already real rivals, who compete with the established banks for market shares. They have better customer-orientation and transparency, which are good starting points for banks to defend against their competitors and increase their own customers' satisfaction. Banks, insurances, and other financial service providers need to face the challenges and learn from them to strengthen their own profile.
Distrust in classic financial institutions
Technological progression enables the customer to be informed and emancipated from the old branch system. Moreover, the last word has not been spoken on the question if the big players of the old world of banking are also the most important players in the new world. A recent poll from Prophet revealed that three of four Germans consider transferring their banking activities to another provider, as they believe the banks only pursue their own advantages. Moreover, above 70 percent want to do transactions primarily online instead of having to walk to a branch. Many fintechs rely on this and try to fill market niches with new business cases. So, can we expect numerous new banks flooding the market in the future? This scenario is rather unlikely, because it is complicated and expensive to found a bank, not only in Germany. The requirements are a lot higher today than they used to be only a few years ago. This is also one of the reasons why there has not been a single universal bank with a large deposit business among the few banks that received a banking license for the German market. To found a bank you do not only need a good business case but large capital resources and the possibility to easily establish a connection to the customers. Financial supervisor BaFin stated that they only issued four banking licenses in 2012 and 2013; 2014 Bergfürst was the only institution to achieve the license. The extensive BaFin regulations may cause decreased flexibility in the everyday business, but a banking license is beneficial in terms of customer trust – which has become a rare good since the financial crisis.
Crowd-investing market is growing rapidly
There are more and more alternative methods of financing offered by finance start-ups. Crowd-investing platforms pose an alternative to established sources like loans, incentives, or venture capital. This new means of financing is popular: the designer brand "Urbanara", the "Stromberg" movie or the high quality music player "Pono" by Neil Young – the swarm funds more and more ideas and projects. Since 2011, when the first crowd-investments started, the market is growing fast. It is often easier to just finance a project through the crowd than finding a single fitting investor. Alone in Germany, there are now more than 30 crowd investing platforms; until the end of 2013 they collected around 20 million euros. But there are no regulatory rules for the providers of these services. To increase transparency and to protect the investors from fraud, the legislators want to change this state. The authority of BaFin will be expanded according to a provisional draft on the protection of small investors. Crowd-investing projects exceeding 1 million euros will need to have a security prospectus. This governmental regulation makes sense, but entails the danger of an over-regulation that might affect the competitive market in the field.
Bergfürst offers crowd investing 2.0
By receiving a banking licensing in 2014, the Bergfürst Bank AG is already subject to regulation by the BaFin and certain publication requirements. Therefore, it is allowed to offer tradable equity interests. Bergfürst wants to add to the advancement of the self-determined investment culture in Germany – away from commission-oriented consulting and toward autonomous decisions when it comes to investment. To achieve this, investors need to be provided with all information concerning an investment – transparently and comprehensible. Therefore, customers are granted access to asset classes that are normally not accessible for private customers, like exclusive pre-IPO investments in young companies and shares of single real estates with fixed interest and a security prospectus approved by the BaFin. Through this prospect, private investors have access to information on, for example, the history of the real estate. They have information on the location, the condition of the building and the number of tenants. If they want to know about past vacancy rates or if the building has been renovated regularly, they can. Additionally, Burgfürst offers more informational material via the platform, for example an exposé and an investor message board. With this altogether, any investor is able to get an idea of the risk-opportunity profile of the investment. After the emission the investors have the opportunity to trade their shares via our trading platform. This way, they remain flexible and can adapt their investment to the recent market situation.
Neo-investing for young and growing companies
Apart from real estate investments, young companies are offered the opportunity to collect growth capital from 1,5 to 10 million euros via the trading platform. This offer is explicitly addressed at companies that have already reached market exploitation and penetration and who are in need of fresh capital. Bergfürst offers these growing companies access to venture capital for their further development. Companies in the second or third financing phase can emit shares via the bank and get required capital this way. Financing gaps can be closed and it can be assured that young companies can keep acting in the market. Additionally, the investors can support the companies in advertising their products and services. Because, if people invest in a company they are interested in supporting it and thus become advocates for them. With its neo-investing approach, Bergfürst offers a new financing method, which enables young and growing companies to enter the capital markets.
Conclusion
In the past years, numerous start-ups offering financial services were founded in Germany and they rely almost exclusively on new technology – which is not very likely going to change. Especially the wish for more transparency and customer friendliness will change all financial products and services gradually. The crowd-investing sector also made the big players question their methods and prompted some changes for the better. Still the legislator has to take great care that the investors are provided enough information about the risks and chances of the investment before the emission. The neo-investing platform of the Bergfürst AG proved successful in operation, enabling new investment concepts to be developed on this basis, which entails additional value for the companies involved.
