Europe needs a Silicon Valley

Europe needs a Silicon Valley

Europe is in need of its own kind of Silicon Valley, thinks Carolin Gabor, PhD. Such a model would be considerably more effective than the many FinTech hubs that are emerging scattered across the continent. As the managing director of FinLeap, she supports young financial institutions with their strategic development and successful growth right up to a possible exit.

Carolin Gabor, PhD, is the managing director of FinLeap and the founder of Fintech Ladies Europe. This network connects women in leadership positions in the finance and FinTech sector, and organizes regular events to support them in the development of professional business connections.

Interview with Carolin Gabor

Dr. Gabor, the European Union is planning a program to promote FinTech companies.

I welcome any of the EU’s action plans that recognize the digital value creation in the FinTech sector as a key factor and especially one that promotes it further. Digital technologies not only strengthen the companies in the FinTech sector, but the economy as a whole as well as the citizenry. We have to create a favorable environment for innovation and at the same time protect consumers – the result of new technologies must not be the misuse of data. For me, it is especially important here that consumers are aware of their responsibility regarding their own data. In the future, some more personal aplomb in this area could set a lot of things in motion. If the EU intends to encourage this, I can only support it.

What else would you wish for?

It is imperative to remove obstacles that hinder competition in the FinTech sector. For example, the EU should harmonize the fundamental rules and above all create a uniform KYC process. Besides, in my opinion, we need a kind of Silicon Valley in Europe where companies can network properly and even large investments by highly capitalized companies, such as insurance companies or pension funds, may be mobilized. This model would be considerably more effective than the many FinTech hubs that are emerging scattered across the continent. The goal must be to create a globally competitive platform for financial services.

Some individual FinTech companies are collecting record-breaking investor’s funds. Nevertheless, the overall number of new start-ups is falling. Is this the consolidation of the FinTech scene that many have predicted?

Fortunately, solarisBank, one of our companies, recently collected investments amounting to €56 million. This tells us that we are on the right track and that we are one of the most important players at the forefront of the business. At the start of the FinTech movement, it was predominantly B2C FinTech start-ups that conquered the market. Here, saturation is being reached by now. We do not need that hundredth banking app. At FinLeap, we concentrate on more complex models that solve real problems for the target group. In the course of this, we rely ever more strongly on partnerships with established financial institutions. In my view, it is these B2B2C concepts that will have staying power as business models in this market and which at the same time are the best chance for a digital transformation of the established players. In the debate around the decline in new start-ups one thing should not be forgotten: The likelihood that any financed start-up survives is 1 in 10. As a consequence, it is a normal trend for fewer start-ups to enter the market now than at the start of the FinTech era.

In China, multi-purpose platforms like Alipay and WeChat Pay attract huge numbers of customers. In the United States, a similar trend is emerging, if considerably slower. When will Europe experience a comparable development?

Platforms are important drivers of growth and especially innovation and they are successful as a business model. We ourselves use platform solutions for the three key markets – banking, asset & wealth management, and insurance – namely solarisBank, Elinvar and Element.
Alipay and WeChat are so successful because they offer external services to their existing customers directly at the point of sale, instead of redirecting them to other websites – or worse, to a form-based offline process. But a construct that sets records in Asia does not necessarily have to work in Europe. Europe has quite different challenges to offer: Our laws and regulations constitute enormous barriers for entrepreneurs from the United States or Asia. Thus, local companies have a competitive advantage. At the same time, Western European customers in particular have a tendency to be “overbanked”. When it comes to financial data, we primarily give our trust to established financial service providers. In China, customers first had a cell phone and needed a method to pay for its use. They harnessed social networks for this purpose.

What do you think about Amazon and Paypal putatively entering the traditional retail banking market in Europe?

Amazon is going to start with bank accounts in the United States and Paypal will offer overnight and fixed deposits in a few European countries. This step is a clear indicator that competition is going to reach the next level. But one has to be familiar with European customers. They are far more cautious as a general rule. For this reason, I doubt that security-loving Europeans will want to entrust these players with their money. But it would be a big mistake not to take this step by Amazon and Paypal seriously. In the end, the customer will choose the more convenient offer that always works well. Regarding the issue of user-friendliness, most European financial institutions still trail miles behind Amazon and Paypal.

Is there a danger that FinTech companies will turn into niche providers if the mass market will increasingly be dominated by international tech corporations?

There are about 500 insurance companies and almost 2,000 banks. In this sector, we have no need for additional brands for end customers. I believe in cooperation between established players and feel confident that we are on the right track with our B2B2C approach. Now, the next big step will be to move on from mere cooperation – for example through advertising banners on the bank’s website – to a real integration of the FinTech offers. Convenient, transparent one stop shops where the customer can manage his entire finances, encompassing relevant life events, such as the purchase of a house or car or starting a family. Furthermore, he has to be able to combine this with financial goals, such as retirement arrangements or saving up for a round-the-world trip. The implementation of the P2D2 directive across Europe will certainly make many positive contributions that will facilitate these platforms arising from cooperation between established financial service providers and FinTech companies.

For the original interview in German click here: Fintechs: Europa braucht ein Silicon Valley