Matthias Kröner is someone who likes to challenge the establishment. In his line of work, that means taking on the big, bad, traditional banks.
When he was just 30, Mr. Kröner headed DAB Bank, Berlin’s first online broker. Today the 50-year-old is the chief executive of the German online bank Fidor, where he has invented a new business model.
Fidor’s livelihood depends on the direct involvement of its customers. In fact, they even have a say in how much interest they receive on their deposits with the bank. Mr. Kröner calls his approach “the customer as co-manager.”
Now Mr. Kröner is striking out on an entirely new path once again. Instead of challenging the big banks, he plans to join them.
Fidor will be acquired by the France’s second-largest bank BPCE, as both firms announced Thursday evening.
“With our limited means, an international strategy wouldn’t make much sense. But with our new partner, we will conquer Europe.”
Founded in 2009, Fidor is often described as a “participatory” bank. Its goal is to offer its 125,000 customers fast, modern and flexible banking transactions, which can easily be conducted by smartphone.
The Munich-based online bank is also known to cooperate with other financial startups, known as fintechs. Mr. Kröner is intimately familiar with the genre, given that he was one of its pioneers.
Fidor and BPCE have high hopes for their new deal: While BPCE Chief Executive Officer François Pérol expects the acquisition to accelerate his bank’s “digital transformation,” Fidor wants the chance expand outside of Germany, home to most of its customers.
Mr. Kröner was unwilling to disclose the purchase price, but it can be assumed that the takeover is one of the biggest fintech deals yet in Germany. And it demonstrates one thing in particular: How difficult it is for fintechs to grow and develop new markets on their own steam.
“As a small and independent bank, we are always searching for capital, which is why we are constantly in contact with investors,” Mr. Kröner, who will remain at the helm of Fidor, told Handelsblatt in an exclusive interview. “With our limited means, an international strategy wouldn’t make much sense. But with our new partner, we will conquer Europe.”
Like most startup sectors, the fintech world is littered with failures, false starts and profitable ventures. But observers are confident that Fidor has a good chance of succeeding.
“It can be advantageous to Fidor for the bank to have a strong, reliable partner and financier, and one that apparently believes in Fidor’s business model,” said Oliver Mihm, head of consulting firm Investors Marketing.
Mr. Mihm sees fintechs, like other new business models, in a difficult situation: “On the one hand, they have to grow to survive. On the other hand, growth costs a lot of money.”
So what’s different about Fidor? For one thing, it’s actually already making money.
Mr. Kröner has so far been successful with putting Fidor on a stable footing. Last year, the online bank managed to turn a small profit – no small feat in a sector that has produced many promising but loss-making ventures. Some parts of the company, like the IT division, are still losing money.
But money to expand is what startups often lack. It’s been particularly a problem in Germany, which has a burgeoning startup scene but has often failed to attract the kind of serious venture capital that launched many a Silicon Valley startup in the United States. Mr. Mihm also points out that it is very difficult for banks to expand their business into other European markets, partly because the business operates differently in different countries.
“The only online bank that is successful in several European countries and overseas is ING Direct,” said Mr. Mihm. In Germany, the large Dutch bank operates as online bank ING-Diba.
Peter Barkow, head of Barkow Consulting, noted that expansion is back on the agenda of European fintechs – by necessity. “They also need to grow considerably in order to keep up with U.S. competitors,” he said.
Whether a fintech grows on its own steam, with the help of investors or by being acquired by an established bank, there is no silver bullet.
There are pros and cons to a takeover, according to Mr. Barkow. For instance, a fintech runs the risk “that the pace of innovation will decline and there is not enough experimentation – for fear of making mistakes.” On the other hand, “in the case of a foreign buyer, access to its home market is generally easier.”
That’s where BPCE comes in. For Fidor, the merger could mean that the Munich-based company could gain a foothold in France more easily in the future. By its own account, BPCE, a group of cooperative and savings banks, is the second-largest French bank. It has about 35 million customers.
With support from BPCE, Fidor could also achieve something that is still rare: In the German market, it has been the exception for fintech companies to become serious competitors for traditional banks.
Most startups concentrate on individual business segments of banks, such as lending between private individuals, mobile payment services and automated investment (so-called robo-advisors). Mr. Barkow counts 133 German fintechs involved in financing this year, 15 more than last year, and another 12 new firms in investing.
The fintech world is littered with failures, false starts and profitable ventures. But observers are confident that Fidor has a good chance of succeeding.
Rather than taking the fight directly to banks, many fintechs are also increasingly joining cooperation deals, happy to continue providing their services in the shadow of the established banks.
One of the few real fintech banks, apart from Fidor, is N26. The Berlin smartphone bank only recently obtained a banking license, and it too wants to grow rapidly. N26 already has international operations, with more than 200,000 customers in eight European countries.
But Fidor and N26 are the exception rather than the rule. Most fintechs in Germany don’t actually aspire to become banks at all. Just getting a banking license – and all the onerous regulation that comes with that kind of responsibility – is simply not worth the hassle.
There is more activity in Great Britain, where these fintechs are typically referred to as “challenger banks.” Atom Bank, Tandem and Starling Bank are currently in the starting blocks.
“Unlike N26, the British challengers first apply for a banking license and then launch their business,” said Lars Markull, who monitors the British market for fintech Figo. However, fintechs offer very similar services in many cases.
“The standards include a fancy app, a credit card and posting payments in real time,” said Mr. Markull. It’s no surprise that fintechs constantly have to fear that banks will copy their methods. For instance, a group of German savings banks soon plan to launch Yomo, a counterpart to N26.
Mr. Kröner has recently demonstrated that Fidor also has entirely new ideas of its own – and he isn’t afraid of the competition, either.
Fidor is involved in a joint venture with Spanish mobile communications provider Telefonica, which markets its O2 and E-Plus brands in Germany. The deal enables Telefonica to enter the mobile banking business.
In the future, O2 banking users can use their web-enabled mobile phones to transfer money and take advantage of small, on-the-spot loans. They will also be given a free MasterCard, but one that only works as a debit card. Fidor Bank is Telefonica’s partner in processing the banking transactions.
Telefonica is the market leader in Germany, with about 43 million mobile communications contracts – ahead of both Deutsche Telekom and Vodafone. The company is offering a special incentive. Customers who use the account as a salary account and are frequently active will be rewarded with additional data volume.
Mr. Kröner knows how important it is that Fidor continue to operate as an innovative, entrepreneurial bank: “That’s a top priority, for us and for BPCE,” he said. “We want to preserve as much of Fidor’s current corporate culture as possible.”
Fidor and N26 are the exception rather than the rule. Most fintechs in Germany don't actually aspire to become banks at all.
He added that he wholeheartedly supports this principle, which is why he will remain a Fidor shareholder with a stake of up to 3 percent. The remaining investors, including several venture capital investors and investment companies, will sell their shares to BPCE.
That doesn’t mean success is guaranteed. Mr. Kröner is very familiar with the up-and-down culture of young banks. At 20, he helped build the online DAB Bank, a venture of the traditional German banking firm Hypo-Vereinsbank, and he was a member of the management board for several years. Customer numbers grew rapidly at times. But after his successful development work, Mr. Kröner had to leave the bank in late 2002, during a period of loss amid the global dot-com bubble, when a dispute erupted over strategy. With the end of the stock-market boom, the company like many of its online peers saw sales decline sharply.
Mr. Kröner was always ahead of his time, even during his tenure on the DAB management board, when he dressed in jeans and a shirt instead of a suit and tie – now a trademark look for fintechs, which cultivate their images as relaxed and modern bankers. Mr. Kröner’s early career was also unusual. Before working for DAB, he completed an apprenticeship in hotel management at the Vier Jahreszeiten Kempinski Hotel in Munich, where he was voted the “best trainee of the year,” as he puts it.
Either way, Mr. Kröner is already thinking about what comes next, in light of today’s very low interest rates. Banks need to rethink their “free culture” and think about charging fees for certain transactions, he says.
Fidor, like N26, still offers free accounts. If Mr. Kröner has his way, fintechs may be the next ones to blaze a trail here, too.
Elizabeth Atzler covers the German banking industry and budding financial startups out of Frankfurt. Katharina Schneider is an editor in the finance section in Frankfurt. To contact the authors: firstname.lastname@example.org and email@example.com