Disruption Insights: Market Consolidation Is Happening in Front of Our Eyes

Ulli holds the position of Chief Digital Officer at Börse Stuttgart Group, the second-biggest stock exchange in Germany. He steers the development of a digital asset ecosystem that provides access to tokenized services, trading facilities, and custody of cryptocurrencies and digital assets.

The main outputs of his work include the BISON App and the brand new Börse Stuttgart Digital platform, which offers institutional partners trading, custody, and brokerage solutions along the entire value chain of crypto and digital assets.

All these solutions create a safe crypto investment environment for both private and business consumers. Through each of these projects, Ulli links all the advantages of the crypto world with the reliability of a traditional financial institution. See what you can learn from him.

What technologies or solutions are really trending in fintech? Can we expect exponential growth in any fintech areas (like regtech or insurtech)? What role will regulators play in the expansion of financial startups? In the Disruption Insights series, we gather insights and opinions from industry experts to answer the most pressing questions to foresee what the future fintech landscape will look like.

💡 Trends in Fintech

Most impactful technologies in fintech

Decentralized finance would be my first bet when thinking about technologies on the rise. To be more specific – I refer to the next step from crypto to decentralized finance applications, where intermediaries will play a different role than they play right now.

Another important aspect, not a technology, but a mandatory element that needs to be developed along with the technology, is regulation along the lines of decentralized finance.

The second technology that will be heavily influencing the fintech sector over the next months or years is artificial intelligence adapted through different business models.

Blockchain and crypto in fintech

The market events that happened over the last months taught us a very important lesson – it doesn't matter what area you operate in, fraud is industry- and technology-agnostic. We’re witnessing a huge debate over centralized exchanges, decentralized exchanges, why DeFi is better than centralized funds, and so on. At the end of the day, this crisis has nothing to do with blockchain or DeFi, it was a pure, literal fraud.

The outcome for the crypto space is obviously a huge loss in reputation and trust of the customers, and the urgency for customers to have a partner that offers security in terms of sustainable business models and not greed. That’s why we will be seeing the customer shift to more trusted service providers in the space.

This creates an opportunity for incumbent financial institutions to tap into the crypto market, keep up with the innovation race, but still have time to follow thought-through processes of how they can offer this type of service to their customers.

The role of regulation in crypto

The extent of regulation is worrying because it almost only concerns traditional financial institutions, while most crypto players are not being incorporated into those rules.

They offer products across Europe without required licenses, taking advantage of the fact that, for example, they don’t have a registered headquarters. New regulations should be aimed at removing these unregulated companies from the market or making them obey the same rules traditional organizations have to follow. However, my concern is that the events around FTX will increase regulation in a situation where there's plenty of regulation but aimed at the wrong entities.

🌍 Current state of affairs

The impact of market changes

Currently, Germany neobanks or BaaS companies are under the watch of regulators in the form of special investigations. Every week we see new press releases announcing that services of well-known fintechs have been restricted, or there are new charges against certain organizations.

Hopefully, in the long-term horizon, many companies, while creating services or business models, will start incorporating a lot more costs for regulation and sustainability. There’s no other way – if fintechs will have to allocate costs also for that area in their business cases which I think they haven't done appropriately in the past.

💸 Fintech now and then

VC investment in fintech

We're witnessing a market clearance at the moment, VCs are hesitant for obvious reasons. Just a few days ago, another crypto player, Genesis, went bankrupt. Market consolidation is happening right in front of our eyes and we can’t estimate how long it will continue. After we’ve overcome the crypto winter, I am very positive that there will be an increase in VC investments again.

I anticipate that the crypto space will still attract investors, but other areas of fintech that go into the AI direction will gain even more traction and grow larger.

This market clearance is not only caused by the looming recession, but also by the saturation of certain fintech areas.

Some niches are getting smaller and smaller, and business models operating in that niche are not attractive to investors anymore.

Let’s look at neobanks – over the last 24 months, new companies have been entering the market in large amounts, but like in every market, there’s only a certain number of clients interested in this type of services. That’s why most of these organizations won’t survive in the current market setup.

🌱 Sustainable fintech

Areas of sustainability in fintech you’re most hopeful about

Looking at my area of expertise, I’m most hopeful about the impact of proof of stake and mining based on renewable energy.

The crypto industry started with Bitcoin, which was more focused on technology than anything else.

The development of technology is something natural, but further in time, it should be followed by some reflection and incorporation of more sustainable solutions.

The best example is the change from proof of work to proof of stake at Ethereum. It had a huge positive impact on sustainability, with a 99% energy consumption drop after the merger in September 2022.

As making business models more scalable and more efficient can be achieved through lowering power consumption, a lot of crypto protocols also focus on the aspect of sustainability not only for the sake of sustainability, but for the sake of scalability. The move at Ethereum will be followed by similar decisions, making crypto operations more environmentally friendly.

Want to be a part of the Disruption Insights: Fintech? Shoot me an email at: paulina.burzawa@netguru.com

Learn from other fintech experts:

• Care About the End-To-End Customer Journey with Jesse Owens II from Wells Fargo
• Innovation Is About Execution, Not About the Idea with Peter Grosskopf from Unstoppable Finance
• Wealthtech Solutions Will Take the Leading Role in 2023 with Grzegorz Kosiński from Netguru