Unlocking Fintech Innovation: Insights from Sebastian Schäfer at TechQuartier

FTGA podcast Nº16 Sebastian Schäfer

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Hi everyone and welcome to the Fintech Germany Award Jewelry Podcast enabled by Financial Times. I am Alexandra, your host today and we will provide you with insights on the award, our jewelry members and latest trends in the industry. I'm recording remotely today with Sebastian Schäfer from Techquartier.

Sebastian, I'm so happy to have you here today. Likewise, great to be here and thanks for the invitation. Super.

You have been one of the jewelry members that have attended for several years and so we are super excited to get to know some more details about you as a person, maybe your career and why you are there where you are right now. So maybe you can deep dive into that with our listeners. Indeed, I was actually one of the first year jewelry members.

Oh wow, you deserve an award too. When it all started, I think it was in 2016, not so sure but quite a few years back and this was actually the time when we here in Frankfurt also thought about doing a bit more for the fintech scene and one part of this was actually building Techquartier as a focal access point, as a hub for fintechs but also for financial innovation, the corporate world to meet, bingo, exchange and then of course hopefully push joint innovation. And what brought you to that job or profession or passion I would say? So what's your background? I mean my formal education is, I'm a behavioral economist, did my PhD in Frankfurt.

I'm also a Japanologist so I know a bit about Asia and Japan in particular. But if I look at actually what I did, since I'm I would say high school student, I always love to build communities. So I'm more of this networking guy, bringing people together and then looking for some synergies and collaborative moments and I did this in different communities.

One of them was when I was still a PhD postdoc at Goethe University for the Entrepreneurship Center when I ran and led the Unibato and I continued basically with TQ just on a larger scale with more corporate backing, with more political attention and this is what I did for the last eight years. We are now a community of over 600 startups, I think precisely 654 if I recall correctly and they are not all from Frankfurt. We have around 200 that are based out of Frankfurt and around the same amount that are located outside of Germany.

So it's a quite diverse community. If you drill down, if you zoom in, we have around 30 percent of FinTechs and that's maybe the more interesting part for today. We have from early stage companies to late stage companies, some unicorns adjoined over time from Clark, Mumbo, TrueLayer, Thought Machine, Bitpanda, Fireblocks.

These have all been in your... They are part of our community, I hope for good reasons and they actually make really a valuable contribution by attending events, by just being here from time to time. So that's more the international community and then again here we have around 50, a bit more than 50 FinTechs located in Frankfurt that are mostly also using our space. So TQ is not only the network, not only the community, but it also offers some infrastructure.

So working space, event space for around 140, 150 companies. So we have around 300 desks and some event space where we do a lot of events. So for anyone who's listening right now and owns a FinTech, it's definitely worth visiting the TechQuartier and get inspired by all the founders and the people that are around there.

I can absolutely say and confirm that you are absolutely community building there because I have joined some of the events that took place at TechQuartier. You do a very, very, very good job there and therefore it's glad that you are one of the jury members in the FinTech Germany Award. Building communities because just yesterday I was attending an online stream where they said, okay, what's the biggest trend now in digital marketing and marketing overall? And they said community building.

So in your point of view, has community building changed since you started up to today and what's the spice of success for building a good community? Yeah, good question. I guess community building or the value of community has changed over time. I mean, eight years ago it was really about culprits, for example, being curious, wanting to learn how startups work, all these agile methods and speed.

I think this is not so interesting any longer. So communities have to focus on other value propositions and that's why we also shifted a bit and really starting the community building from relevant trends, needs we see in the industry. So it's much more of a, how could you call it, maybe a kind of market pull approach, identifying, spotting interesting trends, real needs from the industry and then sourcing and scouting for the digital solutions out there.

Some of them in our community, sometimes we have to go beyond because we don't find the assets. But that's how we now think about community building. Topic-based and really related to relevant trends and needs.

Only then you will see joint interest in exchanging ideas, learning from each other and taking it maybe a step further. I just recently saw you also had a very prominent visitor in TechQuartier. So it seems like your community and what you're doing there as a community for the community has spread far beyond Germany.

So maybe you could also tell us a little more about that. Only if you're allowed to, but it was on LinkedIn, so I guess you are. No, no, of course we can talk about it, but I'm also not so sure how Janet Yellen and her team found out about TQ.

They must have done good research, I guess. And when they asked if they could visit, I mean, we were really happy because at the end, TQ serves as a stage for startups. That was a great opportunity to present some of the really top-notch green tech companies from Germany.

And it was super also for me because it was an opportunity where I just had to call once and everybody was coming. That doesn't happen all the time. So if you have a popular guest, then it's of course a bit easier.

And we had a wonderful exchange, a great event, also pushing some relevant topics. So let's see what happens. The founders and startups were, I think, quite delighted and happy to have had the chance to meet her.

If we go back to what you're doing at TechQuartier, could you maybe give us a little more insights on your daily work there? What's going on? Where exactly do you help? So what is the ecosystem like? It's quite diverse, but let me just go through the last couple of days that you see how our day looks like. So yesterday we had one of our days from the Digital Finance Accelerator. It was all about embedded finance.

So in the morning we had a masterclass where we had invited some experts, which are also part of our program board. So Lars Markul, we had Miriam Wohlfahrt and a few other quite well-known people and figures in the fintech scene. They provided a masterclass to our batch.

In our batch we have currently 15 fintechs, so between seed and series B. And they listened to those speakers. And then in the afternoon we had a roundtable where we had some additional guests also from industry. I mean, embedded finance is a lot about having platforms, non-financial companies, corporations using financial products.

And then it's, of course, interesting to see how this all works and hear the different perspectives. So that was in the afternoon. And then in the evening we had our public event.

So part of our acceleration program is also opening up some of the events to the public. And then we had also some keynotes and some great panels. And like this, it was really an entire, a full day of exchange, interesting content, a lot of learning.

And things continue today. So today we went to Bundesbank in their Innoverk. So Innoverk or Bundesbank has now also an open space where they do innovation.

And we were invited as part of the program. Bundesbank is also a partner of TQ. So that was quite clear that we're going to do more together.

And today it was all about digital money. Digital money. It's just so great that we just touched this topic because I just wanted to ask you, okay, do you know when the Bundesbank is getting rid of the cash in Germany? They won't.

Please go ahead. They won't. And some people feel this indeed.

And maybe you would have to interview some of the Bundesbank people directly. They are not on the awards yet, but I would love to invite those. But I can give you some insights offline or off record.

But it was really about digital money. It was about some of the corporate initiatives. We see like EP and now the Miro wallet that was launched recently and how this all comes together.

But the most important point was, I mean, the technical infrastructure of a digital euro, of a CBDC is not enough. You need some ecosystem building around it. You need to incentivize innovation, collaboration.

And this is where this digital finance accelerator on a very small scale is actually already providing a pretty good footprint. And this is where, you know, bring together the fintechs, the incumbents, the regulators to talk about joint innovation and thinking about how to solve certain issues. And that was the day at InnoVERC and tomorrow it continues.

That's a different one. It's our European digital innovation hub project where we have once a year an annual event. This is all about empowering the small and medium sized companies to use digital tools, to become more digital, to actually also become more competitive and or remain competitive in the future.

Here it will be a lot about understanding how to use and adopt AI. But I also will talk about venture clienting and how to use actually some of the tools in corporate innovation to also empower and facilitate middle stand startup relationships. So you see, it's a fully packed schedule.

I mean, it's an exception this week. It's a lot. And this wouldn't work if TQ hadn't had a great team that is doing all the logistics and preparing.

So sometimes you underestimate all the work that's going together with that. I can absolutely imagine. I mean, I was also setting up fintech relationships at banks.

And of course, at a certain point of scalability, you have more clients that you need to take care of, more or less requests here and there. And of course, you need to find ways to manage all that. And you cannot do anything digitally.

I mean, some things and especially in Germany that are still on paper. So you need to have some workarounds for that. I would be interested as well in your programs.

So I guess many of the listeners around the fintech Germany awards are startups as well, or maybe people that are currently still working in a company, maybe thinking about a startup. So do you have more applications of startups than you could handle? And what is the criteria to work with you or what advice would you give someone who is about to do a fintech startup or startup in Germany? Well, these are a lot of questions. Let me try to answer them step by step.

So I mean, we work together with fintechs and startups more generally on different levels, right? So one low entry barrier is joining our community. So here we just see if this company qualifies and startup has some innovation, has some topic fit or community fit, has an interesting team. So we do a short due diligence.

And then if that looks good, they're in. But everybody has to qualify. And that's perhaps also an interesting feature of our community.

Even though we offer work desks and space, we always try to see or assess whether somebody is community ready, if you wish. So that's one criteria. And then for programs, we are a bit more stricter.

So for our last program, for the digital finance accelerator, we had around 70 applications and we picked 15. We took five plus on the journey, but not as full members or the batch. And here, I mean, one of the criteria is really whether they have an interesting solution for our corporate partners.

And they have a say in whether they like the one or the other. We take this into consideration and then we make the final choice on the selection. And what if there is a fintech or startup that has a good solution that does not fit one of your partners yet, but you know out there it could fit other partners.

What do you do in such a case? I mean, first of all, we would recommend them to join our community because with that we keep in touch. And then we have a few partners that use us as a scouting support. So sometimes they just come with use cases, take Gen Z or Gen AI or what to do with the digital euro.

And then, you know, we scout. And here, of course, I mean, we will look in our community. We also look beyond, but then we really try to facilitate an exchange.

And those companies who understood how the game works, they really benefit from it. So an interesting observation is that in contrast to, let's say, 10 years ago, companies really opened up, banks opened up. They understood that they will need external innovation partners to solve the challenges.

And they build internal structures, processes, and that works quite well. So this inside out innovation process is working. And along the way, TQ can support here and there, for example, by just giving also an independent assessment of some of the solutions out there.

Okay. That's also pretty interesting because there you're getting absolutely to the point where I also see the change, right? That banks change, they open up so that collaboration gets across everywhere. And talking about that, I also have a follow up question on that.

Do you also liaise or collaborate or have a certain touch point with other tech quartiers from somewhere else? I guess Germany has tech quartier in Frankfurt right now, but other countries might have other facilities in other locations. So do you also get in touch with these and how does that work? Yeah, for sure. And there are many out there.

And I mean, over the last eight years, not only MOUs were signed, but also friendships evolved. And it's a kind of family, right, of ecosystem, fintech ecosystem builders out there. And from time to time we meet.

So in February we met at the Digital Finance Frankfurt event. Last week I was in Luxembourg at our loft friends. We have friends in Berlin and many more.

And I think that the personal relationships are there. The more challenging part is how can you actually now create value and build a sustainable business model for these ecosystem builders so that it's more than just doing your local ecosystem, but actually creating synergies. Something like one plus one equals three on a European level.

So that would be, I mean, maybe first on the German level, but then the second step on a European level, that would be great to connect and bridge a bit more the ecosystem builders to offer some interesting solutions, methods, and also channels to all the fintechs out there. And you also just mentioned that companies and corporates use you sometimes as a scouting vehicle for getting to know new fintechs. And from that I jumped to the awards.

So do you also see the fintech Germany awards as a scouting vehicle for the companies involved and as well for you as TechQuartier? So have there been companies involved into the awards that you have not met before, maybe? Yes. And this is of course one of the reasons why I'm so interested to be part of it and see what's happening. I mean, to be very frank, I'm also happy when I see some companies I already know because then I don't have to deep too much into the spreadsheet.

So that's also good. But yeah, of course, I mean, there's a lot happening. Yeah, there's a lot happening.

And that's a great, great opportunity. And it nudges me a bit to look at it. So besides all the nice personal things that come along with it, right? Yeah, absolutely.

I'm looking forward again to having the list with, I guess, 100 plus companies on it. Some well known, of course, because some will enter unicorn stage, hopefully. I'm each year impressed about how many people have cool companies out there and try to revolutionize the finance world or insurance.

So yeah, that's pretty interesting. Apart from evaluating the pitch decks and the submissions, I mean, it's so cool. Yeah, the founders on stage presenting, I mean, they're so different and so cool and so brave.

And this is just the interesting part, right? Seeing the face behind the paper and the company and then also seeing, I mean, if you have accompanied this award for many years, you see also the changes and how everybody, you know, evolved, personally developed. It's just great to see. One of the examples is Raisin because I was talking to them two episodes ago, and it was one week after they announced that they have reached milestone for profitability.

And it's just super cool that currently where some fintech bashing of the classic media is happening, that at least we have some very good examples that we're doing quite well, even though the circumstances are pretty tough right now. And I mean, you see that as well now, maybe you see that more than everyone else as you're so close to the fintechs. What is the capital raising climate right now? So what advice could you give desperate founders with good ideas? Okay, join your community first.

No, no, no, no, no, no, no, no, no. But the founders with good ideas will still find money, right? It's a bit harder to recommend something to founders who don't have a good idea. So here the money is, I think, less available.

I mean, it's also, I think, a healthy development we've seen over the last two years. We just need to hope that things will recover. Not too late.

Rather sooner than later. And then we'll see again a push. I mean, the money is still there.

It's just being held back. I'm not too worried because in the end, we will need more innovation. We will need more startups.

And perhaps it's not only venture capital. It's then maybe more the client relationships pushing a bit the revenue side of the startup growth and also profitability. I think it's a good time actually.

And we know from the past companies who were either founded or survived difficult, challenging times will emerge even stronger. And I think this will happen again this time. And you see, I mean, some of the stars, the fintech stars, they are actually now emerging stronger.

I don't want to now put names here, but I think everybody knows. But I can give you also an example from because I'm working now at a crypto bank. And I mean, you have seen when Bitcoin was launched first, just after the financial crisis.

And it has come to stay too. So I also hope that what all these cycles have proven so far that whatever is started in a circle of crisis has maybe the best chance to survive, right? Yeah. And to give it a bit of context, I mean, as part of our acceleration program, we also look into future challenges.

And there are a few things coming up. And the innovation is needed, or at least more collaboration. And think about the FIDA regulation around open banking, open finance.

This opens up a lot of opportunities that need to be taken care of. So I think that's a great thing. Regulation per se is an interesting opportunity for fintechs to look into closely.

So this will not go away. Then I mentioned the digital money, the digital currency, CBDC ecosystem. Here again, a lot of opportunities.

So why shouldn't fintechs continue or shouldn't play a role in the future? I think you have to adjust to some extent, but I don't see that opportunities will go away. And there's this quote where it says, if you can make it there, you can make it everywhere. If you can survive regulation and taxes in Germany, then you can maybe achieve much more.

One further question that just came into my mind when you talked about that a few moments ago. The startups, when they solve relevant problems for your corporate partners, how does that normally work? Do the corporate partners also directly invest into the startup or are they only, or let's say not only, but are they providing advice or making their data available for the startup to solve the problem or is it kind of everything? So how does that normally work? It depends. I think there are all the different forms of collaborations are observable.

Some of the companies would invest. So you see also that some of the partners or corporates are joined with their corporate venture capital funds, VC vehicle. So they are looking more into investment.

Others look more into kind of product partnerships. You could maybe summarize it on the venture client thing, looking more for strategic partnerships. Others do both.

And others just start conversations and want to learn. So we see the whole claviatur. That's super cool.

And talking about the problem solving, what trends or problems do you currently see as you have maybe the most insights? What should startups now focus on trying to solve? I don't know. I don't believe I have the most insights. I see a few things, but I'm also not.

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