Connecting instead of disrupting: How FinTechs and banks work together

Connecting instead of disrupting: How FinTechs and banks work together

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FinTechs versus banks – the public likes the image of the small, innovative David against the big, ponderous Goliath. What is often disregarded in the process: the customer benefit. We explain why cooperations with institutional partners like banks are important and useful. 

Many banks, insurance companies and businesses want to become more customer-oriented, efficient and agile. But structures that have evolved over decades and internal regulations do not exactly make this development process easy. It is important for clients, especially in difficult times like these, to find efficient financing options that can also be easily operated from the home office.

The market for such partnerships is there

For our COO Dominique Hügli, the advantages were therefore obvious when, for example, the opportunity arose to cooperate with Deutsche Kreditbank (DKB). Through the cooperation, both sides want to drive the digitalisation process in the financial sector and better exploit the existing market potential.

Digital transformations and joint projects like these are always a challenge as well. It is important that everyone is brought on board, believes in the joint product or service and consistently follows the underlying strategy.

But it worked well and at the end of the process, with the “Direktdarlehen”, we have a digital product that everyone is happy with – especially the customer. What’s more, the cooperation with DKB shows that it is worth expanding the portfolio for further strategic partnerships. With innovative partners who – like us – believe in the digitalisation of the debt capital markets. What’s important here: picking up on needs and developing new standard solutions from them.

Interesting topic? You can find information on further services with DKB here.

“financial business”: digital platforms increasingly attractive for municipal financing

Entwicklung Kommunalfinanzierung

There is no sign of a financial recovery in cities and municipalities any time soon, reports the business magazine “FinanzBusiness” in a recent article. As a result, digital platforms such as Loanboox are becoming increasingly attractive for municipal financing.

The Corona crisis has torn deep holes in the budget coffers of cities and municipalities and, according to “FinanzBusiness”, municipal debt will continue to grow. The magazine quotes a current study by the Federal Statistical Office, according to which the deficit in the first half of 2020 will total 9.7 billion euros. For comparison: In the same period of the previous year, the budget deficit was not even 0.3 billion.

Municipalities must meet their financial obligations.

The main culprit in this development is the slump in trade tax revenues, triggered by the week-long lock-down in the Corona peak. At the same time, however, the necessary expenditures for investment and social services remain high – a challenge for the municipalities.

Digital debt capital market platforms such as Loanboox are feeling the effects of this enormous demand for financing, writes “FinanzBusiness”. The number of tenders on the platform grew by 137 percent in the second quarter of 2020 compared to the previous year.

More investors on board again

Due to permanently low interest rates, liquidity loans with short maturities remain particularly attractive. According to “FinanzBusiness”, however, there is now also a trend towards longer maturities. And: Lenders who had withdrawn from the market at the beginning of the Corona crisis in order to preserve limits are almost back on the debt capital market platform at pre-crisis levels.

“In the year-end business, uncalled funds are usually financed, which is why we expect another surge in demand on the investment side,” Loanboox is quoted as saying.

These expectations are in line with the current market development and other expert forecasts, according to which municipalities need to broaden their financing and think about their investor base. Please also read our current market update for the month of October. It is already clear that the second half of 2020 will remain exciting for borrowers and investors.

Press release: Fintech company Loanboox cooperates with ICF BANK

Press release: Fintech company Loanboox cooperates with ICF BANK

The fintech Loanboox and ICF Bank AG have joined forces to turn the market for bond issues in Germany upside down: The first corporate bonds of medium-sized companies will soon be processed digitally.

After the first successful issue via Loanboox in Switzerland, the first corporate bonds in Germany are to follow in the next few weeks. With the cooperation of the established ICF BANK AG Wertpapierhandelsbank and the independent debt capital market platform Loanboox, both sides have created an essential basis for joint activities in the German market. Sascha Rinno, Chief Capital Markets Officer of ICF BANK AG:

«We are convinced that digitalisation will also find its way into the capital market business. Thanks to Loanboox’s digital platform, we are bringing more efficiency and transparency to the processing of bond issues – to the benefit of issuers and investors.»

Investors are continuously informed about the most important process steps and deadlines via the platform and have access to all transaction-relevant documents and information. This increases the efficiency of the placement process for all parties involved.

Stefan Feller, Director Capital Markets at Loanboox: «Together with the specialists at ICF, we are pleased to digitise the issuing process for corporate bonds in Germany as well. This will not only make it more comprehensible, but also more accessible.»

About ICF Bank AG

ICF Bank AG with its more than 75 employees is one of the leading securities trading banks in Germany.

In addition to the Market Making and Brokerage Services business areas, ICF is active in the Capital Markets business area as a long-term and reliable capital market partner and supports its clients in all questions of equity and debt financing. The focus of the advisory services is on listed companies or companies close to the capital market with plans to enter the capital market. The experienced team of experts has successfully completed numerous capital market transactions and offers its clients efficient support in the structuring and placement of equity and debt capital markets transactions.

About Loanboox GmbH

The fintech Loanboox is Europe’s leading debt capital market platform for large corporations, the public sector, institutional investors and banks. Loanboox has processed over EUR 40 billion in financing requests to date and is active in six countries.

Investment in low interest rates: new banking services for institutional investors

Low interest rates and the Corona crisis pose challenges for institutional investors. Now it is time to redefine the investment strategy and examine possible options for action. Many diversification options and interesting returns are offered by lending to municipal and municipal-related clients.

So far, however, it has only been possible for insurance companies, pension funds and pension schemes to invest in loans to a very limited extent. In Germany, commercial lending is subject to authorisation under the German Banking Act (KWG) and is a classic banking business. To allow institutional investors to extend loans directly to municipalities, public utilities or municipal companies, Loanboox and Deutsche Kreditbank AG now offer digital banking services for fronting bank and paying agent.

Content of the webcast:

The developers present the new services in a webcast. They will show why an investment in the public sector asset class is worthwhile, what advantages the services Fronting Bank and Paying Agent offer and how the operational processing via the Loanboox platform works.

For whom?

The webcast is aimed at employees of insurance companies, pension funds and provident funds who are responsible for the area of capital investment.

The Webinar

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Digitisation as participation

Digitisation as participation

Professor Dr Michael Bruno Klein and DR. Johannes Winter explain:

The digital transformation is on everyone’s lips and represents a fundamental structural change that affects and changes all areas of life. Yet this “structural change” sounds so technical and impersonal, but it means the exact opposite, namely a change in the consciousness of all actors. An example: car sharing is not just borrowing a car, but availability – no longer ownership. So something is changing here on the mental level. The entire library is now in the eReader and no longer as documentation of one’s own (supposed) education in large bookshelves that dominate the entire study – and are gladly used as background (or faded in?) in online meetings.

In the economy, numerous areas of value creation have had to continually adapt to new market conditions (keyword “globalisation”). Digital networking, the development of a platform economy and advances in artificial intelligence (but beware: calculating is not thinking and correlation does not equal causality) will continue to change value creation. Previously successful business models will be innovated or disappear altogether, and data-driven business models will increasingly dominate.

The world of work will become more autonomous and flexible (that is the positive assessment) or more unmanageable and uncertain – that is the negative interpretation. One thing is certain – and not only triggered by the Corona pandemic – life and work are moving closer together – the keyword is home office and the somewhat worn-out term “lifelong learning” is making a comeback in this context – and not in the sense of “further education holidays”.

Digital technologies as a basis for social participation

In 21st century society, digital technologies – and the competent use of them – are synonymous with improved access to social participation. Whereas in the past the ability to read and write was enough to participate in social life, new skills will be needed in the future.

Let us first look at the concept of cultural techniques: Cultural techniques are cultural concepts for coping with concrete challenges in different life situations. The development of such cultural techniques always involves achievements that arise in a socio-cultural context, which is why cultural techniques are based on social interaction and social participation.

Simple cultural techniques are e.g. hunting and making fire, more complex cultural techniques are e.g. agriculture and science. Individual competences are necessary for each of these – here are some very simplified examples: Stone Age man had to be able to hunt, make fire and fight. Later, agriculture and animal husbandry were added, as well as the ability to trade; hunting and fighting took a back seat. The medieval knight had to be able not only to hunt and fight (also in tournaments), but also to dance and “Minne”. Today, social participation is usually determined by reading, writing and arithmetic. What was important at all times, however, was the ability to communicate, i.e. to be able to exchange ideas.

But how is digitalisation to be understood as participation? What skills do people need in the context of digitalisation as a cultural technique? Let us first ask what the goal of digitalisation actually is? Often the answer is – the networked society, but that is too short-sighted. The goal of digitalisation is a society in which we can live better, healthier and safer. The means to this end can be digitalisation. A key feature will be a new coexistence of man and machine, as well as being untethered to space. The “leap into digitalisation” initiated by Corona is an example of this – zoom meetings with partners worldwide and status symbols such as a large office or the assistant in the anteroom simply fall away. However, the previous means of assessing the counterpart associated with this also fall away; the atmosphere and the “chemistry” are no longer so easy to grasp. Communication becomes more direct and intercultural, but not more personal. One example is the development of foreign language competence in the future: who wants to cram vocabulary and grammar hour after hour when the little language computer (C3PO sends his regards) has a perfect command of all languages and all I need is a little microphone and a button in my ear? However, mastering a foreign language is more than just language, it is access to and understanding of a culture. Whether this awareness will be enough to learn vocabulary and grammar hour after hour is, in our view, more than questionable.

What skills are needed in digitisation? Here we often speak of “general literacy”, i.e. the basic understanding of digital functional logic and its implementation in hardware and software (functional logic not to be confused with programming). Further competences are application competence (i.e. the active and purposeful use of digital media) and discourse competence (i.e. the fact-based and constructive participation in debates and the collective solving of problems). This cannot be achieved with a compulsory subject of computer science, but on the contrary: digital competence must be developed in relation to every area of life (and every school subject).

FinTechs are digital pioneers

So what does this mean specifically for the financial sector? Where are the opportunities of digitalisation for new business models or new sources of income? What specific skills do employees of financial institutions need to have?

One answer is – as always – to see what the pioneers are doing, i.e. FinTechs in the financial sector, since they have digital competences that are at least worth knowing.

Two practical examples from the large pool of the German AI map provide some insight: In times of electronic payment networks, e-wallets and blockchain, three- to five-digit financial transactions per second are not uncommon – and given exponential growth in the IT industry, this will not be the end of the line. However, with this flood of data, no human can identify fraud incidents such as identity theft, account forgery or account takeover and stop transactions in time. Especially not in real time (less than a millisecond). This is where FinTechs like Risk Ident come into play with their digital business model: the fraud detection software of the Hamburg-based company, which emerged from the Otto Group in 2012, uses machine learning algorithms to detect irregularities such as account takeovers through phishing, malware or data theft. In this case, digitalisation reduces the potential for damage and helps where we would be defenceless against threats. Nevertheless, nothing works without humans: human data scientists, for example, develop algorithms, analyse data, check for plausibility and thus have something ahead of computer programmes: they are usually able to distinguish correlation from causality – a very important skill.

The second example shows how liquidity can be secured in companies (more important than ever in Corona times) by digitising receivables management and debt collection. FinTech PAIR Finance helps clients such as Zalando and Klarna to recover outstanding receivables and uses the AI method reinforcement learning to make target-oriented strategies and successful processes repeatable. For this purpose, the Berlin start-up evaluates characteristics such as reaction speed and trustworthiness of defaulting clients in order to identify behavioural patterns and derive willingness to pay. Since the number of people who fall behind with payments through no fault of their own often increases in times of crisis, digital receivables management is also about finding ways out of the predicament for both sides. This can be, for example, instalment payments or deferrals that enable both creditor and debtor to continue their customer relationship in a trusting manner. This can also be participation through digitalisation.

In order to establish new, demand-oriented business models, platform-based solutions are also gaining in importance for companies. Platforms are not a new phenomenon. They have long been established in the private sector. Companies like Facebook, Uber or Amazon are among the most valuable companies in the world today and address millions of users. The platform economy has also been slowly but surely gaining a foothold in the financial sector for several years. In addition to classic comparison portals, from the banks’ point of view it is above all digital credit marketplaces that have grown in importance. Such electronic platforms connect capital-seeking companies or public sector institutions with investors and act as “matchmakers”.

Investors connected to the platform have the opportunity to submit individual offers to the customer. Algorithms that filter according to region, sector, term and loan volume, for example, help here. Only after approval by the borrower are the financial institutions informed of the request and can view the company data. The internet-based application allows investors digital access to the prepared information of the borrowers with corresponding download options – conversely, the companies have equally complete transparency at all times, as offers can be viewed as soon as they are uploaded by the credit institutions. Customers thus have the opportunity to compare conditions online and vis-à-vis the credit institution at this point in time without any commitment obligation.

Let’s go back to the beginning: cultural techniques are based on social interaction and social participation and this also applies to digitalisation. Reading, writing and arithmetic will no longer be the be-all and end-all of social participation in the future (although they will certainly be useful). Digital competence in the sense of application competence (= active and purposeful use of digital media) and above all discourse competence, i.e. fact-based and constructive participation in debates and collective problem-solving, will continue to increase in importance.

By the way, nothing and no one will be able to do the thinking for us in the future – but only if we have already thought for ourselves. But if we haven’t done that (thinking) so far, then we don’t need to ask ourselves who will be doing the thinking for us in the future, because someone else is apparently already doing it. ….