For many banks, credit is an important anchor product for building or maintaining a long-term customer relationship. Historically, Germany is a credit market dominated by banks. As a result, the balance sheet loan is retained and it is not uncommon for loans to be granted even with negative calculated margins. However, this strategy only pays off if the banks exploit further sales potential with their customers in addition to credit, because there the profit margins are often higher. That is why it is important for most banks when talking about financing outside of bank balance sheets that the potential of the customer relationship is not lost.
So the question is how to maintain unlimited lending to strengthen customer relationships without taking on too many of your own risk positions that may not be borne by liable equity. To find an answer to this question, one has to put up with the question of why a loan must automatically be a risk position for the bank when it is granted. In our opinion, it doesn’t have to. The credit relationship and economic risk do not necessarily have to form one unit. The economic risk of the credit relationship can already be distributed when the loan is granted. This idea is not completely new, but digitization will make it much easier, more efficient, and it will be established right at the beginning of the value chain of a credit relationship. By digitizing and networking society,Decentralizing risks and streamlining bank balance sheets is not only a goal of the European Commission, but also the basis for the idea of decentralized bank credit.
The concept of decentralized bank credit
It is based on the idea of combining a loan granted by the bank and the advantages of financing close to the capital market. Financing close to the capital market is organized through a networked platform. The platform connects private and institutional investors who want to invest in the credit asset class and thus take on the risks that the bank balance sheet cannot or should not bear. The platform is structured like a credit marketplace, with the important difference that this marketplace is integrated into the banking landscape. The starting point is a customer’s loan request to the bank. When requesting the customer, the bank can decide whether it would like to process the loan itself, forward the request to the platform or whether it finances the loan together with the platform. The transfer will make sense on a regular basis if the platform is able to process the loan much more efficiently. For new players in the market that rely exclusively on digital processes, this will regularly be the case, especially with smaller loans.
Aim of the decentralized bank loan is not to completely redefines banking
But to develop it further and to make the financial intermediation system as a whole more stable, profitable and fair. This evolution is a necessary transformation that results from the experiences of the past years and the demands on the accessibility to the capital market and a stable financial system. The EarnMatch platform sees itself well positioned for this integrated approach and wants to use it to further develop the lending business.