It is a paradox of modern finance. The would-be disrupters rely on banks. The risk-loving whizz-kids are in love with risk-averse Germans.
Before their demise, Wirecard and Greensill Capital both owned German banks. Surviving fintechs including N26 and Klarna also fund themselves through German deposits.
“Most of our balance sheet is funded by deposits insured by governments since we’re a bank,” said Sebastian Siemiatkowski, chief executive of Klarna, the Swedish payments service and point-of-sale lender.
In the eyes of German savers, according to Siemiatkowski, Klarna benefits from a Swedish halo effect. “Because Sweden is so well-off, actually we raise deposits at a lower rate than Crédit Agricole because France is at a poorer rating than Sweden is. So it’s kind of funny how these things work.”
National stereotypes are not a great way for customers to choose where to put their savings. But most of the Germans giving their hard-earned euros to banks attached to fintechs are being perfectly prudent. They are often doing so in return for higher interest rates. And should the bank go bust, up to €100,000 of their deposits are protected by deposit insurance.
Klarna accesses its German savers via Raisin, a Berlin-based deposit marketplace. “The favourite activity from Germans in optimising their cash returns is so-called rate hopping,” said Raisin chief executive Tamaz Georgadze.
This has acquired new popularity since large German lenders, such as Deutsche Bank and Commerzbank, began telling new customers that they would apply negative interest rates to large deposits.
“If people take my money away I’m sensitive to that,” said Georgadze. Although Raisin’s top immediate access interest rate is only 0.17 per cent at the moment, it beats a negative number.
The vast majority of the lenders on Raisin’s platforms are established banks, many of them coming to Germany from elsewhere in Europe to tap rich savers. But Raisin also offered the option of saving with Wyelands Bank, the UK lender owned by Sanjeev Gupta, which regulators forced to return deposits in March. Raisin also put German depositor money into Greensill Bank, the lender that was part of failed supply chain finance firm Greensill Capital.
About 15 per cent of the Germany-based Greensill Bank’s deposits were supplied by Raisin, according to Georgadze, who bristles at the suggestions that his company was at fault. “Client money was safe and is being paid back. Our role cannot be to regulate the market.” He noted that Greensill Bank had a clean audit and no public red flags under the supervision of BaFin, until the German watchdog appointed a special auditor and then shut it down.
The insolvency of Greensill Bank will lead to some depositors losing money — these are mainly institutional savers such as the dozens of municipalities that collectively deposited up to €500m. The individuals and small businesses, some of them connected to Greensill by Raisin, are protected by Germany’s deposit insurance scheme which has already paid out more than €2.8bn.
For now, this is an efficient system. Fintechs that need cheap funding can tap German savers, who are happy with any rate greater than zero. Larger banks, struggling with regulations and ultra-low rates themselves, can shed excess deposits.
But it does raise the question of whether life is a bit too easy for certain fintechs — and potentially too costly for government and industry-backed insurance schemes.