German financial technology Fintec Firm Raisin, which aids savers in locating better rates, is wagering that the end of accessible, low-cost central bank funds would lead lenders to look for alternative sources of funding, increasing the amount of capital sourced through its platforms.
According to Chief Executive Officer Tamaz Georgadze, the Berlin-based company expects deposits for which it acts as an intermediary to rise above €50 billion ($56 billion) this year from €43 billion at present. Its investors include Goldman Sachs Group Inc., Deutsche Bank AG, and PayPal Holdings Inc. The UK and US will account for the majority of the growth outside the eurozone.
To combat inflation, central banks around the world are raising interest rates and reducing economic stimulus, which has the dual effect of giving lenders windfall profits and rising funding costs. Regulators are stepping up their monitoring of bank liquidity in the wake of the failure of numerous smaller US banks, notably Silicon Valley Bank, and deposit brokers and markets like Raisin are at risk of falling under their attention.
A senior European official last week expressed alarm about the assumption that deposits made through his firm are particularly erratic. Georgadze fought back against this notion. Because Raisin’s fixed-term deposits aren’t tradeable securities, for instance, according to US definitions, it isn’t a deposit broker. He continued by saying that less than 1% of his company’s customers are referred to as “interest rate hoppers,” who frequently switch their money between overnight funds.
In times of crisis, he claimed, “These deposits are actually stickier than others.” “The farther the client is from the bank, the less interested they are in what is happening there. They fail to notice a crowd gathered in front of a bank branch when they glance out the window.
As the Federal Reserve and the European Central Bank quickly raised interest rates together last year, banks enjoyed a significant increase in their net interest revenue. However, lenders are only passing on a small portion of the rates to retail customers, keeping most of the gain for themselves.
This year, Raisin anticipates adding 25 to 30 banks to its platform, many of which will be located in the US, according to Georgadze.
He claimed that deposits obtained through Raisin are a less expensive source of capital for banks than bonds. In Europe, where banks are paying back hundreds of billions of euros in ECB stimulus loans, this is particularly important.
