creditshelf is an online marketplace bringing together SMEs and professional investors, providing unsecured loans ranging from €100k to €2.5m with a runtime of 1-12 months. Based in Frankfurt, the CODE_n CONTEST Finalist makes sure that each accepted loan project goes through a detailed risk analysis before it is uploaded for a blind bidding process. We talked to CSO Daniel Bartsch (PhD) about his company: FinTechs, he says, naturally compete with banks – but he also tells us why this is not at all creditshelf’s goal.
What is creditshelf all about? How did you come up with the idea?
Daniel: In times of low interest rates and tighter regulation banks do increasingly refrain from serving financing needs of small and medium sized companies. Stepping into this gap creditshelf is offering short-term working capital loans to SMEs, online via a lending platform connecting borrowers directly to our network of professional investors. Using cutting edge peer-to-peer technology we make available to our investors a new asset class that was previously reserved for banks, whilst we provide quick and easy funding to SMEs at attractive rates.
The idea was born following the financial crisis. The creditshelf founder team consists of senior banking and financial services professionals. First hand in our day to day banking businesses we realized that banks are not serving the financial needs of SMEs like they did before the banking crisis. In our heads came up different models how to fill this gap. We felt it was the right time for the introduction of a disruptive business model in corporate financial services. As a consequence we founded creditshelf late 2014, and quit our banking jobs. Fast forward 18 months, we are sitting in our small new office in Frankfurt am Main, with a team comprising 20 people across sales, risk management and IT, serving SME clients. To date, we have originated a significant double-digit million EUR amount of loans to these “Mittelstand” companies that mark the backbone of the German economy.
“Digital Disruption“ – that’s the motto of this year’s CODE_n CONTEST. What makes your solution innovative, what makes it disruptive?
Daniel: It’s the combination of banking experience, particularly reflected in our deep risk management expertise as well as our state of the art technology.
Our business, and product offering is innovative from a number of respects:
- Product: Online direct lending using peer-to-peer technology and a blind auction process ensuring best-market rates for borrowers
- Team: seasoned banking professionals that have developed a proprietary risk model serving as the basis of our credit decision making process.
- Clients: B2B focussed on professionals on both sides (investors, and borrowers alike).
- Process: Front-to-back automated online processing through lifecycle of the loan (from loan application to pay-back) leading to very low production costs
Disruption begins with small steps and slowly substitutes existing processes. creditshelf offers a loan process which is so fast and uncomplicated that it definitely brings the potential to disrupt existing structures.
Which challenges do you think young companies have to face in this sector? How do you handle these challenges?
Daniel: FinTechs in the banking sector like creditshelf naturally compete with banks. Competing with banks is dangerous because they simply have resources Startups don’t have. Out of the perspective of young entrepreneurs banks seem like dinosaurs, too big and slow to adapt to the rapidly changing environment. However, we are not expecting this will lead to their extinction. Banks are still lead by a bunch of clever people with financial expertise and decades of experience. They work digital since the invention of it, however, the only and big difference is they have problems implementing digital processes. FinTechs on the other hand grow up with digital processes. Digitalisation is not just about working digital, but letting your customer doing the work supported by your friendly digital processes. While doing this it is of great importance to build up a good customer relationship. This might be the biggest challenge for young FinTechs, customers need to trust your concept. That is on what we are working on very intensively.
creditshelf’s position is clear. creditshelf serves a demand banks simply can’t serve anymore due to governmental regulations and other reasons. Therefore we have no need to compete with them, nor the interest. On the contrary, we actually like to see that our customers have an established and good relationship with their banks. Yes, we are an alternative finance provider but we do not want to substitute banks, we rather complement them.
From a borrower point of view: how do you ensure that possible investors on your platform have the necessary experience and knowledge? And from an investor point of view: is there a minimum or maximum investment size and what returns can be expected?
Daniel: Since creditshelf is a B2B lending platform our investors are professionals. Investors go through a verification process, we know our investors as we know our borrowers. In the end investors invest in loan projects, analysed and rated by us, but they assume the full risk of the borrower.
The minimum investment amount is € 10.000. The maximum amount is only limited through the size of the loan. Through a blind auction investors make offers including the rate of return and amount of money they want to invest. An automated process identifies the best offers and informs all participants whether their bids were successful or not. The average rate of return is 9.7% at present. This seems quite high, indeed it is. Reasons for this are reduced costs through the direct interaction between borrower and investor as well as through optimized digital processes, but also typical creditshelf loan projects have an b+ to b rating indicating a certain risk – that our investors are happy to accept in their search for yield in the current low rate environment.