Internet Finance

The Online Cash Cow

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For some German entrepreneurs, it's easier to obtain financing from online lenders than traditional banks.
  • Why it matters

    Why it matters

    The new breed of financial companies are upending the traditional banking models in Germany. Some are working with German banks, but others are hoping to replace them altogether.

  • Facts


    • Online platforms created by new companies such as Compeon connect capital-hungry businesses with banks eager to loan, or with investors looking for solid payoffs.
    • Financial transactions are completed much more quickly on the portals, sometimes in just a few days.
    • The newer operators are a good resource for smaller loans.
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Jan Wabst enjoys reminiscing about his work order from ZF Friedrichshafen. It’s not just because the job of building museum exhibits for the anniversary of the world famous car parts supplier was a major deal for his 30-employee company, Seiwo Technik. It’s also because the €440,000, or $497, 280, in financing he needed was easier to obtain than the contract itself. Ordinarily, it’s the other way around.

Mr. Wabst, whose company is based near Chemnitz in the eastern German state of Saxony, didn’t obtain the cash directly from a bank. Instead, he went through the financial portal Compeon, which has been offering its online services since June 2013. Compeon arranges bank loans for corporate customers and takes a commission from the financial firm in exchange. The service is free for the borrowers.

Compeon is among the newer Internet companies specializing in financial technology, which are digitalizing financial transactions and broaden out their reach.

The example of Mr. Wabst and his company underscores just how sick and tired many businesspeople are with slow-moving and expensive banks.

The financial technology start-ups are seeking to stir up the traditional money-lending business with cheaper and faster services. The digital world allows the newcomers to offer around-the-clock service with few employees and without branch offices everywhere. At least, that is how they promote themselves.

Some, like Compeon, are working with the traditional banks, acting as a middleman that links businesses with banks that are willing to lend. Others, like the Berlin-based start-up ZenCap, are trying to cut banks entirely out of the lending process.

But just how useful are they?

German weekly business magazine WirtschaftsWoche conducted an informal poll of small and mid-sized companies, similar to Mr. Wabst’s, who have used digital financial services or are thinking about it.

The results are encouraging for the start-ups, but less so for traditional banking models.

“We make sure that businessmen really are able to enjoy the low interest rate.”

Kai Böringschulte, Founder, Compeon

Digital innovation is one area where German businesses have often been slower than their Anglo-Saxon counterparts. Many German banks are struggling to move more of their transactions online and close bank branches. Financial technology start-ups have been around for a while, but they have taken time to gain real traction.

The U.S. investment bank Morgan Stanley estimates about 10 percent of all loans to consumers and small and mid-sized firms will be done via online platforms by 2020, compared to the current level of about 1 percent.

When it comes to small business loans in particular – those ranging up to €500,000 – many business owners said the start-ups have successfully brought transparency to the market and are now crowding banks completely out of the sector. The same holds true for the sale of suppliers’ accounts receivable and failed invoices.

Yet despite the increasing interest in financial start-ups, businesses are still often advised to maintain connections with their principal bank. While they can help provide smaller loans, the financial technology sector remains too small and specialized to manage the range of financial transactions that companies need, especially for larger and more complicated projects.

This limited reach is part of the reason most traditional banks insist they aren’t worried by the competition. Commerzbank, the market leader when it comes to loans to mid-sized German firms, has said it is willing to work with the start-ups to make the process of obtaining a loan easier.

“Whatever service these attackers are offering, as a client you will always need a bank account in the end. And this you can only get at a bank,” Holger Werner, Commerzbank’s board member in charge of corporate lending, told WirtschaftsWoche.

But the start-ups are clearly a welcome alternative for small and medium-sized businesses, which are often at a disadvantage in receiving loans despite record-low interest rates in Germany thanks to the European debt crisis and the European Central Bank.

According to the monthly poll of 4,000 companies by the Munich ifo Institute, 19 percent of companies complained about restrictive lending policies by banks to firms with less than €10 million in annual sales. The rate is half that for large companies with annual sales over €50 million (see graphic). Additionally, 12.1 percent of medium-sized companies said they suffer because banks are reluctant to lend.

“We make sure that businessmen really are able to enjoy the low interest rate,” said Compeon founder Kai Böringschulte. The former banker raised the funds to launch his platform from investors including the investment company DvH Ventures, which is part of WirtschaftWoche publisher Dieter von Holtzbrinck’s family-owned business, DvH Medien.

“Whatever service these attackers are offering, as a client you will always need a bank account in the end. And this you can only get at a bank.”

Holger Werner, A Commerzbank board member in charge of corporate lending

Mr. Böringschulte convinced more than 150 banks to join Compeon. The financial institutions gain access to medium-sized customers, who otherwise might never enter their offices, through the start-up. They also save on operating costs. When a loan application is submitted to Compeon, any interested banks extend their offers. The borrower chooses from among the most favorable deals. Compeon uses the same formula to arrange financial investments for banks themselves.

While only two banks bid for the financing of Seiwo’s contract work for ZF Friedrichhafen, it was enough for Mr. Wabst. A savings and loan bank in Annaberg-Buchholz, Saxony, offered a package 0.5 percentage points lower than his house bank. And in just two weeks, the badly needed €440,000 was in the company’s account. Not long ago, Mr. Wabst would have waited three months for a larger line of credit from his house bank.

To protect businesses from house banks that might discriminate against companies using the Internet for financing, Compeon users can choose to exclude certain institutions from the bidding process.

Since its launch in 2013, the financial portal has arranged €650 million in loans and investments for companies. The largest deal was €16 million for a new factory hall, given to a company with annual sales of €40 million.

Some rivals haven’t stopped at being the middleman in the process like Compeon.

Berlin-based Zencap, founded by former McKinsey consulting group executives Christian Grobe and Matthias Knecht, focuses on considerably lower-value loans, between €10,000 and €250,000. The lending portal completely excludes banks, focusing instead on obtaining loans for businesspeople directly from private investors.

Investors can get involved with amounts as low as €100 while enjoying interest rates considerably higher than in a savings account. The rate is scaled according to the risk category of the borrower, coming in between 3 and 15 percent. In contrast to banks, financial investments arranged by Zencap are not covered by deposit guarantees. Investors assume the total risk as creditors.

This apparently doesn’t prevent investors from making quicker decisions than many banks. Peter Reiner, who heads the drone construction company CADmium near Regensburg in Bavaria, for example, said he received a payment of €100,000 from Zencap just four weeks after applying for credit. His small company aims to build surveillance drones for use by scientists or fire departments.

“I don’t want to have to concentrate on finances, but rather on manufacturing the equipment and on my customers,” Mr. Reiner said.

Zencap foudners Christian Grobe (left) und Matthias Knecht (right). Source: PR
Zencap founders Christian Grobe (left) und Matthias Knecht are looking to take banks out of the equation. Source: PR


The financial aid comes at a price. Zencap takes 4.5 percent of the loan as commission while collecting a percentage point of interest from investors providing the money.

Alternative lenders aren’t shy about experimenting with new products. Consider Frankfurt-based Debitos, founded by former investment banker Hajo Engelke, which has made a name for itself by helping out creditors looking to pull money out of bankrupt companies.

Originally, he planned to create a financial portal where businesspeople could sell accounts receivables from export businesses to banks. Now, Debitos has evolved into an exchange for trading non-performing loans and bankruptcy claims. Businesspeople and insolvency administrators use the portal to auction off failed invoices to professional debt collectors, with Debitos collecting 6 to 9 percent of the price.

The value to companies plagued by deadbeat customers is obvious. With the digital auction, they receive the maximum amount of unpaid invoices since almost every debt-collection agency and professional participates in the bidding. One subcontractor stuck with unpaid invoices of €11.3 million from the insolvent wind farm operator Prokon managed to get 30 percent of the amount by using Debitos.

Debitos also helps owners of small businesses that are battling defaulting consumers but are unable to afford their own debt collection division.

“Without the portal, I would never have been able to come into contact with professional debt purchasers,” said Marc Wesemeyer, who utilized Debitos to eliminate outstanding accounts owed to him by users of his fitness studio chain in the Braunschweig region.

“Up until now, there have been few opportunities in the euro region to invest through a marketplace model in short-term payables against companies with excellent credit ratings. ”

Michael Buchen, Head of Dhabi Holdings, of Abu Dhabi

Another model: CRX Markets, a Munich-based start-up founded by former Deutsche Bank employee Moritz von der Linden, focuses not on defaulted payables, but on healthy corporate receivables held against large solvent companies.

The company was given the green light to begin operations two weeks ago by BaFin, the German Federal Financial Supervisory Authority. CRX promises medium-sized businesses relief from a vexing problem: the power of corporations to force suppliers into long payment schedules that commonly run to 90 days in Germany. In contrast, suppliers can receive their money in just two days through CRX. Mr. von der Linden is convinced he will attract insurance companies or asset managers as interim financiers.

Mr. von der Linden seems to have struck a nerve. His company likely arrived just in time for the Swiss automotive supplier Feintool in Lyss in the Swiss region of Bern.

“The large producers and suppliers constantly try to extend their terms of payment, which we have to bridge financially,” said Alexander von Witzleben, chairman of the board of directors at Feintool. Despite the low interest rates, he added, it is a considerable burden.

Investors are also taking notice.

“Up until now, there have been few opportunities in the euro region to invest through a marketplace model in short-term payables against companies with excellent credit ratings,” said Michael Buchen, head of Dhabi Holdings in the Arab Emirate of Abu Dhabi, which manages the assets of a member of the royal family and invests in international shareholdings. “The CRX business model is just what we were looking for.”

Mr. Buchen is surprised European banks didn’t think of the idea first. The asset manager said he often has larger sums to invest when he turns shareholdings into cash. Now, he’s considering purchasing payables through CRX, which promises a yield of 0.3 to 0.4 percentage points higher than the interim investments on the European money market.

CRX has competition in the field. The German discount supermarket chain Aldi has reportedly signed with Taulia, a San Francisco-based rival. The U.S. company, founded in Silicon Valley by four Germans, is active internationally and now is building its business in Germany – with a small head start on CRX.


This story first appeared in Wirtschaftswoche. To contact the author:

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