CrossLend believes that the financing space needs a shake-up and has developed a solution that aims to do exactly that.
CEO & Founder
Tell us a bit about yourself and your background. How did you get into fintech and why did you want to build a cross-border marketplace lending platform?
After studying Physics and Economics at the Freie Universität Berlin, I went on to found my first company, Quantea, in 2010. This company specialised in the development of trading algorithms and currency trading IT infrastructure.
Three years later, I joined Kreditech Holding – a company which leverages technology to enable people with little or no credit history to access finance – as Chief Financial & Investment Officer. It was in this role that I became exposed to the European lending economy and it was when I developed the idea behind CrossLend.
CrossLend was founded in June 2014 and began operating officially in in September 2015. Initially, we were focused on the business to consumer (B2C) lending market, but we have since moved into the business to business (B2B) space. As a result of this work and expansion the business has grown markedly in a few years and today we have roughly 50 employees.
What were the biggest challenges getting the company off the ground?
The complexity of a highly regulated product in the B2B segment is significant. There are a lot of things that need to be developed at the same time. We’re not selling clothes via an online shop. We are engaging with highly regulated entities and regulators, developing new solutions for an economy that is not particularly fast or reactive when it comes to change driven by cutting-edge technology. However, at the same time this of course is also the basis for a great opportunity. With our innovative platform we can really change something in the financial ecosystem.
I like to think that CrossLend is quite unique because we are not a competitor for banks; we consider ourselves very much as a partner to the banks thus generating a true value for the existing ecosystem.
What makes fintech such an exciting space and what do you find most interesting about it?
The pace of change and the solutions that are being created are what makes fintech an exciting space to work in. But I like to think that we are different to most fintechs who have decided to focus on a niche area of financial services. In some respects, these companies are competing with the banks for a finite amount of business. I like to think that CrossLend is quite unique because we are not a competitor for banks; we consider ourselves very much as a partner to the banks, thus generating a true value for the existing ecosystem.
How do you expect fintech to develop, especially in the corporate space, in the years to come?
I expect a clear consolidation in the fintech market in the next few years. Fintechs need to have a clear value proposition towards corporates in the B2B space. If you just improve single parts of the value chain of a corporate it will copy or acquire you. On the other hand, if you act as missing link or enabler for new products, you create a true value to the overall economy and create something scalable.
In corporate treasury, few are feeling the impacts of fintech as yet. Where do you think that fintech can have a real impact on the day-to-day operations of corporate treasurers?
Most fintechs so far are targeting the B2C space since many of the founders are coming from the eCommerce space. This has changed recently, however, and we are seeing more and more native fintech founders tackling B2B problems. Corporate treasurers will benefit from that development, but the ecosystem is young and needs to grow.
How it works
The solution works by CrossLend purchasing loans that have been granted by banks and issuing a series of notes – debt securities that can be purchased by investors.
When a borrower makes their loan repayments, CrossLend makes the corresponding payments of interest and principal pro rata to the holders of the notes. Insofar as a borrower neglects to make their loan instalment payments, CrossLend owes the holders of the notes no payments. Costs for the collection of overdue loan amounts may arise, which may be deducted from any payments to the noteholders.
Transforming the credit market
CrossLend connects originators such as banks with investors such as insurance companies and pension funds. Originators can offload loans on a single loan basis from their balance sheets. CrossLend makes these available as a flexible asset to investors via 1:1 securitisation (one loan – one security, no pooling). “We have created a new European bridge between banks and investors to help bring the European Capital Markets Union to life,” says Oliver Schimek, Founder and CEO at CrossLend.
Established in 2014, CrossLend’s founders originally set about developing a European cross-border, peer-to-peer lending platform for private investors to access consumer loans. However, Europe’s changing economic fortunes and the regulatory pressure on banks that is forcing them to shrink their balance sheets, seeing them able to lend less, gave Schimek and his team an opportunity to push the company in a new direction.
This new direction would see CrossLend introduce its peer-to-peer model directly to the back offices of banks, giving them a flexible instrument for refinancing their lending operations. “Our concept lets them keep the customer relationship, monetise it and service the loan without the full balance sheet implications. In that sense we make banks peer to peer capable,” explains Schimek. “At the core of our approach is a new way of securitising loans where instead of issuing a bond against pools of loans, CrossLend securitises single loans with single bonds, translating the loan receivable into tradable securities with the advantage of full transparency.”
“Our original idea alleviated a symptom of the sub-optional lending environment that existed in Europe,” says Schimek. “Our new idea reflects the times and we think that our new solution can solve the root of the problem.”
A sign of the times
“Europe is in trouble and we want to stabilise its backbone, which is the financial system,” says Schimek. “Politicians and regulators have been working on the concept of a Capital Markets Union (CMU), linking savings and growth to improve conditions for savers and investors. Their action plan says we need to connect institutional and retail capital to the lending side of the economy, preferably via securitisation. Compare that to our business plan and it’s basically a one-to-one match. Banks would need many years to start such a platform and it would not be independent. We are the speedboat in this market.”
CrossLend platform goes live
Series A Financing Round with Lakestar
Reorganisation: service for banks, insurance companies and other credit marketplaces
Investment of Luxembourg Future Fund
New investors: CME Ventures, Fund Promus Ventures