Insight & Analysis

Pay as you go: data-driven loan offers a glimpse into financing’s future

Published: Jul 2018

Commerzbank’s innovative loan structure aligns repayment with capital usage, informed by IoT connected technology.

Commerzbank’s data-driven ‘pay-per-use loan’ is providing treasurers with a glimpse into the future. The innovative loan structure, piloted with machine tool manufacturer EMAG, utilises Big Data and the Internet of Things (IoT) to align the rate of repayment to the usage of a capital good. In this case, networked machine tools provided to EMAG’s client, KMB Technologie.

“We use internal calculation models to reflect the actual usage to work out the repayment rate,” explains Jan-Philipp Gillmann, Divisional Board Member, Development & Digitisation in the Corporate Clients business segment at Commerzbank. “The calculation takes account of the expected production and output parameters so the result is that lower utilisation of the machine leads to a lower repayment rate, and higher utilisation to higher repayment rates.”

The loan is one of the first solutions developed by Commerzbank’s new Big Data & Advanced Analytics division, led by Kerem Tomak.

Liquidity benefits

Because Commerzbank calculates the loan repayment schedule based on the actual usage of capital equipment, KMB can easily adjust its liquidity for production and turnover.

“This helps preserve the user’s liquidity when the usage of capital equipment is lower and supports overall financial stability by lowering their break-even point,” explains Gillmann.

EMAG also benefits from the loan structure. “The flexibility of the loan structure and the greater control over liquidity it provides, allowing KMB to invest in a new generation of EMAG’s machines.”

Beyond financing

This loan is just another sign of the impact IoT may have on corporate treasury. Indeed, there have already been examples of IoT disrupting the trade financing space.

For example, Treasury Insights reported on a “world first” trade finance deal between the Commonwealth Bank of Australia and Wells Fargo that utilised IoT to track a shipment of goods in late 2016. This allowed all parties involved in the transaction to follow the goods in real-time, enabling payment and risk to match the actual physical flow of goods – historically linked to the paper flow.

And more use cases will come. “For Commerzbank, the pay-per-use-loan is a starting point in the IoT-Ecosystem,” says Gillmann. “We understand the related technologies and will expand capabilities to adopt these technologies and create additional product solutions for our clients beyond capital investments. As technology develops, there will be further opportunities to enhance banking products with these technologies.”

Connected futures

Away from corporate treasury, IoT is having a big impact on how corporations operate. This is allowing them to enhance efficiencies, drive cost savings and better serve customers.

For example, haulage firms are using it to optimise routes and vehicle performance. Whilst some shipping firms are using the technology to monitor vessel location, speed and the temperature for heat-sensitive cargo. They can then share the data with companies that are shipping goods, from production and warehouse distribution to final delivery.

And with one trillion devices expected to be connected to the internet by 2025, IoT will continue to have a transformative impact. It’s therefore certainly something to which all businesses and treasury professionals should be paying attention.

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