European retail deposits exchange raises €15m to expand

Berlin-based Deposit Solutions is set to expand Europe’s first open architecture platform for retail savings deposits, having raised €15m ($16.5m) at €110m ($121m) valuation. The platform enables originating banks to siphon off excess deposits that might otherwise be parked with the ECB and offers customers access to rates at other EU banks without opening new accounts. Only products from countries rated A and above by rating agencies are offered and customers determine which bank gets their capital. They also have to protect their savings and assume governments can compensate depositors from other countries in the event of a crisis.

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German fintech Deposit Solutions has raised $17 million from a number of investors, including PayPal co-founder Peter Thiel, at a valuation of $121 million.

It plans to use the money to further expand internationally with a UK launch planned for January 2017. Deposit Solutions currently operates in Germany and Switzerland.

Deposit Solutions provides a platform that is essentially a network of banks. Some banks — referred to by the company as "client banks" — are looking to shed excess liquidity from their books. And others — called "product banks" — offer desirable products like high-interest savings accounts, but need retail deposits. Deposit Solutions routes the excess liquidity from client banks to product banks.

Notably, the client banks' customers determine which product bank gets capital. Let's say that a customer has an account at Barclays, a client bank in this example. Through the Deposit Solutions platform that customer sees that N26, a product bank, offers a high-interest savings account. The customer can access the savings rate that N26 offers without actually having to open account — Deposit Solutions just moves the equivalent amount of capital from Barclays to Number26.

Here are the benefits of using the Deposit Solutions platform for all parties involved:

Product banks with low deposits. Many banks, particularly those that recently launched, need retail deposits in order to start lending and generate revenue. But acquiring customers is expensive. Deposit Solutions' platform provides a way for these banks to get deposits without having to acquire customers. It also allows them to gain access to retail deposits from across borders.

Client banks with excess liquidity. European banks have to keep a percentage of their assets at the European Central Bank ( ECB) — currently, at a negative interest rate. By pushing excess liquidity to product banks, the amount of capital they must leave at the ECB is reduced. At the same time, these banks are able to retain their customers and offer them the benefits of other banks' products.

Consumers. Opening a new savings account can be time consuming and complex for consumers. Deposit Solutions removes this pain point by allowing consumers to access savings products from multiple EU banks via their existing bank accounts. Access to financial products in other countries could be highly attractive — the Opening a new savings account can be time consuming and complex for consumers. Deposit Solutions removes this pain point by allowing consumers to access savings products from multiple EU banks via their existing bank accounts. Access to financial products in other countries could be highly attractive — the top interest rate in the UK is currently 3%, while in Italy it's 0.3%.

We’ve entered the most profound era of change for financial services companies since the 1970s brought us index mutual funds, discount brokers and ATMs.

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Traditional Retail Banks vs. Online-Only Banks: Traditional retail banks provide a valuable service, but online-only banks can offer many of the same services with higher rates and lower fees

Traditional Lenders vs. Peer-to-Peer Marketplaces : P2P lending marketplaces are growing much faster than traditional lenders—only time will tell if the banks strategy of creating their own small loan networks will be successful

Traditional Asset Managers vs. Robo-Advisors : Robo-advisors like Betterment offer lower fees, lower minimums and solid returns to investors, but the much larger traditional asset managers are creating their own robo-products while providing the kind of handholding that high net worth clients are willing to pay handsomely for.

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Retail banking

Lending and Financing

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Markets and Exchanges

Insurance

Blockchain Transactions

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Why financial technology is so disruptive to financial services—it will soon change the nature of almost every financial activity, from banking to payments to wealth management.

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This exclusive report also:

Explains the main growth drivers of the exploding fintech ecosystem.

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