Crowd-funding and banks: Profit or risk?

Crowd-Finanzierungen und Banken: Gewinn oder Gefahr?Risk management occupies a large and important place in every German bank. Credit risks, market risks and operational risks will be chiefly considered as a matter of priority. However, current reflections on the risks of omitted business play no role. Although this raises the question of whether an important risk area is being ignored here.

New business models via the Internet

Due to the current historically low interest rates, which the banking sector presents its clients in the investment field, for bank customers alternative investment opportunities are interesting. Crowdfunding in general and crowdinvesting in particular, are such investment alternatives. Crowdinvesting is offered through a variety of national and international platform operators as a purely online business. Here, entrepreneurs present beforehand their business or project plans on a special crowd-funding platform on the Internet and users of this website, the so-called "crowd" may take part in the projects to a greater or lesser extent with large amounts of money. Crowdfunding is therefore freely available to every Internet user and offers investment opportunities in various industries.

This raises the question as to whether the banks currently completely ignore an important and growing area in the financial sector and therefore miss out on a large business opportunity. An increasing shift of chain stores to the Internet can be observed in many industries for over a decade, such as the mail order business. The fate of the Quelle Corporation for example, was characterised by the non-observance of Internet commerce and led to the bankruptcy of the company. With the ever growing relevance of online business, banks are under pressure to make their existing business accessible through the Internet, but also to be able to consider new business opportunities that arise through the Internet.

The risk of loss of revenue should be mentioned

The risk of omitted business for banks may become increasingly more relevant due to rapid changes in the market and rapidly growing new business on the Internet. The established business areas of the bank will be influenced by online trading in the long run and they cannot escape this trend. As the development of alternative financing in Germany and Europe alone shows, financial transactions away from the banking sector are increasing in importance. In the future, adjustments in the infrastructure of the banks, as well as the setting-up of the online business will play a crucial role.

Insourcing of crowdfunding as a solution scenario

Consequently, it can develop the problem that banks omit a way of generating business by not integrating the area of the crowdfunding in its product portfolio. As part of a doctoral thesis, to be prepared in cooperation with S&N AG, this problem should be examined from the point of view of the banks. As a possible solution scenario, we'll look at whether the insourcing of crowdinvesting by established banks presents a sensible business model and which banks offer this possibility as a product idea. Crowdinvesting is exemplified here as an area of lost income for banks so that they do not wait until the last minute with a product portfolio that no longer suits the needs of the market.

Contact person: Julia Pongratz; Turn on Javascript!