New deposit platforms show limits of negative rates

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In June, Sweden’s Klarna, one of Europe’s biggest fintech companies, and UniCredit-owned HypoVereinsbank, both announced plans to distribute deposits through Berlin-based Raisin’s WeltSparen platform.

Previously, in April, Deutsche Bank started distributing other banks’ deposits to its wealth management and branch customers using the Deposit Solutions platform.

As open banking and the distribution of third-party deposits by banks becomes more common, what are the implications for central banks, especially as negative rates become ever more entrenched?

Unfortunately, it’s not all encouraging. Seen by some as a strength – particularly in periods of market volatility – the enduring preponderance of passively risk-averse deposit savings is part of the reason why European inflation has been so low and so hard to lift.

It’s also why European banks are so ill-placed to deal with permanently lower and even permanently negative interest rates.

Rather than putting the money into shares, it looks like Germans are simply turning to companies that make it easier to shop around for deposits 

The obsession with deposits is especially widespread in Germany, among its older generation.

Excess deposits have hurt the banks and stifled the economy.

Trillions of euros have laid fallow: wasting away on the balance sheets of banks that don’t need it, often in the wealthiest countries, rather than getting channelled into the kind of growth funding that might better serve both companies and investors.

Imposing negative rates on these savers should contribute to the monetary-policy transmission mechanism in an era of negative rates, potentially bolstering growth and fuelling the inflation that the continent needs by nudging them into riskier assets.

Shopping around

However, rather than putting the money into shares, it looks like Germans are simply turning to companies that make it easier to shop around for deposits.

This is precisely what Deposit Solutions and Raisin do.

Deposit Solutions is larger and more advanced in developing third-party distribution by a big retail lender, Deutsche. Its end-users are on average 55, and their average ticket size is about €40,000.

They are also overwhelmingly German. Raisin, also German, is more advanced in corporate deposits, largely thanks to an agreement with Commerzbank.

The two companies may be helping the economy, especially as the bigger banks slash their deposit rates, as more liabilities will go to the banks that need them, even on a European and international level.

This should go hand in hand with whatever levelling of regional bank funding rates might come with a European deposit insurance scheme.

There is still a question of the extent to which German depositors will prefer German banks, especially as credibility conscious bank distributors might not want to be seen to offer their customers deposits with banks the client might consider overly risky.

Most importantly, though, the rise of these services belies the idea that greater reliance on regional capital markets over national bank funding will soon provide a healthier monetary transmission mechanism in Europe – making it more likely that negative rates will work.

What they do show is how far people will go to keep their money in cash.