Route to Market Q&A: A Chat with CrossLend
December 8th - 2020
Tell us about what you do and what sets you apart in the market?
In a nutshell, CrossLend provides infrastructure for loan-portfolio transactions. In this context, infrastructure is a big word that needs a bit of explanation. Ultimately, every debt or loan-portfolio transaction from an originator, like a bank or a marketplace lender follows the same logical steps when being transferred to an investor. These steps are 1. Data gathering, 2. Decision making, 3. The settlement of the transaction. Each of these three steps triggers different challenges for different market participants. As an example, data availability in a bank can be completely different from data availability in a marketplace lender.
CrossLend provides a substantial toolbox with gadgets and tricks for every step. We assist with onboarding data, normalising and standardising data, and also repairing damage and inconsistencies across different sources which contain data about the same loan. In the second step, we provide a toolkit with state-of-the-art data analytics, valuation methods, and RoE calculations. This completes the pieces of the puzzle that are needed to make a sound transactional decision. Finally, we provide an end-to-end securitisation solution that can settle the transaction in a format which allows a look-through approach, meaning that investors can assess the risk of each loan.
We can provide all these services to lending marketplaces as well as small and large banks. On the investor side, we assist banks, insurance companies, and pension funds with screening and getting access to assets. Along the way, we take care of reporting obligations, whether that is a standardised regulatory reporting or bespoke high-level summary reporting.
What sets us apart from other players in the market is the provision of this enhanced tech-based service along the full transactional chain. You can find securitisation as a service, you can find data providers, core banking system providers, and other specialised services in the market, but combining all these services through tech is new. In the end, a loan-portfolio transaction entails a complex workflow and you do not want to have breaks in the infrastructure along the process chain. CrossLend can provide this high-level transactional support end to end.
What has been your biggest challenge so far and how have you overcome it?
Our biggest challenge is complexity. While we have not yet overcome it, we have learned to manage it. The fact is that no regulated market for debt transactions currently exists in Europe. This is not due to a lack of willingness to build it. On the contrary, the European Commission has tried to implement something called a European Capital Markets Union, which would provide solutions to regulate the market. However, rather than creating the perfect marketplace, the hardest challenge is fulfilling the complex needs of the market players and enabling everyone to participate in such a marketplace. The massive challenge on our hands is dealing with the full range of complex processes in a non-standardised data environment. Such processes include: drilling into the processes of banks’ originations, portfolio management, treasury, ALM, risk, linking originators’ needs with the regulatory landscape of Basel, solvency, securitisation law requirements, and accounting (just to name a few). However, once regulatory standardisation has been achieved, this builds the roads and highways for industrialised transactions which are not even possible today. We must not forget that a lot of the things we associate with costs and risks in the financial markets today are actually tech risks – or more precisely, risks resulting from missing technology.
How do you build and develop talent and elevate people to be at their very best?
We try to find people that fit into our existing culture, which is defined by our values. We look for people who are inspired by our vision. Developing an atmosphere that allows everyone to perform at their highest level can be tough from two perspectives: 1. Providing a motivation and finding that “why” and 2. Avoiding discouragement. Providing a motivation works best when people develop that motivation in and out of themselves. Therefore, in a first interview, it is important for us to see that the candidate is positively triggered by our vision and already starts spinning their own plot and ideas about how the story continues. Avoiding discouragement is a bit more vague since not all discouraging things can be avoided. A desire for success is the best driving force in the end.
How has Mouro Capital assisted you in tackling some of your ‘scale-up’ pain points?
Mouro Capital is helping us in many ways. The biggest impact, of course, is being able to provide the bridge into the bank. When it comes to dealing with banks, active involvement and an ongoing connection of the dots is required. Aside from that, the overall fintech-related network is helping us a lot.
Running a startup is hard work – what advice would you give a budding entrepreneur out there?
Mastering sports, the piano, or anything else you do in your spare time are also hard work, but you do them because you like what you do. The same applies to finding motivation for your business. If you are building something to “get rich” or if you understand entrepreneurship to be a form of lifestyle, it will most likely become a burden at some point. However, if you are intrinsically driven by the topic, thing, or product you are building, then this is called passion. And passion is the thing that differentiates between something you have to do and something you want to do. So, I guess my best advice would be to either be passionate about what you do or leave it.
What’s next for CrossLend?
Well, since we have not yet overcome our biggest challenge (mastering complexity), we are still very much grinding away at that until we crack it. Right now, most of our resources can be allocated to increasing the depth of our features. And as a part of this exercise, together with the overall COVID-19 situation, new opportunities, e.g. in the field of NPLs, have suddenly opened up. So, there is a lot of work ahead but the good news is this: we are passionate about it!
Crosslend is a Berlin-based fintech with approximately 70 employees. The company has developed a digital credit marketplace and has been processing credit data since 2014. Since its inception, CrossLend has developed a variety of technologies and industry-wide standards, many of which are specifically oriented toward the needs and objectives of European institutional investors.
Among the shareholders of CrossLend are Mouro Capital, ABN AMRO Ventures, the Luxembourg Future Fund (European Investment Fund; SNCI), CME Group, Lakestar, Earlybird, Northzone, Promus Ventures, Atlantic Labs and finleap.