April 2019

Who does not know this saying: At the end of the money is still so much month left! As funny as this saying may sound, it is so momentous in reality for those people who regularly find themselves in this situation. On the one hand, the days until the next salary payment are counted and, on the other hand, with fears of the ongoing debits from the checking account and its slipping into the minus. It gets bad when, due to a lack of account funds, the bill can no longer be paid and credit transfers are made. For people who have no savings on their savings account or checking account as an emergency reserve, an overdue bill with the appropriate reminder fees can be very expensive. So it is not surprising that the so-called scheduling loan enjoys great popularity.

Every 3rd German citizen uses the credit line

According to a recent survey by Postbank, the credit line is now used by every third German citizen. Despite the high interest rates often associated with the credit line, around three quarters of all people in Germany have set up a repayment credit facility through their home bank, which is used by at least 29 percent of all respondents. Of these, 23 percent only occasionally use the credit line and six percent at regular intervals. The reason for this high level of usage is the flexibility and ease of use exercised with the credit line. The sometimes immense high interest rates seem hardly discouraged by consumers.

The credit line is not suitable as an emergency loan due to its cost

But precisely in this ignorance regarding the interest burden and the fact that behind the claim no firm regulation of the loan repayment is, there is a high risk of over-indebtedness. Although the settlement of the credit line is made directly through the cash receipt as an immediate offsetting, but the amount granted the credit line is usually 2-5 times the monthly income. Those who continuously exhausted this credit line, defying regular salary arrears month after month a mountain of debt in front of him, which is also more expensive by the monthly accrued interest. In this respect, every bank customer should ask themselves whether they would be better off financially in the form of a fixed, monthly repayable installment loan .

The choice depends entirely on the amount and duration of the need. For a short bottleneck, a short-term loan or mini-credit is also recommended here. For larger purchases, as already mentioned, an installment loan is clearly the more sensible option.

Digital Transformation in the 21st Century: Hardly anything we can not do online today. Track the latest news online, go shopping independent of opening hours, spontaneously book trips and flights from the computer at home – everything is possible without any problems. Only a computer with a reasonably efficient internet connection is required. The digital transformation seems superficially complete – right? Not quite, because in one sector, the “digital” development seems a little behind. We are talking about the banking sector. I beg your pardon? There are numerous apps, online banking and even online credit – yes, that’s right. And yet, the numerous FinTech ‘s accuse the banking industry of oversleeping the digital transformation. As evidence for this, the FinTech’s state that they ultimately exist only because of the traditional financial industry just slept in the development of new digital processes. But what about this statement? Quite a lot, because the fintech industry in particular is working hard on new digitization options, which should ultimately lead to fully digital processes. The result of this work is reflected in the so-called “fully digital” credit . What kind of credit is this?

The fully digital credit means enormous time savings in the interests of the consumer

In the current standard case, borrowers who want to make their loan online / digitally have to go through the standard online borrowing process. This includes the printing of the loan agreement as well as the documents required by the bank, their dispatch to the lending institution and a legitimacy check. Individual parts of this process, thanks to appropriate technologies, borrowers can already do online today. But which technologies in detail ultimately enable fully digital credit ?

Read online bank statements – Digital Account Check

An enormous saving of time when processing a loan application is the automatic transmission of account statements to the bank. For this purpose, the bank statements required for the loan are read from the online banking of the borrower and then forwarded to the lending institution. As a consumer you do not have to search for the right account statements thanks to this procedure. It also eliminates the need to print and send those documents. A process that in the past significantly slowed down the process of processing a loan application.

Personal identification via video chat

Even the most common and legally required identification procedure by means of Post-Ident can now be realized completely online. The so-called videoident procedure can be used by all borrowers whose lending bank offers this service. If you want to use the digital alternative to the Postident method, you start a video chat with a videoident provider with your computer or a mobile device. During the chat, the borrower holds his identity card or passport to the camera. As a result, the interlocutor controls the authenticity of the documents and the conformity of the face. After successful verification, he submits the required data to the bank. The legitimacy by means of videoident process usually takes less than five minutes.

Digital signature and automated payment

The next logical step in the development of fully digital credit is the topic of “legally binding signature” and “automated payment” of the loan amount. Here, too, it is now possible to implement these two process steps fully automatically or online. In the case of the digital signature, which is admitted as a legally binding signature, the applicant for a credit need only enter a signature password transmitted by the credit institution together with a and transaction number n (TAN). That was it already. Once this has been done, the first banks are working with a system that automatically triggers the transfer of the loan amount by registering the digitally drawn loan agreement.

The effect of fully digital credit for consumers

If a bank that offers all these new technologies together offers a corresponding loan offer, this means that for consumers, the desired loan is technically available on weekdays, freely available within 24 hours , in other words, on its own account. Running, dependencies on opening times, the collection of required documents, etc. belong to history. Assuming you can make friends as a consumer with these new technologies – but then is another story …

For a long time, the trade press and experts have warned of a new banking crisis. It seems as if the banks have forgotten the misery they have maneuvered themselves and their investors. And one can probably assume that a renewed bailout would not make the taxpayers jump for joy. Nevertheless, lending has hardly improved eleven years after the big crisis. Of course, this is not about the small loans that banks spend on their private clients. Rather, they are again investing diligently in partially highly indebted companies. The perfect thing about it, unlike private loans, they do without collateral. Instead, they charge higher interest rates. This means that in the event of a new crisis or a corporate bankruptcy, banks voluntarily refrain from repaying much of the loan amount because they receive higher interest rates during the repayment term.

An American trend spills to Europe

In almost 80% of the loans granted US banks deliberately renounce security mechanisms. For example, they do not require companies to repay open loans if they do not sell or bind borrowers to a maximum debt limit. Many of these questionable loans are no longer directly assigned to companies by banks. Instead, they switch private loan providers in between. These are less closely and strictly monitored by the supervisory authorities than banks since the Lehman bankruptcy. But even in Germany, this questionable granting of loans is gradually increasing. Now the European banking supervision wants to put a stop.

The EBA plans to stem the business with bad loans

It therefore becomes clear why the credit line is still an expensive affair for consumers. An interest rate in the double-digit range is still commonplace. In addition to being tied to a reference rate designed by agreement of all European banks, lenders also like to refer to the high administrative burden. He was higher on a discretionary loan than on an installment loan.

At a conference in Vienna, the chief bank supervisor of the European Central Bank ECB announced that it would step up its efforts to banks and credit institutions. This means that the financial market supervisory authority and the ECB will jointly monitor lending more closely and rigorously in the future. Both institutes warn that banks are too generous, uncritical and cheap in their capital increase, which could later lead to repayment problems for companies and thus to a new crisis.

The ECB requires banks operating in the European region to recover the full amount of credit on large loans forfeiting the above collateral within two years. If the banks demand collateral from the companies, this period is seven years. Whether the next banking crisis but another seven years in coming, is questionable. After all, ECB and FMA also presented rules on how banks should deal with already issued, bad loans.

As a further security measure, the Financial Regulator will in the future rigorously check how problematic loans at individual banks are ordered. It is thus controlled how many such unsecured loans in which amount a bank has assigned to which companies. From this ratio, the ECB supervision depends on how many risk experts a bank must have employed. With these methods, the EBA wants to stop the already used process of lax lending in order to avoid another crisis.