Smart Securities and SME Financing in Germany. 6 Questions to Didier Goepfert.
Didier Goepfert is currently Head of Product at wevest and responsible for the blockchain department. Recently, we successfully finalized the development of our Wallet which will be available for our registered users this month. We took some time to sit down and reflect on the impact and the mission of our smart security service that is specifically targeting German SME clients. Here is a brief summary of our Q&A.
Does “German Mittelstand” need Blockchain Technology for Business Financing?
Yes, but most of the companies don’t know yet or are not familiar with the technology. Most German SMEs depend on one single source of financing which is their local bank. The personal relationship has their advantages — but certainly not only. What happens in stressed situations? Those banks will be reluctant to lend or will lend with higher interest rates. According to a report conducted by the European Central Bank (ECB) this financing dependency provides traditional banks with additional bargaining power over SMEs and allows them to extract economic rent (i.e. squeezing them when times are tough).
Let’s take a look at the problem from another perspective: do you as an individual rely on one single bank? Probably not. Then, why should it be the case for SME financing? Why should those companies rely on one single type of financing?
The technology is tough to understand. Many SME owners are quite conservative. How do you think adoption will be like?
The technology used shouldn’t matter for SME owners. On the bottom line they have to understand that using blockchain has features that are interesting for them: lower emission costs, full flexibility in the design of the security — all while staying more secure.
At the end, I believe the process will be similar than what we have seen regarding many new products: a few innovative projects will be executed and people will realize that it works and that there is nothing to be scared off. Based on that the network effect will come into play.
Design will be a game changer when it comes to technology adoption. User experience, especially usability must be made priority when developing new products such that less tech-savvy people may benefit from innovation.
Imagine, 67 year old Theodor, who is a quite conservative German CFO of a traditional German football club. How would you explain to him the benefits of wevest?
Firstly, I’d ask Theodor if his company relies on one single bank for its financing. In most cases the answer will be “yes”. Then I will explain him that wevest is providing an easy solution for business financing. We are a regulated entity holding supervised by the German Federal Supervisory Authority (BaFin). I will ask Theodor to be open to innovative ideas and reflect on the following: after all, 40 years ago, would you have ever imagined that there will be electric cars someday?
Or that an highly technological product like the iPhone would go into the hands of the older generation. It’s all about keeping usability simple, even if the infrastructure is complex to understand. And then I would simply show him our product demo which speaks for itself — and is coming out soon by the way.
So, smart securities will have the same impact on the financing market as the iPhone on the smartphone market?
The iPhone is not the right comparison. I used to compare blockchain technology with TCP/IP, the Internet protocol suite. Without TCP/IP, we wouldn’t have seen the Internet, WiFi, Apps, and not the iPhone, of course.
On the other hand, only specialists are aware of the details of this protocol. It is built in everywhere, but we don’t realize it anymore.
This is also my prediction for the future of blockchain technology. In 15 years we will use it as any other mature technology.
Interesting. Do you believe that smart securities are going to disrupt traditional Private Equity and IPO markets?
The dynamics of established markets do not change within 1 or 2 years. Instead it will take 5, 10 years or more. During this time, we will see the coexistence of securities issued with the traditional infrastructure and securities issued on a decentralized infrastructure.
It will simply be an evolution in the financing solution. Some companies will show an appetence of using innovative solutions some other will feel comfortable using the traditional infrastructure. On the long run smart securities advantages will become the standard.
Will smart securities have an impact on German investing behaviour?
Hard to say but I think chances are good that it will have a positive impact. German “savers” are from nature rather risk-averse and most of them keep their hands away from stocks or in a best-case scenario invest in traditional German companies like Volkswagen, BASF oder Fielmann. We call this effect home bias as they are inclined to invest in companies they are familiar with or/and that are represented in national news.
Now it gets interesting. Crowdfinancing platforms like kapilendo are targeting SME companies with an innovative way of structuring financing — via crowd. This way many people can invest a small amount of money in a debt financing round of a company. Many companies have a strong user-base that has a reason to support the company. This way they can turn their customers into investors and create a healthier ecosystem.
This also accounts for equity investments. Loyal customers or people that know the owner of the local farm will be likely to support his business.
About the Interviewer
Carlos Link-Arad is currently our senior business developer and holds a bachelor degree in economics from Goethe University in Frankfurt.