Trends

"Smart products require smart forms of refinancing"

The transaction is considered "groundbreaking in corporate financing": In autumn 2021, the investment company MEAG, which like ERGO belongs to the Munich Re Group, invested a three-digit million amount in bonds issued by the jobbike specialist Bikeleasing-Service. The technological highlight of this deal: the bond was structured and issued via the securitisation platform CrossLend on the basis of blockchain technology. Reason enough for //next to talk to MEAG expert Thomas Bayerl about the advantages and special features of this innovative approach.

Mr Bayerl, a few weeks ago MEAG invested in a bond for the first time using blockchain technology. What tipped the scales - and what exactly makes this transaction "groundbreaking"?

Well, securitisation based on blockchain technology - or distributed ledger technology (DLT) in general - has several advantages: by "tokenising" individual payment flows or objects - in this case job bikes - we achieve greater flexibility and transparency in structuring. In addition, of course, the allocation of the individual bikes and the respective related receivables are digitised and clearly stored, quasi a digital land register ...

Thomas Bayerl of MEAG

A blockchain infrastructure is characterised by the fact that every transaction is stored in a chain of individual blocks (blockchain), creating a kind of "decentralised account book". At least, that's how our Munich Re colleague Markus Hablizel recently explained it here on //next. Does this definition fit for you - and how can we imagine your bond investment in this infrastructure?  

First of all, I would like to say that the securitisation platform CrossLend, with which we are working, already offers and implements the technology of a blockchain in itself. However, we made the investment for ERGO in the form of a registered bond. In a "complete" blockchain, each participant in the transaction would have a direct link ("node"). For time reasons, however, we have not yet implemented this on the system side. 

In terms of the process, each individual asset - which in this case was the leasing contracts - is first converted into a digital asset on the platform. This is a digital object that contains all data as well as the underlying note. 

Continuous information such as cash flows are then routed through this digital asset. Thus, all information is inseparably contained in one object - and this information is continuously cryptographically merged and stored with all previous information and is thus audit-proof. So I agree with the colleague you mentioned, yes.

What were your criteria for selecting a suitable blockchain?

The functionality of the process depends on data quality and technical reliability. You need a partner who has repeatedly shown that they can set up and implement the data and technology requirements in such a way that the process runs at the required highest quality from start to finish. This requires a track record - that is, the verifiable experience of having successfully implemented something like this not just once but many times. The securitisation platform CrossLend is known to us from other contexts as an extremely reliable partner. This is crucial for our cooperation.

In addition, it was necessary for our partner to be able to issue a traditional security that could be absorbed by ERGO's inventory systems, despite the technologically advanced handling at the single-asset level. CrossLend was able to provide us with this hybrid solution ...



Finally, please let us get to the point: What distinguishes the use of blockchain technology from the previous way of making such a bond investment - where exactly are the advantages for the issuer and the investors?

Well, it is a win-win situation: Both partners benefit from flexibility, cost efficiency and security. Cost efficiency is particularly important in the extremely low interest rate environment. It's all about every basis point of cost savings. Complete automation makes coordination obsolete, saves time and money - and errors in the ongoing process are a thing of the past. Audit security is also an advantage - for both sides. Digitalisation builds bridges where none would have been imaginable without it. We are witnessing a turning point: Digitalisation is revolutionising the financial world.

We see here that a new standard for transactions is developing: Digital assets and the associated possibilities for automation bring decisive advantages here, especially in the area of small-scale and high-frequency assets. And we also have to think one step further: products are becoming smart, so the refinancing forms for these products must also become smart. Especially in a world of the Internet of Things (IoT), the very practical question arises of how the numerous newly available pieces of information can be incorporated into financing. A small example: In leasing, by linking an IoT device in a machine with the refinancing digital asset, the residual value of a lease can be adjusted in real time or billed per use. Of course, there is an advantage if I can utilise this information in refinancing and price it more competitively. 

It would not be particularly forward-looking to remain in an observer role in the face of these developments - instead, it makes much more sense to use these technologies today so as not to be squeezed tomorrow. The full potential will come later, the cost savings and operational simplification we already have today!

Interview: Ingo Schenk