A New Lending Service Further Disrupts Czech Banks

Experts had been eyeing the decline of the major financial institution in the Czech Republic for some time. According to reports, the trend first emerged about five years ago, when a new breed of low-cost banks emerged relying on Internet traffic instead of brick-and-mortar locations.

Now, a new challenge to the nation’s big banks has emerged. Innovators have emerged that act as a matchmaker between businesses and SMEs in need of capital, matching up corporations looking to invest with the right small businesses ready for a loan.

These matchmakers, Radio Praha reported, are pushing big banks’ profits further down the tubes, having slid for three straight years.

According to the founder of one of these matchmakers, Roman Kakos, who founded a company called půjč mé firmě, launched operations just last month and already sees potential for growth and a significant share of the business lending market.

Kakos told Radio Praha that his inspiration was other alternative lenders like Lending Club and Funding Circle, companies that turned up the volume on discussion about big bank lending disruption. He added that unlike the process by which a traditional bank acts as a middle man, his company offers a simple, online application for borrowers that is uploaded to the site for corporations to see.

Borrowers determine the maximum interest rates they are willing to pay and define how much they need to borrow, as well as for how long. According to Kakos, the process is like a “reverse auction,” because it is up to the SME to decide whether to move forward with the terms proposed by a corporation willing to lend funds.

On the lending side, he said, corporations can decide how much risk they are willing to take on.

Small companies in the Czech Republic, the executive said, only see about 25-30 percent penetration with big banks when they seek financing. The smaller the company, he said, the less likely it will be that it will be approved for a bank loan.

But while his new company could signal a new disruption in the Czech Republic’s traditional banking ecosystem, Kakos added that his business is not against the banks, citing recent partnerships with major banks by Funding Circle. Rather, the new lending service can work in cooperation with the banks, which may see the potential to become a counterparty on the lending side of his business. “This is a big opportunity for the banks to service companies they are not able to service now, and which are expensive to service,” he said.