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9th April 2021
S&P Global latest Future of Banking Report examines the rewards and risks of deposit platforms
As part of its Future of Banking series, S&P Global Ratings examines online deposit platforms, which like traditional banks have been attracting record levels of household deposits during the pandemic.
"Digital deposit platforms are an efficient funding alternative for banks that lack direct access to domestic or international retail deposits and a way to reduce excess deposits for others," said S&P Global Ratings credit analyst Gabriel Zwicklhuber in the report published this week, "The Future Of Banking: One-Click Deposits (Risks Included)."
However, we view mediated deposits as less stable; customers on deposit platforms are more prone to moving their money around when rates change than traditionally more loyal bank customers. We typically reflect the reliance on brokered deposits negatively in our assessments of bank funding, although the extent depends on unique circumstances.
In the E8.4bn market for household deposits in the eurozone, deposit platforms bring together savers and fund-seeking banks, offering mutual rewards:
-Savers benefit from a wide choice of product providers, greater price transparency, and digital convenience without having to bother with new know-your-customer procedures every time they move their deposits to another bank.
-For banks, the platforms provide a large pool of retail clients with cash to deposit-outside of their traditional retail operations. For particularly smaller banks without a retail franchise or strong brand, deposit platforms offer a way to diversify their funding mix efficiently and flexibly.
For other banks, they are a way to manage excess deposits.
Like regulators, S&P Global Ratings considers brokered deposits as more rate-sensitive and less sticky than those originating with well-established retail banking franchises with anchor or multiproduct retail accounts. In the absence of a customer relationship that goes beyond brokered deposits, we see little to stop anxious customers from moving their funds to other banks in times of stress. This makes brokered deposits a more tenuous funding source.
This flexible funding option also comes at a high cost. On average, offers on Raisin and Deposit Solutions currently pay about 0.40%-0.50% on one-year term deposits at a time when many banks pay next to nothing. Fees for the deposit platform come on top. Given these high costs, this funding source only suits banks that cannot access retail deposits otherwise or those with higher-yielding assets-often riskier institutions.
"The looming collapse of Germany-based Greensill Bank is a reminder to retail depositors that higher rewards are typically associated with higher risk," said Zwicklhuber.
Although most retail deposits via platforms are covered by deposit guarantee schemes-just like deposits in traditional banks-their risk ultimately depends on the capacity of the insurance fund and the sovereign to cover losses, and those vary widely across countries.
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