Founding an Internet bank is not enough for Bank Leumi (TASE:LUMI). Sources inform "Globes" that the bank, managed by CEO Rakefet Russak-Aminoach, is planning to enter the P2P (peer-to-peer) loans sector, in which people give each other direct loans. This field, which has been making giant strides around the world, is only just getting started in Israel.
Russak-Aminoach's decision to enter this sector is no small matter, because loans of this type deprive the bank of its principal current function - mediating between borrowers and lenders (while collecting a fat fee) - because they take place directly between the parties. P2P business is considered one of the main current threats to banks around the world, and Bank Leumi's entry into it is expected to wreak considerable havoc for the bank, and cause it losses.
Bank Leumi, however, believes that this new development cannot be halted in any case, and that it is therefore better to participate it than to wait for other ventures to eat into the bank's market share. In addition, in the longer term, assuming the venture succeeds, Bank Leumi is also likely to market the platform overseas, since the platform is mainly technological, and does not require the opening of branches or capital (the bank will not provide the loans from its own sources). The bank is also likely to enjoy an increase in its revenue.
P2P is still new for the bank, and it is unclear when the platform will be launched, and in what form. "Globes" previously reported that the bank had conducted negotiations for the acquisition of Israel P2P platform Blender, launched six months ago, but these negotiations never got off the ground. The bank has not yet decided whether it will enter this sector by acquiring an existing platform or by developing one, but it is believed that the bank is inclined to develop most, if not all, of the system by itself.
As far as is known, no conventional bank anywhere in the world has ever decided before to enter the P2P sector before, and the list of digital banks that have commenced such activity is limited. The reason is the potential damage to the bank's own business and its existing brand name. Bank Leumi, however, believes a conventional bank's entry into this field also has advantages.
First of all, the bank already has a system for underwriting and analyzing customers, and is capable of rating the degree of its customers' risk. In addition, Bank Leumi, whose equity amounts to NIS 20 billion, can nevertheless allocate some of its equity to cover losses on loans in default, thereby reducing the borrowers' risk (and it is reasonable to assume that it will charge a commission on the loan).
Bank Leumi is putting a major emphasis on the digital field, under the assumption that the banking industry is headed in that direction. For over a year, the bank has considered whether to develop an Internet bank under a separate brand name to offer cheaper banking services. Bank Leumi decided to go ahead with it, even at the price of damaging its own business, and will launch such a bank next year.
Note that one of Minister of Finance-designate Moshe Kahlon's plans is to introduce a new player into the Israeli banking market, which is likely to be a player from the digital sector. Concern about the entry of a new player is motivating Bank Leumi to go ahead with its plans, because a new player will find it more difficult to establish an Internet bank if such a player already exists.
By Irit Avissar
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