Only Amateurs Use Banks, Professionals Build One!
I find banking to be vital throughout my entire life, yet I have not observed them functioning correctly on an international level. I’ve seen international banking systems but have never really envisioned a global bank.
Nearing the end of 2008, I saw a sudden lot to the worldwide consolidation of banking, which ultimately converted conventional banks into liabilities. A similar situation is even applicable to JP Morgan Chase, which is probably the most valuable bank globally with million-dollar foreign assets.
In European licensed banks, the government regulates their funding mechanisms for banks to scale and de-risk investments for decentralized global energy generation, storage, and mobility assets. Modern technological solutions and products apply to alleviate conventional banking, yet awarding the fund approvals depends tremendously on local bank managers. Relying on local bank managers who learned the knick and knack of traditional banking would not resolve transnational banking issues. Entering an international bank in Hong Kong, Germany, and England will not give you a comparable experience due to government regulations and each nation’s functionality. If banks cannot even authorize simple transnational authorization tools, don’t imagine cross-border financing for power generation, storage, or mobility assets. It will not fit into our plan to shape a sustainable future.
iWe are in the era of disrupting conventionalism.
Jeff Bezos once wrote, “One day, Amazon will fail, and our job is to delay it as long as possible.” The statement implies a life cycle of all companies and products. The realization that everything will come to an end is not surprising. Still, banks, which have been financing and becoming the lifelines of one’s business operations, have suddenly turned crucial, especially during downturns.
Unfortunately for commercial and public banks, the best playbook in this fast-changing world forces them to extend more loans upon longer tenures, as long as companies are still in business. When banks have to finally write off their oil, gas, and zombie assets, no banks will be strong enough to support cleantech and sustainable living globally. Banks are in the business to protect their assets, despite their traditional systems, which are often not leveraged for the future.
We can’t wait for the collapse of large banks, under the legacy risks in the form of accumulated decades, on top of zombie assets waiting for the day of reckoning. Then, why isn’t tech disrupting finance entirely just yet? Consumer banking has done it, but why not towards climate and sustainable technology? It is possible to utterly de-risk energy assets investments using the tools available for licensed European banks. For instance, the European Deposit Insurance Scheme (EDS), which guarantees up to EUR100,000 per customer, is usable to finance global energy transition businesses.
If we envisioned implementing the though, exports from Germany, even complete power systems, are guaranteed 80% of its value export credits by the German government. You don’t need to be a risk manager to understand that a financing mechanism that ensures 20% from you and 80% from the German government creates a low-risk investment. If you can provide a corporate bond structure, you can now even deposit it with the European Central Bank to generate immediate liquidity at a 0% interest rate.
Risk-free government-backed investments
In Germany, the government guarantees 100% absorption of the loan risk to companies. Then, why are we raising expensive equity if the government pays and secures the entire transaction? Why are we waiting for mammoths, outdated, and semi-bankrupt institutions to finance the probably most significant human challenge in history? We are creating a clean energy microcosm of multi-tiered specialized funding sources, all making valuable contributions to the system, but we are not going after the grand prize?
And the questions list goes on to even the granular level.
In the future of millions of energy and transportation assets, the energy and mobility transition needs access to a massive amount of capital at highly competitive rates. The current banking system is too expensive, localized, and inflexible to provide more than niche services to a multi-trillion Dollar growing industry. While the market for asset financing is genuinely global and transportable, banking products are still national at best.
With the world’s quick transformation, classic business models in energy, mobility, and agriculture are dying at a constantly accelerating rate. The system was once easy, with demand and supply theoretically regulated between companies’ assets and product sales to consumers despite the size.
The first significant disruptor is, of course, the government. If you are in the fields of energy or mobility space, you rely on incentives, penalties, public priorities, and ultimately funding, all of which are government-dependent. Public debts hold together a country’s economy, and the lack of Dollar alternatives has the public one. With the massive societal transition, those two do not necessarily negate developments. For instance, the automotive industry will produce 70 million cars by 2021 — and cars are luxuries. In my world that moves towards carbon negative, we cannot create carbon-producing assets that will be unutilized 98% of the time. Even if a car gets discounted and the future of mobility involves self-driving and optimized maintenance cycles, the current automotive system is still unsustainable. Should the future of mobility get revolutionized, the automotive sector will automatically decentralize assets-generating revenue and turn consumers into operators. When this occurs, electric cars stop being a liability, and charging stations will turn into assets valued over their lifetime. Nowadays, similar products get created every day, and being self-sufficient has gradually grown to be traditions. Solar power, for instance, companies worldwide are renting out their roofs and repurchasing power generated in their facility, based on Power Purchase Agreements. This circumstance leads the market to develop massive onsite deployments of batteries for grid stabilization, which will balance solar and wind power.
We are looking at a future of approximately hundreds of millions of movable infrastructure assets involving multiple owners, operators, and livelihoods. The opportunity is global and rapidly growing, and the current banking structure is unsustainable for the future. If you try to copy a UK-based asset deal to mainland Europe, although you have a local partner like Lombard, it will not resolve the issue. Every bank in varied nations implements different regulations, which also means that every loan taken out of a bank will be determined by the local bank managers, despite their skill sets.
Clean technology as an industry
Energy transformation and sustainable lifestyle are highly complex, which requires a particular set of banking-integrated knowledge. It is nothing like buying a home or applying for a business loan. Many banks often deem the risks of clean technology high, and it is prone to loan rejections. Specialized asset funding, whose calculated risks are rarities, is no exception. They may use supporting data to support funding, which means that it can run and operate real-time, anywhere and anytime in the world — like how Schneider Electric’s StruxureWare can. Technically speaking, no one will distinguish differences when my data center is run from either South Africa’s port or a Colorado’s server farm; however, any financiers will be able to highlight the considerable difference.
In conclusion, I can observe that the EU’s monetary regulations changes ease any finance bodies to become fully licensed and offer secured banking products to even retail customers. Financing clean technology will soon be feasible, and of course, with the government’s continuous regulation. There are multiple ways for a bank to use existing additional government-guaranteed structures to de-risk and massively scale commercial debt offerings to clean technology companies. A licensed bank can significantly reduce the capital cost and finance a large number of energy generation, storage, and mobility assets, regardless of the assets’ locations.
I call for a disruptor in clean technology! The current banking system will not drive the global sustainability evolution after noting the legacy risks, national structure, and lack of innovative power.
What do you think? Do share your opinions!
