AI may be the shiny new thing that has captured the attention of the industry recently, but Olaf Ransome is vouching for the continued relevance of two traditional finance (TradFi) concepts: working capital and liquidity. In an opinion piece, the banking consultant suggests that when these concepts of the old world of TradFi converge with the new world of digital assets and tokenisation, new opportunities will arise.
“Short-term finance or working capital offers the best opportunity to make something great out of the new ingredients that the world of decentralised finance (DeFi), blockchain, and fintech has brought us,” Olaf Ransome writes.
He points out that working capital funding often ends up on banks’ balance sheets as unsecured receivables, which the Basel IV regulation has made less attractive. Banks are, therefore, driven to “find ways to keep this kind of lending off the balance sheet in the future”. In addition, “there is a lot of working capital demand that is not met by banks; many SMEs just can’t readily get access to the working capital they need”.
In with the new
According to Olaf Ransome, these issues lead to one conclusion: the industry needs new marketplaces. “Once we have new marketplaces, this will lead to a secondary market, which will drive access for more borrowers,” he explains. A secondary market might also motivate lenders to lend cash more cheaply. “With a new marketplace and approach, we might be able to broaden the supply of cash.”
Add to that AI, and we might be onto a winning formula. With a big pool of data and analytics available, “decisions can be better informed, risk can be better priced”.