What is Silver Bullion about?
Silver Bullion buys, sells, authenticates and stores physical gold and silver. Since mid-2015 we also launched the option for customers to securely lend and borrow to each other using their bullion as collateral.
What are the three main advantages for investors?
Physical bullion buyers receive the best protection possible (in jurisdictional, counterparty and storage risk terms) against systemic crises by being owners of insured physical property under Singapore law rather than bank creditors exposed to financial crises. They also have a long position in gold / silver. They profit from a financial collapse, hyperinflation or foreign nationalizations.
Alternatively, as lenders they receive a safe return (very low risk) by lending their funds to owners of insured and authenticated bullion stored with us. Lender funds are collateralized by a minimum 200% worth of gold and silver and, should during the duration of the loan, the collateral fall to 125% the borrowers will get a margin call. At 110% we will liquidate (sell) the borrower’s silver and gold to ensure the lender’s funds are always fully covered by liquid collateral.
Lenders can offer their funds at an interest rate and duration of their choosing. Borrowers are then free to accept the best rates and vice versa, thereby creating a Bid/Ask exchange which lets lender and borrowers determine their own interest rates. The system is also inexpensive (0.5% fee) and easy to use as borrowers do not need to be rated or scored due to their collateral.
What are the three main advantages for borrowers?
Because the loans involve so little risk (due to collateral) lenders are willing to accept comparatively low interest rates. Therefore borrowers can borrow cheaply (e.g. 4% p.a.) and unlock their bullion liquidity without selling it. The low rates allow for arbitrage opportunities vs. customer in high interest countries.
Because we have an abundance of lenders Borrowers can quickly and easily get a loan whenever they need it, without any usage restrictions and minimal additional paperwork.
Borrowers can choose to easily roll-over /refinance a loan before maturity. So they could roll-over as needed, giving them flexibility and a source of optional liquidity when needed.
Investors are required to open a storage account first. Doesn’t that deter those that only want to invest?
A storage account is required to do our AML and KYC checks and an account number is the pre-requisite to do P2P transactions. A customer / lender does not need to buy or store bullion and there is no cost associated with opening an account. So there is no downside.
P2P Lenders have received secure returns ranging from 3.5% to 7% p.a. depending on currency, duration and borrower/lender demand. The nature of the bullion collateral also means are also well protected against both a borrower default and systemic defaults in a crisis.
It depends on the lender whether and how he values this risk diversification.
Is the technical platform self-developed?
Yes. It is highly specialized platform that is integrated with our bullion storage system which stores around 120 million SGD worth of physical bullion.
A word about the people who designed this P2P system might be in order. Gregor Gregersen (primary architect) was a senior data architect for Commerzbank (the second largest German bank), Otbert de Jong headed the global risk advisory department at ABN AMRO Bank and was a partner in PricewaterhouseCoopers and Simon Black is the founder of Sovereign Man, which is one of the best resources on internationalisation and spreading your risk.
What was the greatest challenge so far in the course of launching Silver Bullion?
Silver Bullion has had over 300 million SGD in sales and over the last 7 years we develop a reputation for solidity and security. So the P2P system is building on this legacy and attracted many lenders from the get-go.
Our biggest challenge for the P2P system is that the 200% collateral requirement – which makes it safe – also restricts borrowers to wealthy bullion owners. This means that we do not always have enough borrowers to satisfy lending demand in full.
How do you see the market in Singapore and SE Asia?
We choose to be based in Singapore because it is an internationally trusted jurisdiction and excellent for gold / silver storage. The majority of our customers however are from outside Singapore and SEA (mostly the USA, Europe and Australia).
Locally the market for bullion has become more established and mature over the last 7 years. P2P on the other hand is almost non-existent and barely beginning in SEA and many locals do not understand what P2P is or confuse it with some get-rich quick scheme.
The Singapore market is behind in terms of financial technology as local banks all overpriced their services and banking customers have few real alternatives. There are great opportunities for clean and well run enterprises in the P2P area.
Which marketing channels do you use to attract investors?
We have sold 300 million SGD without much marketing. Internet searches, word of mouth and (non-paid) articles on BBC, Wall Street Journal, Bloomberg and Reuters have been the primary conduits. We primarily operate on a “build a good product and they will come basis”.
Is Silver Bullion open to international investors?
We like to avoid the term “investor” as it implies financial products and would refer to them as customers. Last year about 90% (by value) of our customers are from outside of Singapore.
Where do you see Silver Bullion in 3 years?
We are on track to store 1% of worldwide known above ground silver reserves by late 2018. We expect an acute physical silver shortage in the second half of the decade and aim to capitalize on the current low prices. The secured P2P system gives us an additional unique selling point. We expect other companies to follow our example eventually.
On the longer view we want to establish the concept of “systemic wealth protection” in the broader financial community. The global financial system is over-indebted, overleveraged and banks are too interdependent while Western governments are extremely indebted and might not be able to orchestrate another 2008 style bailout.
More people should understand how banking operates, what counterparty risk is and learn to diversify some of their wealth outside of this credit system because we might see Cyprus like bail-ins become more common.