ID Finance: credit history to become a financial passport of each person on the planet
Banks.eu continues a series of interviews with top managers of European financial institutions to tell all the details of their work in Europe and their plans for the future.
This time the interlocutors of the portal are two executives: co-founders of ID Finance fintech company Boris Batin and Alexander Dunaev, who were among the first to sense the winds of change in the traditional financial market and launch online service for crediting in Russia, and later went out to the European market.
Boris Batin is CEO at ID Finance. In 2003 he was graduated at the Faculty of Economics of Cambridge, PhD. He worked for the Deutsche Bank Group in London, and later served as vice president for markets of debt capital for Russia and CIS in the Royal Bank of Scotland in Moscow.
In 2012, together with Alexander Dunaev he founded Russia's first online lending service of MoneyMan, a year later he became a co-founder of ID Finance.
Alexander Dunaev is COO at ID Finance. In 2008 he received a master's degree at the London Royal College with a degree in mathematical finance. He worked for the Deutsche Bank Group in London, and headed the group for strategic transactions in Russia and CIS.
In 2012, together with Boris Batin he launched the MoneyMan service. In 2013 he became co-founder of ID Finance.
- How did you start ID Finance? Why was the sphere of consumer credit chosen?
Batin: With Dunaev we both studied and then worked in London, the world capital of financial technology. We witnessed the explosive growth of the revolutionary Wonga company, which was the first to offer granting loans online. It was obvious that technology had changed the traditional financial market, so we decided to ride the wave and to open such a business in Russia. However, our professional experience is entirely in investment banking, and as it turned out, consumer retail segment lives by its own laws.
Dunaev: So at the first stage, we made mistakes. In 2011 we registered MoneyMan in Russia. For about a year we were engaged in the development of scoring, IT stack, infrastructure, recruiting and training, we experimented with business processes and partners. In August 2012 Russia's first online lending company of MoneyMan granted the first loan.
Batin: business development strategy initially anticipated international expansion. Therefore, in 2013 we created ID Finance, as the holding structure is more suitable to develop business in different jurisdictions and to attract international investment. Online model allows us to quickly scale the business. Therefore, all processes tried in Russia, we began to expand.
In January 2014 MoneyMan was launched in Kazakhstan, in July of the same year it came to Georgia, in the summer of 2015 it came to the West European market, first to Spain and then in December to Poland.
At the same time under the ID Finance we launched another project: AmmoPay, which automates most resource-intensive processes in the classic POS-lending, allowing delays in a totally unexpected and new commodity groups.
We have a non-trivial structure of the company. Now the ID Finance headquarters is located in Moscow and Barcelona, its R & D center is in Minsk.
- What was the development of the company in Europe? Are there many Russian financial companies working now on the European markets?
Batin: In general, the development of the company from one country to another is not so much different. Stages are approximately the same; complexities are substantially the same with slight differences. The biggest one is the staff. We very carefully approach hiring a manager in each country, and then, when we find the right person to give it broad autonomy in team formation and execution.
Dunaev: If we continue to talk about the staff, Russia boasts a very high level of experts in the field of risk management. This is conditioned by the good level of technical education, as well as the credit boom in the past 20 years in the country.
Batin: We chose Spain and Poland for the start of, because these are the most advanced European countries in terms of online lending. If you want to play in the big leagues, you definitely need to be present in these markets. All other European markets of alternative crediting are considerably smaller than in the two countries.
Neither in Spain nor in Poland people go to the bank if they need a relatively small amount for a short time: they get a loan instantly on the Internet.
The entire payment infrastructure, the amount and availability of data for risk assessment and legal framework are well-established and efficient.
In Spain, for example, more than 55% of the population makes payments via the Internet, they are all familiar with and accustomed to such services. This is a positive feature.
The negative one is in a highly competitive environment. But it is a challenge for us. We are confident in out abilities. We come to the difficult markets not to be outsiders.
- What are the differences between doing business in Russia and in Europe? Where are customers and partners more open for cooperation? Where are there stricter regulation, more competition, where is it easier to start a business?
Batin: There are only two key differences between Europe and Russia in developing alternative lending business.
First, on the part of citizens Russia has a very high level of confidence in financial institutions as a whole. This is reflected in financial literacy. People slowly and reluctantly study new opportunities in finance: online and mobile banking, online lending. Generally, payments via the Internet are - by and large - not popular in the country. But it's a matter of time, progress can not be stopped.
Secondly, the financial sector in Russia is quite strongly regulated.
In Spain the market is not regulated by the national central bank, companies comply with the law on personal data protection, the law on the fight against fraud and operate under the provisions of the Civil Code of the Russian counterpart. And the rate on short-term loans is lower than in Russia.
Also, as I said, in Europe and Georgia there is almost no off-line segment of alternative lending, the vast majority of players in this market are Internet companies.
Dunaev: Regarding the payment discipline, it is also quite different from country to country. The most disciplined borrowers according to our data, reside in Georgia, followed by Spain, Poland, Kazakhstan.
Borrowers in Russia pay for the debts worst of all. This does not mean that everyone here is a defaulter, but the proportion of them here is higher. However, this disease is treated technologically.
When companies can automatically collect all the necessary information for effective risk assessment, they will simply stop granting loans to those who are not going to pay on the loan, or have hopelessly messed up their credit history.
When the society starts to understand that credit history has to be cherished, that a good credit history gives other possibilities and new quality of life, then the level of defaults will decline.
- In which regions will the company develop in the short and long term?
Batin: Today ID Finance strategy is focused on entering the Latin American market. This is a promising region in terms of demand for alternative financing and a huge market with less competition.
At the same time we will continue to develop in Europe, particularly in the central and eastern parts of it, where there are a number of attractive markets.
- How many brands does ID Finance include today? What is the difference between MoneyMan and AmmoPay and with their competitors?
Dunaev: To create AmmoPay we were inspired by the Swedish company of Klarna. However, if Klarna offers targeted loans in e-commerce, the classic AmmoPay automates POS-lending, simplifying processes for both the buyer and the seller.
It was a basic decision: to go with an online project offline, because, unlike in Scandinavia, where Klarna came about, e-commerce market in Russia is tiny and can not be compared with the volumes of the traditional off-line retail. And we must go where the money is.
AmmoPay works like this: the buyer comes into the store, chooses the products, and then right in the store he fills the short application for AmmoPay site, waiting for a nearly instant approval and presents a special code to the cashier instead of money. At the same time we work with 1C, fully integrated into the cash register software and support payments with mPOS terminals.
In fact, the client does not receive a credit, but gets 28 days to bring back the money he received through the service. Soon, we will increase the period to three months with one of our partner retailers. If the customer returns the money in time, no interest on the loan will be credited.
We deliberately started AmmoPay in those product categories for which banks usually do grant credits. These are clothes, shoes, household goods, sports, furniture, cosmetics, jewelry, accessories, as well as services, such as the beauty industry, dentistry, legal services. We found our niche and we will develop it.
AmmoPay is now available only in Russia, but the project is not yet a year old, its scaling to other countries of ID Finance is a matter of immediate prospects.
Batin: The risk management system and IT-infrastructure allows us to run basically any financial product, the only question is in the regulatory framework of a particular jurisdiction.
Our strategy is focused on geographic expansion and product diversification. We will soon launch projects of long-term credit products, more close to the banking ones. We are also focused on the European segment of micro and small businesses.
Each of the ID Finance services working today is intended to solve a specific problem. MoneyMan allows you to borrow a small amount (the average for all countries is a little more than 300 Euros) for a short period in just 15 minutes with any gadget from anywhere in the world where there is Internet. No paperwork, office visits, communication with credit counselors, etc.
- Are there any plans to develop any additional services in addition to crediting? For example, payments or deposits? Becoming an online bank?
Batin: One of our goals is to monetize ID Finance customer base, which already has more than two million users.
We already provide services, thanks to which we obtain non-interest income. We were one of the first, at least in Russia, to move towards the creation of a financial supermarket or marketplace, offering our visitors online insurance services, as well as an opportunity to evaluate their credit history by ordering a special credit rating.
This service was launched last August and caused a real stir in the market. We made a really cool, detailed, useful and easy to use product.
We can not bring classic deposits in most of the countries where we operate, as we are not a bank. However, in Russia MoneyMan has the status of a microfinance company.
According to the law on microfinance, the company attracts funds from qualified investors for the amount of 1.5 million rubles. In 2015 we attracted 650 million rubles at the rate of 23-25% per annum. This year we have reduced rates, but, nevertheless, they are much higher than the rates on bank deposits.
ID Finance attracts investors worldwide. The company raised two investment rounds of $ 3 million in 2013 and $ 6 million in 2015.
- Can you call ID Finance a fintech startup, and why? What is the audience of the company?
Dunaev: Certainly, ID Finance is a fintech company. First of all we are engaged in technologies and only then comes all the rest. Our specialization is credit scoring, processing of large data sets. We also develop and implement our own software for employees.
The risk management system of ID Finance uses probabilistic methods for evaluating borrowers, based on the statistics and data that we collect from various sources. For example, we use the payment information of potential borrowers in the mobile account, the data from the accounts in social networks, we study the behavior of customers on the websites of our projects in applications, including when filling applications.
- What percentage of defaulters can the company afford to remain profitable?
Batin: Our level of non-payers on the whole in the group at the end of the first six months amounted to about 9%. For alternative lending companies that work with the a priori more risky borrowers than banks, this figure is very low.
However, by itself the amount of arrears does not say anything. We can make sure that the level of defaults is less than 1% just by "tightening the screws" on the scoring. But this is not our goal. For ourselves we pose the question somewhat differently: not how many defaults we can afford to remain profitable, but how to maximize returns with an acceptable level of delay.
- How, in your opinion, can the scope of online credit change in the future? In 5-10 years?
Dunaev: Intrabank segmentation is one of the main trends in the credit market. In the foreseeable future we will see the division of banks into two main parts. One of these parts will continue to offer traditional banking services, such as CSC, which will soon be free.
The other part will become more technological and will attract customers, providing almost personalized service, segmented products. It concentrates profit.
Batin: Another important trend is a flow of all financial services in the digital environment. In other words, total automation.
In the next 2-3 years car loans online will gain popularity. In the US there are already pilot projects providing full remote cycle of mortgage lending.
Credit history will be a financial passport of each person on the planet. Technology is changing the world beyond recognition, creating new links in it, new meanings. You can accept it or not, but it can not be stopped.
Previous interviews from the series can be found here:
- Croatia 8
- Montenegro 3
- Serbia 5
- Czech Republic 145
- Slovakia 10
- Germany 173
- Romania 4
- Hungary 7
- Latvia 149
- Bulgaria 19
- Lithuania 64
- Poland 57
- Italy 63
- Belgium 17
- Luxembourg 8
- Slovenia 4
- Ireland 6
- Greece 11
- Austria 32
- Albania 1
- United Kingdom 383
- Netherlands 36
- Denmark 22
- Iceland 1
- Spain 100
- Malta 1
- Monaco 2
- Norway 16
- Portugal 5
- Finland 15
- France 59
- Switzerland 140
- Sweden 59
- Estonia 40
- Cyprus 3
Virtual Affairs: the bank of the future has no borders - it's where its clients are