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Alternative finance is changing the financial landscape and taking the world by storm. By 2022, the global alternative finance market is estimated at USD 10.82 billion. It is projected to experience a CAGR of 20.2% from 2023 to 2030. As it is a profitable place for entrepreneurs, entrepreneurs plan to open a loan company and provide digital services to customers.
How To Start A Lending Business
However, starting a loan company is difficult with many unexpected challenges. Even if you think of your business plan, choose a location and find an investor, it does not guarantee a safe path from start-up to SME. That’s why the HES team decided to ask one of our loyal customers about the challenges on the way to success, because who knows better how to start a credit business than the owner of such a company?
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We talk about starting a credit company, risky decisions along the way, and one of HES’s most valued partners, Boris Batin, founder and CEO of the international microcredit provider ID Finance.
ID Finance is the company behind MoneyMan and AmmoPay, as well as the Plazo brands in Spain, Mexico and Brazil. As of October 2019, the company has reported 3 million users, with more than 40,000 new users each week. Based on the figures, the company has raised €60 million since 2015, including €5.8 million in equity and €54 million in debt.
MoneyMan is an online loan service with 60,000,000 customers. It offers quick loans in Georgia, Poland, Kazakhstan and Spain. Since 2012, MoneyMan has issued 250,000,000 loans worth more than $50 million and attracted more than $15 million in investment.
Unlike traditional microfinance companies, MoneyMan offers digital lending services 24/7, so the company is not bound by the geographical location of borrowers. The main advantages of the company are the fully automated loan approval and disbursement process and the innovative decision-making model called Scoring 5.0, which is based on Big Data and the best search technologies built into the credit management system.
How To Start A Lending Business, According To Boris Batine
It is always easier to learn from good practice than from theory. That’s why we decided to ask Boris Batin a few questions about his experience in lending with MoneyMan and the challenges of business expansion in Europe. Continue with the interview to get tips on starting a moneylending business and developing a loan program.
MoneyMan quickly took leading positions in all its countries and grew to gradually expand into new markets. What advice do you have for finding the right location in the lending business in terms of geographic availability?
Boris Batin: When we started our lending business in Eastern Europe, this market was going through a period of rapid growth. It was completely controlled by commercial banks, but no one offered online loans, so the space for online loans was empty. We saw this business growing in the UK and Western Europe and decided to use a completely new online model for our market.
Being a pioneer in the market always gives a competitive advantage. But if you can’t be the first, be smart. Create your niche by tackling solutions for new markets and expanding into neighboring areas.
The Role Of Peer To Peer Lending In Fintech
Then, if you find a client who is looking for a loan outside of your experience, don’t broker that client. Recommend them to other reputable personal loan issuers. This way the customer will get decent service and you will start to build a community of referral companies.
If you’re thinking about starting a loan company, do a lot of planning and research into what it takes to grow. Overall, we spent about a year analyzing the market environment, resolving legal issues and building our credit platform. To run a good online lending business, make sure that people in the country are actively using online banking and bank credit cards. The national legal system should enable online lending, remote access and processing of personal data. It should also have an effective debt collection system.
You started the business by expanding into the relatively close markets of Kazakhstan and Georgia. Why did you change this strategy and look at Spain as your next destination?
Boris Batin: My partner Alexander Dunaev and I have always thought of MoneyMan as an international business. After the initial success, we entered the market of culturally close neighbors. Then we looked at the situation from the other side and tried to use our knowledge to expand into distant markets with big cultural differences.
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The Spanish market has all the qualifying factors I mentioned above. Individuals do 55% of banking transactions online, including 11% through mobile apps, and non-bank loans are done entirely online. This is in stark contrast to Eastern Europe, where online MFIs account for no more than 10% of their loan portfolio. In Spain, if you need a small amount of money for urgent financial needs, instead of going to the bank, you can get fast loans online.
Above all, the Spanish legal system is simple and transparent. The online loan market is not regulated by central banks or other government bodies. Companies on the financial market are regulated by consumer and data protection and anti-money laundering laws. These laws regulate all credit activities and the management of personal data. This is enough for the market to function well.
For many people, managing finances is difficult. Therefore, a clear and transparent presentation of your company’s work will give you a competitive advantage. By not pretending to be something you are not, you will increase your credibility, attract more customers and increase their loyalty.
Boris Batin: Actually, on the contrary. Although the rates of online loans in Spain are the same as in other countries, the Spanish do not consider interest rates for quick loans as an immoral bribe. They have the right approach to lending as a business and that helps us a lot.
Small Business Lending Statistics For 2021 (+ Financing Options)
The average loan amount is around 300 euros. This is twice as much as before. We financed our first loan in June 2015, so it’s too early to talk about bad debt. We have planned an annual loan of a maximum of 8% for 90 days. In comparison, it is 14% for our First Nations. Spaniards value credit history and matching their income. They borrow as much as they need, but not as much as they can.
Expanding into a relatively new market is risky because you are exposed to uncertain business conditions. Is it difficult to register an MFI in a new country? Is it better to start a loan company from scratch?
Boris Batin: If you decide to start a credit company from scratch, keep in mind that it is never too fast. In Spain it usually takes 4 months. We wanted to save time, so we bought a small company for 5,000 euros. Legal services cost approximately $1,500 per month. By registering a new company, we would save about 1500-1000 dollars, but we would lose time.
It was very difficult for us to open a bank account. Many Spanish banks treat online lenders as competition, refuse to open and maintain their accounts, and set excessively high rates and terms of service. What I know about cross-cultural business behavior is that there is not such a problematic relationship between banks and alternative lenders outside of Spain. The cost of corporate services in Spanish banks is twice as high as in other countries where we worked before. We were lucky enough to open a country manager connection with Catalunya Caixa in Spain (and two backup accounts with smaller banks in case Catalunya Caixa decided to cut off our air supply).
Small Business Lending Index Infographic May 2021
In addition, Spanish taxpayers must keep all document flows in electronic form. We decided to entrust the accounting of the Spanish office to a local agency.
Let’s wrap up the conversation about your experience expanding in Spain. How did you get the staff and office space? How much money was needed?
Boris Batin: After we registered the company, we started looking for a country manager. We quickly found a candidate through LinkedIn – this is only the fifth interview we’ve conducted. But we also relied on Page Staffing Agency to help us find qualified candidates for key positions. By the way, their services in Spain are 40% cheaper than we expected from previous experiences. It took more than 50 interviews to find the right people for some positions, but we succeeded
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