Pegged as financial freedom for the underbanked, German online lender Kreditech is disrupting the fintech market by assessing the creditworthiness of an individual based on their online footprint and extending loans. Founded in 2012 by Alexander Graubner-Müller and Sebastian Diemer, the German startup was incepted with an aim to build a technology that enables credit rating for underbanked consumers through new data sources and modern statistics drawn from the field of machine learning.
During the initial run, the founders realised the best way to identify new patterns and predictors of creditworthiness was by applying analytics on on top of data gathered directly from the customer. “We decided to start a consumer lending business ourselves,” remarks Alexander Graubner-Müller, CEO, Kreditech.
Kreditech relies on unique algorithm to seize the huge potential of scoring and underwriting the underbanked, within fast-growing markets. The organization leverages technology to offer fast and convenient consumer credit across all risk-segments. Müller shared, “We have shown that the smart combination of new data sources with modern-age statistics/ machine learning can be very efficient to manage credit risk for customers which are not served by traditional financial institutions.”
How fintech players are upending the market
According to the Kreditech CEO, the financial services space is already witnessing a gradual disaggregation. “As a customer, I no longer need to have a history with an institution because I can simply share the data accumulated across different services and products used,” remarks Müller. In other words, companies who understand how to transform data into value for their customers will succeed.
AIM lists down noteworthy trends in fintech space:
- Fintechs will continue to evolve and create a whole new ecosystem of specialized players and will foray across the verticals, especially areas where banks have left consumers behind
- Highly individualized products and services will be on the rise
- Big data and machine learning will lead to better understanding of customer needs, besides allowing for context-sensitive product offerings
- An awakening in data liberalization
This is what Kreditech’s solution portfolio looks like
Kreditech offers a broad range of consumer loan products made available to customers via a very fast and convenient process on web and mobile channels. The firm also offers a “Lending-as-a-service” model, allowing partners to offer customized credit products to their customers on top of our platform and processes.
The organization uses AI-based algorithms, that allows them to offer financial products that meet the expectations of the millennials. Based on smart data, all products aim for a new level of convenience. Most importantly, they are easy to use and tailored to the individual needs of the consumer.
All the processes are fully digitized and require only a minimum set of information. They are available 24/7, credit approvals taking less than 60 seconds, followed by an immediate payout.
For credit scoring, banks often work with outdated data that is incorrect or fragmented. If people have never applied for a credit, banks do not have any information. In many countries, data protection laws limit credit bureaus to record negative information only.
To tackle this challenge, the firm has developed a proprietary credit scoring technology which uses big data and machine learning to process up to 20,000 data points per application.
This credit scoring system allows Kreditech to determine credit risk with a much higher precision, especially for thin-file customers. Müller shared, “Single data points only have marginal influence on the credit decision. The more data the customer shares with us, the more accurate our rating is – and the better the quality of an individual loan offer.”
Kreditech gets funded from PayU
PayU’s investment in Kreditech enables the firms to work together as the leading consumer lending player in high growth markets. PayU and Kreditech have very complementary businesses and a shared vision to use innovative technology to deliver better access to credit in high growth, emerging markets. “We both believe that new technologies and data will revolutionize credit scoring as we know it, enabling innovative, affordable credit for underserved populations,” extols Müller.
PayU offers a fast, simple and efficient payment process for merchants and buyers. The company is focused on matching merchants’ needs with the way consumers shop and pay. Whether someone wants to make a payment online on a computer, tablet, mobile device, e-wallet or even offline, PayU offers more than 250 payment methods designed to make the payment fast, simple and secure.
The recent investment will enable Kreditech to expand into new territories and enhance their technology. The starting point for the business expansion will be Central Eastern Europe. Furthermore, the firm plans to enter the Indian market in 2017. PayU already has a strong footprint in countries that we would like to add to our portfolio in the future.
On the roadmap
Kreditech is in the process of preparing their market entry into India, and the organization shall very soon become operational in the country. With this move, Indian customers will be able to receive fast and convenient financing options. Müller says, “India is a very exciting market and bears huge potential. We think that large segments of the population are very underserved when it comes to financial services today.”
Today Kreditech represents two core ideas:
- A new approach to credit rating based on modern-age technology which enables us to serve underbanked consumers.
- A highly convenient customer experience which removes all the pain points from using our products, building on automated, instant decision-making, and 24/7 availability.
The World Bank estimates that there are about 2 billion underbanked consumers in the world today. Kreditech aims to expand the business in both the existing markets as well as other markets, with a high share of underbanked over the next few years. The firm notices particular growth opportunities for their Lending-as-a-Service platform, and are looking forward to establishing further partnerships going forward. “My key advice for other entrepreneurs is to always to find the right balance between ambition and focus. Focusing on the right opportunity is very important,” concludes Müller.