User generated data and big data combined is to create a new database on micro-borrowers.  “Scoring as a Service” API announced as a new vision!

At the prestigious NOAH Conference for Internet entrepreneurs the audience was told that a German startup called Kreditech is cleaning up the European Payday Industry with a disruptive BIG Data based technology which reduces overdues by 50-70% and puts variable cost to 0 as it operates a 100% automatized workflow.

The company has targeted the microfinance sector as one of its current playing fields; however it has a vision to provide leading credit scoring technology across a broad range of business fields by 2015.  It expects to operate in 12 countries and to service more than 5 million customers.

In regard to microfinance, customers can apply online or via mobile and receive up to 1,000 EUR in less than 10 minutes in their bank account.  Up to 8000 country-independent data points are analyzed for a credit decision, down the road Kreditech is expected provide a global “Scoring as a Service” API.   First time applicants must provide a string of personal data before a loan is granted.

This innovative technology takes into account all information that can be found in any accessible database, including social media, e-commerce shopping behavior, location, mobile phone usage, etc.   Kreditech does not offer any further details on data sources, risk management processes, scoring algorithms and debt collection mechanisms which it describes as it’s as its secret duck sauce.  Neither has anything been said about loss ratios!  Based on UK experiences (Wonga) the refusal rate for first time borrowers must be in the range of 60 – 70%.

Nevertheless the interesting part is the extensive use of telecom and social media data, which is fact, caused a recent furor in Germany when a leading credit bureau and a University wanted to team up to research the usefulness of such data in business decisions.   No furor surfaced so far in regard to the Kreditech’s use of such data in its lending decisions.

Gamblers at work: Kreditech charges between 10 and 30% interest for a 30 day loan.  The company expects to break-even in Q1 2013 (unless owners are arrested beforehand for usury).   Angel investors have provided up to Euro 1.5 million.  Obviously Kreditech’s debut at the NOAH conference was designed to attract more venture capital.  Euro 1.5 million in startup capital seem to be a bit light for venturing into microfinance and potentially serving 5 million customers.  Online-Gaming Bigpoint founder Hubertz is one of the angel investors who will now apply his online-gaming skills to microfinance.

Sources:  Kreditech – Die Welt