Fintech News

Boris Batine, ID Finance: We are Fintech but will obtain banking license if needed for sure

Boris Batine – Co-Founder & CEO at ID Finance

Boris Batine is the CEO of ID Finance, a fast-growing international FinTech company specialising in data science, credit scoring, and online lending in emerging markets.

ID Finance is a household name in fintech industry, what is the story behind?

Boris Batine: Our business started in 2012 and we planned our international expansion from the very beginning. International companies are capitalized much faster and have the opportunity to diversify any local risks – from financial to legal, regulatory or political ones. When we started ID Finance with Alexander Dunaev (editorial: another co-founder of ID Finance, holds position of COO) we spent almost all our savings for creation of IT-infrastructure, website design, office renting, hiring staff. For this reason, we had to raise additional funds. So we bagged two rounds of equity financing in 2013 and 2015 as well. In 2014, we entered Kazakhstan and Georgia, then Spain and Poland, and from 2016 we started to conquer Latin American Region – Brazil and Mexico.

What difficulties did you have to face?

Boris Batine : We spent almost the whole year for creation of IT-infrastructure before we fully launched the project – during this time we tested dozens of hypotheses – many of them proved to be erroneous, and first scoring models delivered unacceptable results. Creation of FinTech project differs greatly from the banking sector, in which we already had considerable experience (editorial: Batin and Dunaev got acquainted when they worked for Deutsche Bank in London), and took us intensive efforts and patience.

During the first three years we experienced the series of trials and errors – once we settled one problem and the other one appeared immediately, and then one more problem, and twenty and twenty times. We had no time for self-reflection. By the fourth year of existence of ID Finance I half-jokingly told to Alexander Dunaev that if I had known in advance what difficulties we were to face in doing business, I doubt that I would have ever done this. I mean that the business of online consumer lending is very difficult in terms of operational management. We did not expect that there would be so many ins and outs. However, it turned out as in the popular phrase: “shoot first and ask questions later”. We overcame “teething troubles” and learnt to manage complex processes. Now this became our competitive advantage – we operate in emerging markets better than our competitors do, we launch projects in new countries quicker, and we achieve break-even point and increase profit faster.

While new startups and FinTech companies always try to start with well-established economies, why ID Finance made a choice to work within the emerging markets?

Boris Batine : The most important thing is a business opportunity. From the point of view of operation activities, emerging markets are more complex, but there is no strong competition and market entry threshold is lower: to enter UK market will cost much more expensive than the market of Brazil. In this case, each country has its own advantages. For instance, Brazil is distinguished by high level of Internet connectivity, high population density and absence of bureaucratic heritage of leaden banking system, so Brazil is open for maneuvers. Of course, there is strong economic uncertainty but positive factors overweigh.

We study all prospective markets considering some parameters: intensity of sector regulation, population, demand for digital financial services, living standards, level of financial savings in hands, level of financial inclusion, financial and technological awareness, degree of Internet connectivity and use of mobile devices, legal opportunity of customer remote authentication, etc. And if eventually we receive a high cumulative score, we make a decision to enter this country.

The FinTech market is changing direction with the rise of cryptocurrencies, how do you see the data science field in the next few years?

Boris Batine : Previous year became the year of cryptocurrencies, and what is more, 2018 will be the same. But we do not want cryptocurrencies to be considered only as investment vehicle. The most important thing behind it, is a blockchain technology. Blockchain may be used much wider than for non-fiat money, for example, for the purposes of commitment of all transactions and keeping credit scores. This direction has a strong potential. The existing credit score platforms such as Experian, Equifax, TransUnion are vulnerable and overvalued. Blockchain can provide security and data transparency, as well as reduce their cost subject to compliance with all regulatory requirements. Also, blockchain can be used in medicine for storage and operational use of patients’ data, in jurisprudence and many other fields where today there is a need for a sort of “arbitrator” trusted by the parties of one or another process.

From Poland and Spain to Brazil and Mexico, what is in common between these emerging markets when it comes to online lending?

Boris Batine : There are many differences. Every country has various regulatory requirements. For example, in Poland the non-bank lending landscape is regulated by the local financial regulatory authority KNF very strictly, while in Spain it is not regulated by national bank at all, but there are some legal requirements concerning the activities of all financial institutions: both banks and fintechs. In Mexico loans may be provided practically by anyone, while in Brazil banking license is required for this. However, marketing strategies are similar in any country and people of any countries equally take loans for similar purposes, they look forward the discounts to save their money. Generally, people are very similar everywhere.

There are many skilled personnel in Russia, especially in the field of risk management and data science. There is an outstanding pool of talented developers in Belarus. We face some troubles in searching of data scientists, risk managers and developers in some of the countries of ID Finance’s presence. In comparison with other countries, Russia and Belarus make a very favorable region for export of employers and services they develop.

Underbanking is a huge problem and specially in the emerging markets, can IDFinance fix that and what are your plans?

Boris Batine : We have huge expertise in this issue. We are ready to provide financial services where the banks cannot or do not want to do this. We have many data sources that we use. We are flexible in making decisions: if the project failed, we will make it in a different way. Test of hypothesis for a bank is quite expensive and takes much time. Though, we take baby steps but quite quickly. Every IT iterate occurs every fortnight, for some projects the sprints of achievements last only for one week. That is why all innovations appear just in FinTech and then banks add them to their armory. Several times we got proposals from major banks to buy our technologies, for example, scoring systems.

Fraud prevention… what does it mean for your management team? And can a startup prevent it while working with different markets at once?

Boris Batine :  In all countries fraudsters use the same methods and we successfully prevent them. Not long ago we improved our anti-fraud system that allows defining the fraud risk at the first step of processing of a lending application. For this purpose, we manually analyzed the history of all incidents, which were qualified as commission of fraudulent acts. We implemented the system, which monitors customer behavior on the website. As a result, we managed to reduce the cost of the issued loans, raised approval rate and this affected our revenue growth.

Are you planning to expand to some new markets in the near future?

Boris Batine : In the next three years, we are planning to come into the market of Columbia, Peru and USA. In the coming years, USA is our general strategic goal. Despite strong business competition, there are poorly developed niches, for example, the territories bordering on Mexico where the great number of Hispanics lives. Large lending companies and banks simply do not notice them. We are planning to start with this territory and then cover the states as much as possible. There may be difficulties because every state has its own regulation of online lending. Today in the portfolio of loans provided by ID Finance the European Union takes 25%, Latin America – 2% and CIS countries – the rest. By 2020, the share of two Americas will come near 65%. Geographical diversification helps to get rid of the whole pool of various types of risks.

Moreover, we are planning to change the line of products and expand the variety of financial products similar to the bank ones. There are no doubts that we will enter the market of credit cards and launch SME lending. Most likely that at one point we will have to obtain banking license within one of jurisdictions we are submitted to or within some of them. And ID Finance will obtain such licenses for sure.

What other global problems do FinTech have today?

Boris Batine : Difficulties with funding constitute one of the most serious problems. FinTech companies experience difficulties with raising of money from retail investors and there is no access to inter-bank lending or cheap funding by national banks. We are constantly working with investors, peer and institutional ones, diversifying liquidity pockets. In the 1H2017, ID Finance has raised $50 million in debt from a consortium of banks and other institutional investors. At the end of the last year, we have raised extra $8.5m via exchange-traded bonds to support growth.

About speaker

Boris Batine – Co-Founder & CEO at ID Finance

Boris Batine graduated with honors The University of Cambridge in England. He has an extensive investment banking background. Then received MA degree. Boris has a Ph.D. in Economics.

Prior to starting ID Finance with another co-founder Alexander Dunaev in 2012, he held several top-management positions from deputy director of capital market division to vice-president in Deutsche Bank Group in London, Renaissance Capital and Royal Bank of Scotland.

Boris is fond of wakeboarding and snowboarding, participates in sport events on marathon race, swimming and triathlons.

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