forbes.com | March 21, 2017
This Startup Is Giving Customers Credit Where It's Due, On Their Smartphones
The past decade has brought huge innovation to the lending industry. Companies like LendingClub, OnDeck, Kabbage and Fundera made online lending platforms a standard. Each of these companies enables borrowers to more easily obtain a loan, while investors can purchase notes backed by payments made on the loan. These companies filled an important void -- financial institutions were reluctant to provide small business loans to businesses without good enough credit history or individuals facing a similar problem. This trend didn’t go unnoticed by major banks looking for more ways to drive revenue and in late 2015 JPMorgan Chase teamed up with OnDeck to offer small business loans. The financial world has gotten smaller.
Yet, it didn’t go too small. Micro-loans, which provide customers loans of $50 to $500 on a short term basis, have been historically provided by family and friends. It was just a question of time until innovation revolutionized this area as well. Tomer Edry, Nadav Topolski and Nir Zepkowitz are Israeli entrepreneurs with a passion for finance and doing business in Africa. Each with MBAs from top US universities and success conducting business in Africa, these 3 friends became intrigued by the micro-lending space. Specifically, how people were going about applying for and getting approval for small business and personal loans in Ghana.
The feedback they received from both loan officers and loan seekers was that lack of data makes this process extremely complicated and inefficient, with most people not getting approved for loans purely due to lack of data. It got them thinking that there must be a better way to go about it, by using mobile technology while focusing on developing a data driven approach to this problem. That was the beginning of the FIDO Solutions story.
After the initial idea was developed, Edry, Topolski and Zepkowitz brought in Eden Kfir, Gadi Regev, and Boaz Jacobi to enhance the team and propel Fido’s development. Jacobi (CEO) led the process of developing the risk analysis model, and very quickly ran into a major crossroad. Jacobi states “we asked ourselves whether we could count on third party data sources for making decisions on who to approve, or whether we need to develop the entire system ourselves. We decided to develop the entire risk model in-house and not rely on banks, telcos and other sources of data, which ultimately separates us from other companies in the micro-loan space. At the end of the day, we want to be in every developing country, and relying on our own systems assures us scalability”.
FIDO's team in Ghana
(Credit: FIDO Solutions)
FIDO developed a robust technology platform that offers automated operations of micro-loans by leveraging mobile technology that reaches new customers in developing countries. Ghana was an initial case study and the sandbox in which the company was able to develop their proprietary end-to-end solution. In Ghana, FIDO provides fast and easily accessible short-term loans for people in need of amounts between $50 to $200. Previously, the only resources available to most people in Ghana and other African countries for this type of loans were family and friends. Now FIDO provides a mobile first solution where customers can apply directly for a loan using their mobile device or at a FIDO branch and receive an instant credit decision and money in their mobile wallet or bank account within minutes.
The loan is available to salaried, self-employed professionals and small businesses , no collateral or guarantors are required, but rather an automated instant online KYC (Know Your Customer) process prior to disbursement. Approved customers can receive their cash within minutes. This is a significantly more efficient process for people looking for quick, micro-loans, and for many in Ghana it’s been simply revolutionary.
Data Is Everywhere. Literally.
In order to develop a reliable home-grown alternative risk model FIDO had to develop a unique set of data points. They accomplish this by focusing on data generated from mobile phones of loan applicants. This includes data generated via the actual application form, the time it takes to complete the form, whether or not there are spelling mistakes, the phone location, contact list and even the exact timing of when the phone was last charged.
Smartphones are a huge source of data and FIDO is taking full advantage of everything they have to offer. Aggregating all of this data has enabled FIDO to provide over 50,000 loans to date, and greatly improve their offering to its customers. Jacobi mentions “we now have a few different sets of products, ranging from a one-time loan to recurring monthly ones.” The focus on data is also at the core of targeting the right customers, and making the process repeatable for FIDO customers
The Network Effect
FIDO has been operating in Ghana for over a year now, and has experienced major growth in app submission and loan disbursement, all through word of mouth. The solution is available on Android phones while there’s also a kiosk model available. People can go to a kiosk and have the money sent directly to their bank account or mobile wallet. Most use the mobile solution given the ease of use and accessibility. When speaking to the team, I can sense a deep level of pride and excitement over the feedback they receive from customers and how quickly the solution is being adopted in Ghana. Jacobi mentions “it’s viral. People are sharing it with each other because they love it. We have clients who don't believe this is real since they never got approved for a loan. They think it's too good to be true. This is a revolutionary idea for them.”
The democratization of technology across the world has lots of game changing examples over the past few years. From the adoption of social media (Facebook, Twitter, Instagram and the likes), to transportation (Waze, Google Maps), health and wellness (FitBit), payments (Google Wallet, PayPal, Stripe), micro-loans is a natural industry to be disrupted.
FIDO’s founders feel a great sense of satisfaction from the positive feedback received from users. Many are not very tech savvy, but have found the app extremely easy to use which has helped accelerate adoption. There are a wide variety of reasons why customers apply for a FIDO micro-loan. Some need the funds to develop their small businesses, some use it for medical treatments and others for weddings and funerals. Jacobi notes “these are young guys, between the age range of 25-45, and the loans are a third to a half of their monthly salary. The number of customers who don’t pay back is very small”.
Big Vision, Big Challenges
Following a successful launch in its first market, FIDO’s vision is to change the way financial services are provided in developing markets by providing financial services through fully automated, online business processes, using its own alternative risk analysis model.
While the company is growing and has a very successful pilot under it’s belt, there is no shortage of challenges as well. A major one is financial. So far, the company itself has funded all loans it has provided its customers. With only about $3M in funding to date, FIDO is now ready to scale and is exploring different paths for managing their growth. In addition, some new competitors are gaining momentum, most notably is woman-led Tala, which recently raised $30 million series B for micro-loans via smartphone.
In addition, the company’s R&D is based in Israel with an operations and customer service team in Ghana. The company needs to manage being in the market, while taking advantage of the top tech talent that the company has in Israel. Yet, the team could not be more excited about the future of FIDO. They envision the solution being adopted by traditional "brick and mortar" micro financial institutions across developing countries and bring banks into the game as well, via strategic partnerships. Jacobi concludes “we can help solve a big problem for financial institutions who don't have data on these types of customers and are interested in scale using mobile technology”.
If history is a good indicator of the future, there’s good reason to believe FIDO has the potential to become a big success story.
Eyal Bino is a co-founder and Partner of ICONYC labs, a customized acceleration program for top early-stage Israeli tech startups looking to accelerate growth in the US market via NYC.