Banks.eu continues a series of interviews with top managers of European financial institutions to unveil all details of their work in Europe and find out their plans for the future. This time, the portal interviewed Chris Grundy, online Marketing Manager at fintech-startup Bitbond.
– When and how was created the startup Bitbond? Who is the founder? Why the founder decided to provide financial services based on the blockchain technology?
– Bitbond was founded by Radoslav Albrecht in 2013, with the aim of becoming the world’s first global peer-to-peer lending platform for small business loans. Having worked as an Investment banker for Deutsche Bank, Radoslav has seen the inefficiencies of the banking system first hand. To eradicate those inefficiencies, he decided to create a lending platform based on bitcoin and the blockchain.
In doing so, he ensured that Bitbond can operate globally and independently of the banking system. This has significant benefits for both borrowers and lenders. Firstly, entrepreneurs from capital-poor countries, can now get access to affordable loans and grow their business. Secondly, investors get access to a global fixed income asset class with an expected average return of 13% per year.
It is also worth mentioning that the costs associated with the banking system’s infrastructure, are prohibitively high, making it tough for young startups to flourish while working alongside them. By using bitcoin, we ensured that Bitbond remained streamlined and much less costly than typical lending platforms.
– Why the company selected sector of P2P-lending for SME and entrepreneurs? Why the Bitbond are accepting bitcoins and US dollars, not euro?
– Great questions. The first one concerns our chosen demographic. The answer to this is twofold. On the one hand, we specialise in SME’s and entrepreneurs because they typically have more reliable data regarding their creditworthiness.
An eBay and Amazon seller for example, can connect his selling accounts to his Bitbond account. We then get ‘read only’ access to these accounts, which in turn allows us to see the seller’s transaction history on these platforms. This data is then used by our credit scoring algorithm to assess the creditworthiness of the borrower. Within 24 hours, we can then get back to the applicant with his credit rating.
On the other hand, today’s major marketplaces are available globally. This means that we can use their data to make a creditworthiness assessment regardless of location. If we compare this to more traditional sources of working capital, like banks, we can see that this is truly innovative. Not least because it includes even those 2 billion adults without access to a bank account.
Your second question regarding the denomination of our loans is also a good one. The simple answer is that only a fraction of our early community was from Europe. As a result, we decided to allocate our resources to other features like the AutoInvest Tool and our automated scoring mechanism. Now that both are completed, we plan to implement the euro as a base currency in the next 4-6 weeks.
– Any person may become an lender on Bitbond? Do you have any guarantees for lenders?
– Bitbond strives to be as inclusive as possible, and lenders from anywhere in the world are welcome on our platform. Due to current financial regulation, all lenders must complete a short video identification process on Bitbond before investing. Once this is completed, all you need is bitcoins and an internet connection to start lending to SME’s all over the world.
All loans on Bitbond are unsecured, which means that the borrower does not provide collateral and the lender takes on the risk. In order to safeguard our investors we created a sophisticated machine learning algorithm which scores all borrowers from “A” to “F”. The algorithm uses our historical data to provide a reliable repayment probability for each borrower. This ensures that human errors during the rating process are omitted, and only trustworthy borrowers can publish a loan on Bitbond.
We have also implemented a series of steps which come into play should a borrower fail to make a repayment. This starts with phone calls, text messages and emails to create a line of communication and better understand the borrower’s situation. In the eventuality that the borrower cannot repay, we pass the case onto a debt collection agency which then works to recover the funds.
– How Bitbond is evaluating the creditworthiness of potential borrowers? Do you have a special author’s algorithm?
– Bringing high quality borrowers onto our platform forms the basis of what we do. It starts with finely-tuned marketing efforts which target strong online sellers and entrepreneurs. Once on the platform, all borrowers need to complete our borrower application. This includes basic information, proof of income, proof of residence and a live video identification process.
The most important part of the borrower application is the connection of relevant online accounts. Applicants have a host of options, but the main accounts are Amazon, eBay, PayPal, Google Analytics and a bank account. Our automated credit scoring system can evaluate the data-points from these accounts and use our historical data to accurately assess the creditworthiness of the applicant.
The moment the applicant has been rated, one of our credit scoring team personally looks through the account to validate the rating. Here we also look out for signs of fraud and use a sophisticated backend fraud prevention system to weed out any untrustworthy applicants.
– How many entrepreneurs have taken a loan of Bitcoin? Total amount? Let’s tell a bit about your statistics.
– Over 1,500 loans have been funded on Bitbond with a total worth of around $850,000. Importantly, we have seen very promising growth in recent months, with October alone reaching $95,000 in monthly loan volume.
We have users from over 120 countries, and loans have been issued to borrowers from 80 countries. Investors have earned over $46,500 in interest since 2013. As our community of 50,000 users grows, the number and size of loans issued on Bitbond will also grow. We aim to increase the maximum loan size from $10,000 to $20,000 in the coming months. This will ensure a significant growth in loan volume and earned interest.
– Could we say that the Bitbond is the crowdfunding platform? Why?
– You could describe Bitbond as a crowdfunding platform in the sense that we help raise capital for entrepreneurs through the collective effort of investors from around the world. On the other hand, crowdfunding platforms often involve the funding of a specific product or project. This is not the case on Bitbond, where entrepreneurs have the freedom to use their loan as they see fit.
– What will be changed in the company after obtaining a license for the financing of small business in Germany? Do you have a plan to launch retail business in the future? Or expand the list of your services?
– Becoming one of the first financial service providers in the blockchain space to receive a licence opens up many exciting opportunities for Bitbond. Firstly, the BaFin’s vote of confidence positively impacts our standing in the community, and subsequently makes onboarding new borrowers and lenders much easier. Our licence shows potential new users that Bitbond is providing a valuable and reputable service.
Secondly, the BaFin licence provides peace of mind for potential new institutional investors. These are individuals who would like to invest larger ticket sizes on Bitbond but have refrained from doing so, due to the regulatory uncertainty. Now that Bitbond is officially recognized, we may see more larger institutional investors become active on the platform. When this process begins, we will most likely increase the size and number of loans on Bitbond.
That being said, it is highly unlikely that we will be changing the nature of our services in the foreseeable future. We have only just received our licence so it would be a mistake to change our business model now. It’s also worth keeping in mind that our automated credit scoring system currently works best when evaluating data points provided by small business owners and online sellers. Because of this we will be sharpening our focus on bringing excellent entrepreneurs from around the world onto our platform.
– Some experts believe that by 2030 Bitcoin could become the sixth largest reserve currency of the world . What do you think about it? What do you think about Bitcoin’s future and blockchain technology?
– Jeff Bezos once said that “it’s easier to invent the future than to predict it” and I think that holds especially true for bitcoin. We only need to remember the wild price predictions of previous years to see how pointless it is to speculate on what might happen with bitcoin.
In order for bitcoin to become a reserve currency, significant quantities would have to be held by governments and institutions. Bitcoin is opensource by design and all transactions are visible to the public. I find it tough to believe that institutions and government bodies would embrace this level of transparency and might find bitcoin fundamentally ill-suited to their needs.
But even if we discount this issue, we can do some basic calculations to see if bitcoin is suitable as a reserve currency. By the year 2030, only around 20 million bitcoins will be in circulation. The value of each bitcoin is not guaranteed to go up in the coming 14 years. If we take the current value of approximately $680 dollars, bitcoin’s market cap by 2030 would be $13.6 billion – a fraction of current reserve currencies, like the Australian and Canadian dollar. I highly doubt therefore, that bitcoin will ever play a role as an important reserve currency.
Bitcoin and the blockchain are simply tools, and their future depends on the use-cases we find for them. I think we can look at companies like Coinbase, BitPesa, 21.co, Bitbond, SatoshiPay and Coins.ph to see how strong the ecosystem has become and how bitcoin is solving big problems for ordinary people all around the world. Bitcoin will have a bright future if it continues to solve problems and provide value.
-Is there any chance for conventional banks compete with such fintech start-ups like the Bitbond? Are you considering the original banks as competitors, or you are willing to “make friends” with them?
Although there is a theoretical possibility of competition from banks, there are a number of reasons why this is unlikely. The most important being, that small business loans of $50,000 or lower are simply not profitable for banks. Their infrastructure costs are too high and logistics are too antiquated. The interest that such loans would generate are not enough to cover the costs.
Consumer loans might be more interesting however, as millions of borrowers seek to refinance existing debt. Goldman Sachs has just entered this space and I would expect other banks to follow in the coming months and years.
Additionally, it is worth clarifying again, that our service is available to anyone with an internet connection. This means that the 2 billion adults without a bank account, can now access working capital. An unprecedented level of investment would be required for the banks to extend their infrastructure to the vast number of unbanked adults, with little foreseeable economic payoff.
As a result, we don’t see banks as competitors to Bitbond, and welcome any effort on their part to help small business owners acquire the capital they need to flourish.