This Latvian fintech is offering their clients peace of mind and gives them confidence regarding their financial future
Imagine a young professional has temporarily lost his job, he will find a new one very soon due to great skills on his CV. But what he should do now – if he doesn’t want to move back to his parents, he wants to ride the same car and maintain his usual lifestyle.
Fortunately, we live in a highly technological world and the rise of Fintech have improved the quality of our lives, including the increased access to finance.
Latvia-based fintech NordCard offers short-term loans for anyone who has a temporary shortage of income. NordCard was among the first company in Latvia to offer a service of Credit Line. When clients apply for a loan, the company decides how much they are eligible for, but not more than Eur 3,000. Then, they have a freedom to choose how to use the approved funds- he or she may not use it all, use it for short period of time and repay before the end of the month benefitting from zero interest rate or use it as a long-term loan for up to 50 months.
Did you ever encounter the situation, when you have money on your account and you feel no urge to spend it? On the other hand, when you don’t have any cash as goes in Murphy’s law you may need it. Even realizing that you don’t have any free funds, as a safety cushion, may give you stress. Imagine you have an unforeseen situation in any given month and you don’t want to go to your friends or relatives to borrow. However, having a credit line with NordCard will solve all these problems.
The big turnaround
Originally, NordCard was founded by two professionals of the credit market. However, it wasn’t their primary business and eventually, the new venture has encountered losses. Despite the continuous losses, the potential buyers saw great potential for growth and they bought it in May 2017.
What has attracted the new owners was the visual aspect of the company, the brand, and the idea. However, when they started to engross in the business model, that got into a competitive mode to turn the business around, to clean up the place and get the positive figures instead of minus.
The new chairman of the board Andrejs Saricevs, with previous experience in trading and finance, decided to make a big turnaround. The audit showed that the costs could be consolidated. For example, the advertising costs were out of hand. The loan portfolio was chaotic, as no targets or priorities were previously defined. Additionally, the man working hours were allocated inefficiently. Management wanted the aims of workers to align with the company’s, so 70% of personnel was changed, for liked minded people. Now, the workforce consists of 20 people with an average age of 28 years.
And of course, the big accomplishment was the introduction of an adaptive scoring system based on Big Data. The system regulates itself. The different economic cycles tend to change the behavior of customers and their ability to repay the loan. The current strategy was adapted to the current economic situation and geography. The nobility of the system is not only its automation but also the analytics that is behind. The key to the design of the scoring system was to collect as many variables as possible, such as age, gender, number of dependents, even the device the website was accessed from. Once the data was collected, the analysts built various models to see what correlates with what. It could help to raise red flags in the future, for example, when a client fitting a certain profile has an unusual loan purpose. This has additionally helped to eliminate 99% of all fraud cases.
The most important in this business is to adequately understand the risks. The evaluation process includes as many variables as possible, some are surprisingly unimportant on the first glance, but they actually can tell about the future pattern of repaying the loan. For example, the credit history is important for any creditor, but the device from which the provider is accessed, or the speed of filling in the questionnaire may sound unexpected. However, there is no unimportant detail, as in this industry, there is a paradox that people who are able to pay the debt servicing, don’t do that because of laziness and some who are on a tight budget are always on time. So, all these small details can draw the portrait of the future borrower and his/her behavior.
Additionally, bad debt management has improved. NordCard started to work with clients more precisely. Most of the bad debts on balance sheet happened only due to the lack of information- sometimes clients even didn’t know they were late on payments. If the client is notified about the missed payment only a day after the deadline, it is not ok. So, they changed this approach and clients understood they are looked after in a good way.
However, one of the biggest accomplishments was defining the vision of the company. Andrejs believes that the core strength of NordCard is their relationship with clients. “How many times you wanted to close the account in a bank just because the customer service was poor”, wonders Andrejs. The answer is clear- almost everyone encountered that.
Banks are outdated
After 1.5 years at the steering wheel has brought its fruits, the 2018 year was closed with profit. Despite the company’s conservative lending approach, NordCard is showing solid year-on-year growth, its loan portfolio more than quadrupled in 2017 and it grew by 25% by the end of 2018 reaching Eur 2,300,000.
Andrejs believes that NordCard has no direct competitors that offer the same products. For example, on March 1st 2019 NordCard will issue the credit card, that will be directly linked to the credit line. NordCard aims to compete with banks, not fast credit company. Online space is based on online banking and customers will see no differences between bank card or NordCard card. He doesn’t want NordCard to be associated with the fast credit company, he wants it to be a prestigious label, as the customer service is several times higher at NordCard than in the bank.
When I asked about what differentiates NordCard from other fast credit companies, Andrejs jokingly corrected me, that they offer slow credits. Jokes aside, Andrejs has an ambitious aim- to change the perception of the fast credit industry.
Yes, the interest rate is higher than in banks, however if you take into account all fees associated with services provided by banks, such as card fees, fees to increase or lower credit limit, monthly payments etc., eventually you pay the same amount to the bank, as to NordCard, but you get excellent customer service. Additionally, many services in the bank require your physical service in the bank branch, which is very inconvenient.
Portrait of a client
There is no typical customer, however, what unites the clients of NordCard is that they have a demand for short-term cash. For example, a professional whose income decreased due to illness, or a woman who wants to prolong her maternity leave after the benefits ended and even if you really want a new iPhone or the person doesn’t want to miss out on a trip that all of his or her friends are going for. The usual client is 25 to 55 years old, either male or female, most of which are professionals. Retirees are not typical customers, as in order to get the loan you have to apply online, and among this demographic group, internet users are a very small proportion. Only 30% of clients close their account after repaying the first loan, the majority 70% prefer to have an account as money reserves. Clients can get a loan up to Eur 3,000, but pay interest rate only on the amount they spent and the average loan amount is just Eur 750. Loan application takes only 15 minutes during working hours. Due to the rigorous selection process, only 4.5% get approved.
Andrejs says that there is no particular domestic or foreign role model, however, no one wants to reinvent the wheel and NordCard gets inspired by various companies. Some are great at online banking, some provide great customer service due to a certain innovative approach. Getting inspiration from world known companies is a smart approach, but also very costly, so the management of NordCard tries to balance the innovations and profit targets.
The sky is the limit and next paths of development could be getting banking license, or creating own card instead of using external card provider, expanding to Scandinavia. The short-term plans are to grow the loan portfolio, where Grupeer p2p platform will help a lot. Let’s welcome our new loan originator and earn together!