If you know Russian, you will understand what does the brand name “DoZarplati” actually means. But, most of Grupeer investors at the moment are from Western Europe and have no clue, what does this funny word means. Well, you can add a new term, to your Russian lexicon, besides standard “privet” or “sputnik”, “DoZarplati” literally means “Before the pay date of salary”.
But enough with the foreign language class, DoZarplati is not just the new Russian word for you, it is a new loan originator on Grupeer platform, that will bring you incredible opportunities to diversify your portfolio and get a chance to earn in the Russian market, with no currency risk! We had a pleasure to interview Pavel Sologub, company’s founder and CEO, who told us their inspiring story.
How it all began
Pavel worked in finance all his life, and when he was a credit broker, he discovered that there is an urgent demand for short-term loans to boost spending power before a person receives his or her salary.
The whole market place for such companies was nascent ten years ago, the financial regulation was absent and no role-models to look at. However, Pavel and his team were so confident in their idea and business plan that they decided to take the risk of first-mover, and never looked back.
Currently, in Russia there are many companies providing payday loans (PDL), however when Pavel and his colleague started back in 2011, they were among the first. They opened a first branch in their hometown, St. Petersburgh, the second largest city in Russia.
Eight years later, DoZarplati is one of the most recognizable brands in St. Petersburg as almost every underground station has a branch. Total cumulative loan volume more than Eur 36 million, which makes DoZarplati a serious market player in Russia.
Because the industry was so new, the regulation developed together with microfinancing companies, which is usually very risky. Despite that, the first company founded by Pavel and his business partner was among the first ones in Russia to receive a license by then Federal Financial Markets Service (NB.: this body is abandoned in 2013 and now the financial markets are overseen by Central Bank of Russia). There are around 60 Microfinancing companies in Russia, only half of which are private, the rest are government-related.
The challenges were usual as for any new developing industry. The job number one, was to explain what their product is about- what is payday loan, how can you borrow money and what are the requirements.
The scoring model
How did they decide who is eligible or not? In 2013 DoZarplati has introduced their first very basic scoring model, however, they never stopped working on it and now it became a sophisticated algorithmic model, due to talented in-house data scientists and due to increased data availability and information providers. Now the model is totally automated and 95% of applications are processed without human interaction. This allows to make a decision in seconds and helps to process 5000 applications a day that the company receives. However, Pavel did not reveal the secret to their model, as he says there is an element of know-how to it and the model is proprietary.
Now only in the coring system itself, there is a team of 7 highly qualified professionals, who can’t stop improving the company’s decision-making process.
The business model
Currently, the average loan is around Eur 250 in rubles, but the company projects it to increase to Eur 300 in 2019. There are several reasons for it. Firstly, the average loan amount is dependent on the overall economic climate in Russia, which is not getting better. Secondly, because the number of clients increases, the number of returning clients will increase too, currently 70% of clients take the loan repeatedly. This is a powerful tool, as the company will already know the payment behavior of their clients and will try to sell a larger loan next time, but taking into account the capability to repay. Central Bank of Russia has put the upper limit on the interest rate for microfinancing companies at 1.5% per day, but in DoZarplati the average rate is around 1-1.25% a day.
The company has worked out a smart system to decrease the rate of defaulted loans, they called it a prevention mechanism. This strategy focuses on working with the client, prior, to their missed payment. The sales team work together with the client to find out what is their financial situation and how painlessly they can satisfy the payments on their loan obligation. Also, analysts have worked out a scoring model, which predicts which clients may miss the payment, which massively helps in planning the money flows.
Now DoZarplati has 100 offices in 14 Russian cities. The expansion required serious prep work, as in offline business the physical location of the office is one of the most important criteria, additionally, they have analyzed the overall economic situation in each city, as in Russia the repayment statistics is very spread. Before regional expansion, the management of the company even tried to sell a franchise in 2014. It was a convenient way to test the market. There are some franchise offices present, but they are not working in this direction, after they perfected their online business, which now makes more than half of the company’s revenue.
With an online business, it is much easier to cover the whole of Russia, from eastern city Vladivostok, to Kaliningrad, which is geographically in Europe. Online business is much easier to scale and is growing rapidly, which helps the company to increase its loan portfolio. Thanks to the talented marketing team, who worked hard to increase their conversion rate, the share of revenue from online business grew from 25% in 2017 to 58% in 2018. The trend is likely to continue, admits Pavel, as digitalization is a big trend in Russia right now. More and more people become digitally literate and the penetration of smartphones is increasing.
The monthly loan volume issued through website dozarplati.com and mobile app has increased a massive 505% since last year.
In December 2017 they issued 28,2 million rubles (~378 890 EUR) but in December 2018 already 142,3 million rubles (~1 913 335 EUR). These impressive results are achieved with CAC (Customer acquisition cost) at the same level.
In the future, the management sees the refusal from small offline shops, and the creation of big branches, offering a large number of services with more personnel. The pilot office is planned to open already in 2019, in St. Petersburg. The success of this branch will determine the future roadmap of the offline business. Pavel predicts that the client profile will change towards consumers with more spending power.
What has contributed to their success is an approach to their client- DoZarplati is very loyal to its clients, including those with missed payments. DoZarplati doesn’t engage in hard collection practices, which is highly appreciated in Russia. Moreover, the client doesn’t get any hidden commission or charges, except for the stated interest rate. Another advantage is discounts for returning clients, which is quite rare in this business- usually lending companies attract clients with the low interest rate for new customers and then charge them very high rates when they return. This different approach contributed to very high client retention rate.
In 2017, the parent company DoZarplati has launched a new brand “Nova”, focusing solely on loans to businesses. As the service is relatively new and at the stage of growth, the volume of loans contributes so far 10% to total loan portfolio. Unlike personal loans, where the whole scoring process is fully automated, businesses are assessed manually. Pavel admits that they don’t want to rush things, first they want to test business clients, understand the market and create the relevant scoring model, thanks to their in-house specialists. At the moment every business borrower is going through strict due diligence process by the company’s specialists. This careful approach is paying off- the default rate for business clients is less than 1%. The new regulation that came in force on 8th of January 2019 allows issuing business loan up to 5 million rubles (around Eur 67,000). However, Nova’s strategy focuses on loans to micro businesses, for the check amount below 1 million rubles (around Eur 13,500). This includes experienced sole entrepreneurs, who work with government orders and need cash flow to satisfy these contracts or businesses working in the service sector.
It is quite rare for a Russian lending service to expand to Africa, however, DoZarplati is one of such companies. In 2018 they opened a new micro-crediting company in Kenya with the brand name e-Mkopo (“mkopo”, means “loan” in Swahili).
At the beginning, when management took the decision to expand outside Russia, they knew that Europe is very competitive, so they had Africa or Asia on their mind. However, after careful analysis and research of demand for such services and growth potential, Africa won. Kenya, caught their interest instantly, as they skipped the PC era- population used pagers, straight to the smart phone era. The usage of smart phones is very high, plus the mobile internet has excellent coverage and is cheap. Additionally, 90% of the economically active population is concentrated in several big cities. But Kenya is just the beginning, Pavel says the plans are to expand to South Africa and Nigeria.
When the company has a strong management, strategy in place and experienced work force, there is nothing that can stop it from growing. It is not a surprise that, DoZarplati aims to become a top-5 online lending company in Russia in terms of loan volume online. And we, at Grupeer, have no doubt that they will achieve their goal, in the meantime, our investors can earn a solid return, so invest away!