A new loan originator on Grupeer platform from Russia is targeting young professionals with a lack of credit history. Their solution is epic, read to find out more…
The millennial and generation Z population in Russia is becoming the biggest consumption driver. This progressive population cluster needs modern personal finance products. The micro-financial companies in Russia previously served the middle-age population and didn’t adapt to the new consumer- young, edgy and forward-looking. EpicCash aims to close the gap in the market- its primary focus is on young people in Russia.
The short story
EpicCash was founded in 2019, once the niche on the market was discovered. The aim was to serve the underserved young people, who due to their young age. Millions of people in Russia, especially outside of big cities, still do not have quick and convenient access to loans without collateral and guarantors.
There is a famous Russian quote, which states “youth is not flaw”, which also applies to the clientele, of EpicCash. Young age doesn’t come with credit history, but so what? These young educated and energetic people just started their careers, so there should be a solution for it!
How do you attract the young-generation clients to your service? You simply learn their language. The semantic research showed that nowadays ‘Epic’ is one of the favorite words among young people and teenagers in Russia and having the same meaning as the word “cool”. Combined the word ‘Epic’ and ‘Cash’ highlights the company’s main benefits: quick money with the very simple and pure digital process.
During the past year, the MFI regulation became stricter in Russia, forcing a lot of micro-financial firms to leave the market. This was another major factor that influenced to found EpicCash for the team of experienced professionals from major local and international banks and MFIs. Their collective extended expertise in online product scaling will allow EpicCash to sweep and increase the market share.
The shareholders have contributed their own funds and borrowed an additional 10% to found a company. The company had a sole mission: to make local peoples’ lives better by providing easy access to credit recourses to those people who have limited access to financial services.
Founders have identified their own niche in the local market. While most companies work with the audience above 23 years old, EpicCash provides loans to young people above 18 who have stable and official income, living mostly outside big cities like Moscow and Saint Petersburg.
The business model of EpicCash is certainly based on the 100% digital service. As the target customers are young, without a doubt most of them have access to the internet. Also, it is very important to the young generation that the company works flawlessly online. The potential client needs only his/her smartphone to get a loan. A potential customer comes to the website, fills in a short application form online using just an ID (local passport).
It takes just up to 10 minutes to do all the checks and make a decision! For loyal clients, the decision is made in less than a minute! If the application is approved the money is transferred immediately to the client’s bank card or account. Once again, working with the young Russian population is bringing advantages to EpicCash, as all of them have a bank account.
The scoring process is divided into three stages. Firstly, the clients are looked up against blacklists, card BIN lists, age, country of origin, IP-address, mobile phone data, and few other parameters. The second stage includes obligatory checks such as passport validity and personal bankruptcy history. Also, clients go through AML/CFT procedure.
The final and most important part is the scoring model. The model is the proprietary-developed automated and self-educated system. It is based on data from the credit bureau and several other sources used to enrich data needed for machine learning algo. The scoring model provides an automatic final decision in just 15 minutes. After the approval money disburses instantly to the client’s bank card or account.
The scoring model that is EpicCash’s intellectual property approves only 15% of all applications. The default rate of these approved clients is 18%. However, in the future, this proportion is expected to lower, as EpicCash is working in unknown “territory”. The target on the default rate is to reach 14% in 6 months.
In order to reach this parameter and maintain low credit risk, the company monitors various indicators on an ongoing basis. Such as roll-rates, bad rates, cohort analysis, cost of risk. It has extensive data to analyze client behavior (payment discipline, credit history, contact rate, partners’ data etc.). This analysis later will be implemented to adjust the scoring process accordingly (appliance of rules, changes in cut-off rates for scoring, changes in collection strategy), thus keeping credit risk within acceptable parameters.
The typical client, as we already emphasized is young- 23 years old on average, with secondary education and a bank card or account, but without access to credit resources. The majority, 87% are a smartphone and active social media users, who live outside big cities with a monthly income of around EUR 300.
The gender split is- 44% of customers are men and 56% are women.
Currently, only short-term loans are offered by EpicCash, however, there are plans to extend the line of products. In the near future, long-term loans with monthly installment payments, consulting and insurance services are planned to be offered.
The interest rate is in line with requirements set by the local regulator (the Central Bank of Russia) for short term loans. The interest rate is 365% per annum or 1% per day as the company offers short term personal loans. The average loan depends on clients’ credit scores and their loyalty. For example, for a new client, the average loan amount is about EUR 105, and it’s near EUR 190 for a loyal client.
Challenges and future plans
There are around 1900 MFI companies in the Russian market, but no one uses the same model and the target audience as EpicCash. This is a key competitive advantage for our new loan originator, however, there are still many challenges ahead. Firstly, local regulation. The interest rate was cut to 1% per day (from 2% per day). However, the MFI can charge not only interest rates. To increase revenues MFIs are allowed to charge extra fees. Such as insurance, SMS-notification, repayment fee and provide additional services and products for an extra payment.
Another limitation is that the penalties and interest should stop accruing as soon as it reaches two times the amount of the loan principal. Thirdly it’s not allowed to offer more than one short-term loan for a client at the same time (from the same credit loan originator). Despite the restrictive role of the regulator EpicCash already has set its business model to fulfill all the requirements of the Central Bank.
The management sees a significant opportunity to do business in Russia, as well as scaling to CIS countries in the perspective of one year. The goal is to become TOP-5 in Russian MFI in the near future. Given that the management has strategically chosen the target audience they have done their homework and are prepared to expand to all across Russia and CIS. We are happy to welcome such innovative and forward-looking loan originators.