After a few years working for a leading Nordic FinTech start-up (a very successful PSP – Payment Service Provider), as manager of their business in Southern Europe, you are finally ready to launch your own business!

You will be a first-time entrepreneur, but you have acquired most of the skills required to launch a new venture: building and managing a team, selecting and integrating suppliers and technology providers, developing commercial and strategic partnerships, and planning and controlling operations…

You have already identified a very interesting market with enormous potential: providing instant financing to e-commerce/merchants’ online customers. The e-commerce market in Spain and Europe has been one of the healthiest and fastest growing economic sectors and it will remain so in the foreseeable future.

Making an instant decision to finance (or not finance) an online purchase of a given customer is not a minor technological feat. It requires access to or development of complex risk-assessment tools and databases, and seamless online integration with e-commerce companies’ often sophisticated websites payment systems for the process to be instant and in order to provide an optimal customer experience.

As a former PSP (Payment System Provider) executive, you have good knowledge of the technology suppliers available in the market to manage the payments and collections systems necessary to your business model, and you also know a large number of both FinTech and traditional companies that specialize in one or more of the steps of the lending cycle (see Exhibit 1).

You have met with some of your contacts at large e-commerce sites/merchants, and they have mentioned that, in the future, their companies are all planning to offer instant online financing to their customers, as a way to improve conversion rates of sales and customer choice and experience. They also said that they believe the companies would be willing to pay a fee of up to 1.5% of the amount of the purchase for the service, (independently from the amount of interest paid by their clients, which you know will be around 18% p.a.) They estimate that, on average, 10% of their total online sales would be financed if this option was made available to their customers, although their feedback on that percentage wasn’t unanimous (see Exhibit 2).

Currently, there are just a few companies that have developed both the skills and technology to provide online instant credit, both nationally and internationally. The largest ones offer their services in at least five or six European countries and sometimes in other non-European markets, as well. Most are based in the Nordic or Baltic countries, and they operate as pay-day

lenders (high-interest, very short-term or pay-day loans) or as direct lenders (small-amount loans), directly to individuals on their own websites and using different brands.

You happen to know most of them well, thanks to your previous position at the PSP company. You know none of them have entered the e-commerce instant financing market yet, but that some of them are likely to do so in the near future. Their very profitable pay-day loan business might be at risk due to reputation and regulatory issues, and thus they plan to diversify into other business segments, such as consumer finance and the underbanked. As they often have high customer-acquisition costs, you think that as an originator, that is, a provider of qualified leads that convert into loans, you could charge them a fee of at least 1% of the value of a loan (see Exhibit 3).

So far, banks and traditional consumer finance companies are not in a position to offer online instant credit to all online shoppers. They can offer credit to any customer in a process that is often only partly-online, but never instantaneous. In fact, their lending process can last up to 3-4 business days and often involves a series of manual interactions with consumers and/or e-commerce platforms, including sometimes signing and sending a paper loan agreement.

In some instances, banks and traditional players can offer instant lending to their existing customer base. For example, they offer pre-approved loans or financing through payment in instalments using the customer’s available credit card limit. In both cases, there is no real lending decision being made, as the purchase is being financed within the customer’s already-approved credit limits.

A close contact in a relatively small, but well-established consumer finance company mentioned to you that their cost of capital (to lend) is about 8% p.a., but they have been operating in the market for quite a long time. You think it is fair to assume your cost would be at least double theirs until you have a three or four-year track record of lending to consumers. Also, if you start giving loans, you are likely to have a high level of default at the beginning. You estimate it to be at least 10% in the first year, going down to the 3% sector average after three years of operations, thanks to a learning curve and improvement in your technology, databases, and processes.

Apart from relatively low costs of setting up, one of the advantages of developing the project in Spain is the cost of the team. Salaries are significantly lower than in the US and most other European countries, with talent easily available (see Exhibit 4).

Before your meeting with Robert, you plan to do a high-level analysis of the opportunities and threats, and of the pros and cons of each business model. You want this initial analysis to cover at least the following areas:

As you are aware of the significant risks and unknowns involved in the launch of a new business, you think it could be very useful for you as future CEO to identify adequate non-financial KPIs (Key Performance Indicators). These will determine the success or failure of each of the two business models, and you will have the opportunity to validate and discuss them with Robert.

Robert is also a technology expert and you think it would be interesting to have his opinion on eventual “make-or-buy” decisions for the key steps of the business process in both models. In order to do that, you plan to analyze the pros and cons of in-house development versus external FinTech suppliers for the main steps of both the “Lender” and the “Broker” models.

You plan to invest 50,000 euros of your savings (all of your savings, actually) in the company, and you would like a Business Angel or a Venture Capital early-stage firm to cover the rest. VCs usually ask founders: what is your monthly “burn rate” and how much money will you need from us to cover the initial 12-month period?

You will need to make some rough projections on costs to be able to come up with an answer to Robert, considering that there will be no relevant income in the initial 12 months and that expenditure will basically be linked to the cost of the team, with an additional:

Robert, like any Venture Capitalist, is also very likely to ask you about a potential exit strategy for investors. That is, he will ask you about potential buyers for the company, or even better, the possibility to make an IPO in the future. You plan to give him your ideas about potential buyers, as well as some initial insight comparing the two models’ potential value at the end of year five after launch.

You have done some research and know that operating lending companies (“Lender” model) are trading at approximately 1.3 x (100% - % Average Default Rate) x AUM (Assets Under Management, that is, the total volume of outstanding loans at any given time). Originators or providers of a distribution channel to lenders (“Broker” model) are trading at approximately 10 x annual income from fees.

In order to provide Robert with a rough initial assessment of the company’s potential value, you will need to do a simple 5-year projection of the AUM for the “Lender” model, and of the income from fees for the “Broker” model.

The meeting with Robert is approaching and you want to make a choice between the two models before it happens. Sometimes you wish you had more experience in consumer lending, but you are also very satisfied with the decision you made to join a young and fast-growing international FinTech PSP.

You want to be as well-prepared as possible for the meeting, so roll up your sleeves!

Fintech Challenge-The Case

After a few years working for a leading Nordic FinTech start-up (a very successful PSP – Payment Service Provider), as manager of their business in Southern Europe, you are finally ready to launch your own business!

You will be a first-time entrepreneur, but you have acquired most of the skills required to launch a new venture: building and managing a team, selecting and integrating suppliers and technology providers, developing commercial and strategic partnerships, and planning and controlling operations…

You have already identified a very interesting market with enormous potential: providing instant financing to e-commerce/merchants’ online customers. The e-commerce market in Spain and Europe has been one of the healthiest and fastest growing economic sectors and it will remain so in the foreseeable future.

∙ High level analysis (SWOT) of both models 40 to 60 minutes

∙ Identification of adequate Non-Financial KPI 15 to 30 minutes

∙ Make-or-buy pros and cons analysis 20 to 40 minutes

∙ “Burn rate” and funding needs 20 to 40 minutes

∙ Potential exit strategies (for investors) 15 to 30 minutes

∙ Valuation of the business at year 5 30 to 60 minutes

∙ Final choice between the two models 10 to 20 minutes

Making an instant decision to finance (or not finance) an online purchase of a given customer is not a minor technological feat. It requires access to or development of complex risk-assessment tools and databases, and seamless online integration with e-commerce companies’ often sophisticated websites payment systems for the process to be instant and in order to provide an optimal customer experience.

As a former PSP (Payment System Provider) executive, you have good knowledge of the technology suppliers available in the market to manage the payments and collections systems necessary to your business model, and you also know a large number of both FinTech and traditional companies that specialize in one or more of the steps of the lending cycle (see Exhibit 1).

You have met with some of your contacts at large e-commerce sites/merchants, and they have mentioned that, in the future, their companies are all planning to offer instant online financing to their customers, as a way to improve conversion rates of sales and customer choice and experience. They also said that they believe the companies would be willing to pay a fee of up to 1.5% of the amount of the purchase for the service, (independently from the amount of interest paid by their clients, which you know will be around 18% p.a.) They estimate that, on average, 10% of their total online sales would be financed if this option was made available to their customers, although their feedback on that percentage wasn’t unanimous (see Exhibit 2).

Currently, there are just a few companies that have developed both the skills and technology to provide online instant credit, both nationally and internationally. The largest ones offer their services in at least five or six European countries and sometimes in other non-European markets, as well. Most are based in the Nordic or Baltic countries, and they operate as pay-day

lenders (high-interest, very short-term or pay-day loans) or as direct lenders (small-amount loans), directly to individuals on their own websites and using different brands.

You happen to know most of them well, thanks to your previous position at the PSP company. You know none of them have entered the e-commerce instant financing market yet, but that some of them are likely to do so in the near future. Their very profitable pay-day loan business might be at risk due to reputation and regulatory issues, and thus they plan to diversify into other business segments, such as consumer finance and the underbanked. As they often have high customer-acquisition costs, you think that as an originator, that is, a provider of qualified leads that convert into loans, you could charge them a fee of at least 1% of the value of a loan (see Exhibit 3).

So far, banks and traditional consumer finance companies are not in a position to offer online instant credit to all online shoppers. They can offer credit to any customer in a process that is often only partly-online, but never instantaneous. In fact, their lending process can last up to 3-4 business days and often involves a series of manual interactions with consumers and/or e-commerce platforms, including sometimes signing and sending a paper loan agreement.

In some instances, banks and traditional players can offer instant lending to their existing customer base. For example, they offer pre-approved loans or financing through payment in instalments using the customer’s available credit card limit. In both cases, there is no real lending decision being made, as the purchase is being financed within the customer’s already-approved credit limits.

A close contact in a relatively small, but well-established consumer finance company mentioned to you that their cost of capital (to lend) is about 8% p.a., but they have been operating in the market for quite a long time. You think it is fair to assume your cost would be at least double theirs until you have a three or four-year track record of lending to consumers. Also, if you start giving loans, you are likely to have a high level of default at the beginning. You estimate it to be at least 10% in the first year, going down to the 3% sector average after three years of operations, thanks to a learning curve and improvement in your technology, databases, and processes.

Apart from relatively low costs of setting up, one of the advantages of developing the project in Spain is the cost of the team. Salaries are significantly lower than in the US and most other European countries, with talent easily available (see Exhibit 4).

Before your meeting with Robert, you plan to do a high-level analysis of the opportunities and threats, and of the pros and cons of each business model. You want this initial analysis to cover at least the following areas:

As you are aware of the significant risks and unknowns involved in the launch of a new business, you think it could be very useful for you as future CEO to identify adequate non-financial KPIs (Key Performance Indicators). These will determine the success or failure of each of the two business models, and you will have the opportunity to validate and discuss them with Robert.

Robert is also a technology expert and you think it would be interesting to have his opinion on eventual “make-or-buy” decisions for the key steps of the business process in both models. In order to do that, you plan to analyze the pros and cons of in-house development versus external FinTech suppliers for the main steps of both the “Lender” and the “Broker” models.

You plan to invest 50,000 euros of your savings (all of your savings, actually) in the company, and you would like a Business Angel or a Venture Capital early-stage firm to cover the rest. VCs usually ask founders: what is your monthly “burn rate” and how much money will you need from us to cover the initial 12-month period?

You will need to make some rough projections on costs to be able to come up with an answer to Robert, considering that there will be no relevant income in the initial 12 months and that expenditure will basically be linked to the cost of the team, with an additional:

Robert, like any Venture Capitalist, is also very likely to ask you about a potential exit strategy for investors. That is, he will ask you about potential buyers for the company, or even better, the possibility to make an IPO in the future. You plan to give him your ideas about potential buyers, as well as some initial insight comparing the two models’ potential value at the end of year five after launch.

You have done some research and know that operating lending companies (“Lender” model) are trading at approximately 1.3 x (100% - % Average Default Rate) x AUM (Assets Under Management, that is, the total volume of outstanding loans at any given time). Originators or providers of a distribution channel to lenders (“Broker” model) are trading at approximately 10 x annual income from fees.

In order to provide Robert with a rough initial assessment of the company’s potential value, you will need to do a simple 5-year projection of the AUM for the “Lender” model, and of the income from fees for the “Broker” model.

The meeting with Robert is approaching and you want to make a choice between the two models before it happens. Sometimes you wish you had more experience in consumer lending, but you are also very satisfied with the decision you made to join a young and fast-growing international FinTech PSP.

You want to be as well-prepared as possible for the meeting, so roll up your sleeves!

Fintech Challenge-The Case Please read the case below and look at the exhibits presented.

SUGGESTED TIMES TO ANSWERTHE BUSINESS CASE:

LAUNCHING A FINTECH COMPANY:CHOOSE BETWEEN TWO MODELS

After a few years working for a leading Nordic FinTech start-up (a very successful PSP – Payment Service Provider), as manager of their business in Southern Europe, you are finally ready to launch your own business!

You will be a first-time entrepreneur, but you have acquired most of the skills required to launch a new venture: building and managing a team, selecting and integrating suppliers and technology providers, developing commercial and strategic partnerships, and planning and controlling operations…

You have already identified a very interesting market with enormous potential: providing instant financing to e-commerce/merchants’ online customers. The e-commerce market in Spain and Europe has been one of the healthiest and fastest growing economic sectors and it will remain so in the foreseeable future.

Making an instant decision to finance (or not finance) an online purchase of a given customer is not a minor technological feat. It requires access to or development of complex risk-assessment tools and databases, and seamless online integration with e-commerce companies’ often sophisticated websites payment systems for the process to be instant and in order to provide an optimal customer experience.

As a former PSP (Payment System Provider) executive, you have good knowledge of the technology suppliers available in the market to manage the payments and collections systems necessary to your business model, and you also know a large number of both FinTech and traditional companies that specialize in one or more of the steps of the lending cycle (see Exhibit 1).

You have met with some of your contacts at large e-commerce sites/merchants, and they have mentioned that, in the future, their companies are all planning to offer instant online financing to their customers, as a way to improve conversion rates of sales and customer choice and experience. They also said that they believe the companies would be willing to pay a fee of up to 1.5% of the amount of the purchase for the service, (independently from the amount of interest paid by their clients, which you know will be around 18% p.a.) They estimate that, on average, 10% of their total online sales would be financed if this option was made available to their customers, although their feedback on that percentage wasn’t unanimous (see Exhibit 2).

Currently, there are just a few companies that have developed both the skills and technology to provide online instant credit, both nationally and internationally. The largest ones offer their services in at least five or six European countries and sometimes in other non-European markets, as well. Most are based in the Nordic or Baltic countries, and they operate as pay-day

lenders (high-interest, very short-term or pay-day loans) or as direct lenders (small-amount loans), directly to individuals on their own websites and using different brands.

You happen to know most of them well, thanks to your previous position at the PSP company. You know none of them have entered the e-commerce instant financing market yet, but that some of them are likely to do so in the near future. Their very profitable pay-day loan business might be at risk due to reputation and regulatory issues, and thus they plan to diversify into other business segments, such as consumer finance and the underbanked. As they often have high customer-acquisition costs, you think that as an originator, that is, a provider of qualified leads that convert into loans, you could charge them a fee of at least 1% of the value of a loan (see Exhibit 3).

So far, banks and traditional consumer finance companies are not in a position to offer online instant credit to all online shoppers. They can offer credit to any customer in a process that is often only partly-online, but never instantaneous. In fact, their lending process can last up to 3-4 business days and often involves a series of manual interactions with consumers and/or e-commerce platforms, including sometimes signing and sending a paper loan agreement.

In some instances, banks and traditional players can offer instant lending to their existing customer base. For example, they offer pre-approved loans or financing through payment in instalments using the customer’s available credit card limit. In both cases, there is no real lending decision being made, as the purchase is being financed within the customer’s already-approved credit limits.

A close contact in a relatively small, but well-established consumer finance company mentioned to you that their cost of capital (to lend) is about 8% p.a., but they have been operating in the market for quite a long time. You think it is fair to assume your cost would be at least double theirs until you have a three or four-year track record of lending to consumers. Also, if you start giving loans, you are likely to have a high level of default at the beginning. You estimate it to be at least 10% in the first year, going down to the 3% sector average after three years of operations, thanks to a learning curve and improvement in your technology, databases, and processes.

Apart from relatively low costs of setting up, one of the advantages of developing the project in Spain is the cost of the team. Salaries are significantly lower than in the US and most other European countries, with talent easily available (see Exhibit 4).

Before your meeting with Robert, you plan to do a high-level analysis of the opportunities and threats, and of the pros and cons of each business model. You want this initial analysis to cover at least the following areas:

As you are aware of the significant risks and unknowns involved in the launch of a new business, you think it could be very useful for you as future CEO to identify adequate non-financial KPIs (Key Performance Indicators). These will determine the success or failure of each of the two business models, and you will have the opportunity to validate and discuss them with Robert.

Robert is also a technology expert and you think it would be interesting to have his opinion on eventual “make-or-buy” decisions for the key steps of the business process in both models. In order to do that, you plan to analyze the pros and cons of in-house development versus external FinTech suppliers for the main steps of both the “Lender” and the “Broker” models.

You plan to invest 50,000 euros of your savings (all of your savings, actually) in the company, and you would like a Business Angel or a Venture Capital early-stage firm to cover the rest. VCs usually ask founders: what is your monthly “burn rate” and how much money will you need from us to cover the initial 12-month period?

You will need to make some rough projections on costs to be able to come up with an answer to Robert, considering that there will be no relevant income in the initial 12 months and that expenditure will basically be linked to the cost of the team, with an additional:

Robert, like any Venture Capitalist, is also very likely to ask you about a potential exit strategy for investors. That is, he will ask you about potential buyers for the company, or even better, the possibility to make an IPO in the future. You plan to give him your ideas about potential buyers, as well as some initial insight comparing the two models’ potential value at the end of year five after launch.

You have done some research and know that operating lending companies (“Lender” model) are trading at approximately 1.3 x (100% - % Average Default Rate) x AUM (Assets Under Management, that is, the total volume of outstanding loans at any given time). Originators or providers of a distribution channel to lenders (“Broker” model) are trading at approximately 10 x annual income from fees.

In order to provide Robert with a rough initial assessment of the company’s potential value, you will need to do a simple 5-year projection of the AUM for the “Lender” model, and of the income from fees for the “Broker” model.

The meeting with Robert is approaching and you want to make a choice between the two models before it happens. Sometimes you wish you had more experience in consumer lending, but you are also very satisfied with the decision you made to join a young and fast-growing international FinTech PSP.

You want to be as well-prepared as possible for the meeting, so roll up your sleeves!

Fintech Challenge-The Case

LAUNCHING A FINTECH COMPANY:CHOOSE BETWEEN TWO MODELS

After a few years working for a leading Nordic FinTech start-up (a very successful PSP – Payment Service Provider), as manager of their business in Southern Europe, you are finally ready to launch your own business!

You will be a first-time entrepreneur, but you have acquired most of the skills required to launch a new venture: building and managing a team, selecting and integrating suppliers and technology providers, developing commercial and strategic partnerships, and planning and controlling operations…

You have already identified a very interesting market with enormous potential: providing instant financing to e-commerce/merchants’ online customers. The e-commerce market in Spain and Europe has been one of the healthiest and fastest growing economic sectors and it will remain so in the foreseeable future.

Making an instant decision to finance (or not finance) an online purchase of a given customer is not a minor technological feat. It requires access to or development of complex risk-assessment tools and databases, and seamless online integration with e-commerce companies’ often sophisticated websites payment systems for the process to be instant and in order to provide an optimal customer experience.

As a former PSP (Payment System Provider) executive, you have good knowledge of the technology suppliers available in the market to manage the payments and collections systems necessary to your business model, and you also know a large number of both FinTech and traditional companies that specialize in one or more of the steps of the lending cycle (see Exhibit 1).

You have met with some of your contacts at large e-commerce sites/merchants, and they have mentioned that, in the future, their companies are all planning to offer instant online financing to their customers, as a way to improve conversion rates of sales and customer choice and experience. They also said that they believe the companies would be willing to pay a fee of up to 1.5% of the amount of the purchase for the service, (independently from the amount of interest paid by their clients, which you know will be around 18% p.a.) They estimate that, on average, 10% of their total online sales would be financed if this option was made available to their customers, although their feedback on that percentage wasn’t unanimous (see Exhibit 2).

Currently, there are just a few companies that have developed both the skills and technology to provide online instant credit, both nationally and internationally. The largest ones offer their services in at least five or six European countries and sometimes in other non-European markets, as well. Most are based in the Nordic or Baltic countries, and they operate as pay-day

lenders (high-interest, very short-term or pay-day loans) or as direct lenders (small-amount loans), directly to individuals on their own websites and using different brands.

You happen to know most of them well, thanks to your previous position at the PSP company. You know none of them have entered the e-commerce instant financing market yet, but that some of them are likely to do so in the near future. Their very profitable pay-day loan business might be at risk due to reputation and regulatory issues, and thus they plan to diversify into other business segments, such as consumer finance and the underbanked. As they often have high customer-acquisition costs, you think that as an originator, that is, a provider of qualified leads that convert into loans, you could charge them a fee of at least 1% of the value of a loan (see Exhibit 3).

So far, banks and traditional consumer finance companies are not in a position to offer online instant credit to all online shoppers. They can offer credit to any customer in a process that is often only partly-online, but never instantaneous. In fact, their lending process can last up to 3-4 business days and often involves a series of manual interactions with consumers and/or e-commerce platforms, including sometimes signing and sending a paper loan agreement.

In some instances, banks and traditional players can offer instant lending to their existing customer base. For example, they offer pre-approved loans or financing through payment in instalments using the customer’s available credit card limit. In both cases, there is no real lending decision being made, as the purchase is being financed within the customer’s already-approved credit limits.

A close contact in a relatively small, but well-established consumer finance company mentioned to you that their cost of capital (to lend) is about 8% p.a., but they have been operating in the market for quite a long time. You think it is fair to assume your cost would be at least double theirs until you have a three or four-year track record of lending to consumers. Also, if you start giving loans, you are likely to have a high level of default at the beginning. You estimate it to be at least 10% in the first year, going down to the 3% sector average after three years of operations, thanks to a learning curve and improvement in your technology, databases, and processes.

Apart from relatively low costs of setting up, one of the advantages of developing the project in Spain is the cost of the team. Salaries are significantly lower than in the US and most other European countries, with talent easily available (see Exhibit 4).

Before your meeting with Robert, you plan to do a high-level analysis of the opportunities and threats, and of the pros and cons of each business model. You want this initial analysis to cover at least the following areas:

As you are aware of the significant risks and unknowns involved in the launch of a new business, you think it could be very useful for you as future CEO to identify adequate non-financial KPIs (Key Performance Indicators). These will determine the success or failure of each of the two business models, and you will have the opportunity to validate and discuss them with Robert.

Robert is also a technology expert and you think it would be interesting to have his opinion on eventual “make-or-buy” decisions for the key steps of the business process in both models. In order to do that, you plan to analyze the pros and cons of in-house development versus external FinTech suppliers for the main steps of both the “Lender” and the “Broker” models.

You plan to invest 50,000 euros of your savings (all of your savings, actually) in the company, and you would like a Business Angel or a Venture Capital early-stage firm to cover the rest. VCs usually ask founders: what is your monthly “burn rate” and how much money will you need from us to cover the initial 12-month period?

You will need to make some rough projections on costs to be able to come up with an answer to Robert, considering that there will be no relevant income in the initial 12 months and that expenditure will basically be linked to the cost of the team, with an additional:

Robert, like any Venture Capitalist, is also very likely to ask you about a potential exit strategy for investors. That is, he will ask you about potential buyers for the company, or even better, the possibility to make an IPO in the future. You plan to give him your ideas about potential buyers, as well as some initial insight comparing the two models’ potential value at the end of year five after launch.

You have done some research and know that operating lending companies (“Lender” model) are trading at approximately 1.3 x (100% - % Average Default Rate) x AUM (Assets Under Management, that is, the total volume of outstanding loans at any given time). Originators or providers of a distribution channel to lenders (“Broker” model) are trading at approximately 10 x annual income from fees.

In order to provide Robert with a rough initial assessment of the company’s potential value, you will need to do a simple 5-year projection of the AUM for the “Lender” model, and of the income from fees for the “Broker” model.

The meeting with Robert is approaching and you want to make a choice between the two models before it happens. Sometimes you wish you had more experience in consumer lending, but you are also very satisfied with the decision you made to join a young and fast-growing international FinTech PSP.

You want to be as well-prepared as possible for the meeting, so roll up your sleeves!

LAUNCHING A FINTECH COMPANY:CHOOSE BETWEEN TWO MODELS

Fintech Challenge-The Case

After a few years working for a leading Nordic FinTech start-up (a very successful PSP – Payment Service Provider), as manager of their business in Southern Europe, you are finally ready to launch your own business!

You will be a first-time entrepreneur, but you have acquired most of the skills required to launch a new venture: building and managing a team, selecting and integrating suppliers and technology providers, developing commercial and strategic partnerships, and planning and controlling operations…

You have already identified a very interesting market with enormous potential: providing instant financing to e-commerce/merchants’ online customers. The e-commerce market in Spain and Europe has been one of the healthiest and fastest growing economic sectors and it will remain so in the foreseeable future.

Making an instant decision to finance (or not finance) an online purchase of a given customer is not a minor technological feat. It requires access to or development of complex risk-assessment tools and databases, and seamless online integration with e-commerce companies’ often sophisticated websites payment systems for the process to be instant and in order to provide an optimal customer experience.

As a former PSP (Payment System Provider) executive, you have good knowledge of the technology suppliers available in the market to manage the payments and collections systems necessary to your business model, and you also know a large number of both FinTech and traditional companies that specialize in one or more of the steps of the lending cycle (see Exhibit 1).

You have met with some of your contacts at large e-commerce sites/merchants, and they have mentioned that, in the future, their companies are all planning to offer instant online financing to their customers, as a way to improve conversion rates of sales and customer choice and experience. They also said that they believe the companies would be willing to pay a fee of up to 1.5% of the amount of the purchase for the service, (independently from the amount of interest paid by their clients, which you know will be around 18% p.a.) They estimate that, on average, 10% of their total online sales would be financed if this option was made available to their customers, although their feedback on that percentage wasn’t unanimous (see Exhibit 2).

Currently, there are just a few companies that have developed both the skills and technology to provide online instant credit, both nationally and internationally. The largest ones offer their services in at least five or six European countries and sometimes in other non-European markets, as well. Most are based in the Nordic or Baltic countries, and they operate as pay-day

lenders (high-interest, very short-term or pay-day loans) or as direct lenders (small-amount loans), directly to individuals on their own websites and using different brands.

You happen to know most of them well, thanks to your previous position at the PSP company. You know none of them have entered the e-commerce instant financing market yet, but that some of them are likely to do so in the near future. Their very profitable pay-day loan business might be at risk due to reputation and regulatory issues, and thus they plan to diversify into other business segments, such as consumer finance and the underbanked. As they often have high customer-acquisition costs, you think that as an originator, that is, a provider of qualified leads that convert into loans, you could charge them a fee of at least 1% of the value of a loan (see Exhibit 3).

So far, banks and traditional consumer finance companies are not in a position to offer online instant credit to all online shoppers. They can offer credit to any customer in a process that is often only partly-online, but never instantaneous. In fact, their lending process can last up to 3-4 business days and often involves a series of manual interactions with consumers and/or e-commerce platforms, including sometimes signing and sending a paper loan agreement.

In some instances, banks and traditional players can offer instant lending to their existing customer base. For example, they offer pre-approved loans or financing through payment in instalments using the customer’s available credit card limit. In both cases, there is no real lending decision being made, as the purchase is being financed within the customer’s already-approved credit limits.

A close contact in a relatively small, but well-established consumer finance company mentioned to you that their cost of capital (to lend) is about 8% p.a., but they have been operating in the market for quite a long time. You think it is fair to assume your cost would be at least double theirs until you have a three or four-year track record of lending to consumers. Also, if you start giving loans, you are likely to have a high level of default at the beginning. You estimate it to be at least 10% in the first year, going down to the 3% sector average after three years of operations, thanks to a learning curve and improvement in your technology, databases, and processes.

Apart from relatively low costs of setting up, one of the advantages of developing the project in Spain is the cost of the team. Salaries are significantly lower than in the US and most other European countries, with talent easily available (see Exhibit 4).

After all your talks with contacts at banks and instant lending companies, you have identified two very different ways to address this great business opportunity:

You agree to have an informal meeting with Robert, a close friend who is a Partner at a leading Spanish Venture Capital firm, to discuss your business idea. Preparing well for this meeting is fundamental, as his opinion would help you make some crucial decisions, including choosing between the two very different aforementioned models.

Before your meeting with Robert, you plan to do a high-level analysis of the opportunities and threats, and of the pros and cons of each business model. You want this initial analysis to cover at least the following areas:

As you are aware of the significant risks and unknowns involved in the launch of a new business, you think it could be very useful for you as future CEO to identify adequate non-financial KPIs (Key Performance Indicators). These will determine the success or failure of each of the two business models, and you will have the opportunity to validate and discuss them with Robert.

Robert is also a technology expert and you think it would be interesting to have his opinion on eventual “make-or-buy” decisions for the key steps of the business process in both models. In order to do that, you plan to analyze the pros and cons of in-house development versus external FinTech suppliers for the main steps of both the “Lender” and the “Broker” models.

You plan to invest 50,000 euros of your savings (all of your savings, actually) in the company, and you would like a Business Angel or a Venture Capital early-stage firm to cover the rest. VCs usually ask founders: what is your monthly “burn rate” and how much money will you need from us to cover the initial 12-month period?

∙ “Lender” business model:you raise money to lend and develop a technology that allows you to make instant decisions on lending. You offer your service to e-commerce companies, integrating your platform into their payment systems and providing their customers with the possibility to finance their online purchases instantly when paying.

∙ “Broker” business model: you develop a technology that allows you to integrate e-commerce platforms on one side, and instant lenders on the other. You receive the relevant information from customers, transmit it to instant lenders, and obtain from them an instant lending decision. You choose one lender (if more than one approve the loan) and close the financing of the online purchase instantly at the e-commerce site payment systems.

You will need to make some rough projections on costs to be able to come up with an answer to Robert, considering that there will be no relevant income in the initial 12 months and that expenditure will basically be linked to the cost of the team, with an additional:

Robert, like any Venture Capitalist, is also very likely to ask you about a potential exit strategy for investors. That is, he will ask you about potential buyers for the company, or even better, the possibility to make an IPO in the future. You plan to give him your ideas about potential buyers, as well as some initial insight comparing the two models’ potential value at the end of year five after launch.

You have done some research and know that operating lending companies (“Lender” model) are trading at approximately 1.3 x (100% - % Average Default Rate) x AUM (Assets Under Management, that is, the total volume of outstanding loans at any given time). Originators or providers of a distribution channel to lenders (“Broker” model) are trading at approximately 10 x annual income from fees.

In order to provide Robert with a rough initial assessment of the company’s potential value, you will need to do a simple 5-year projection of the AUM for the “Lender” model, and of the income from fees for the “Broker” model.

The meeting with Robert is approaching and you want to make a choice between the two models before it happens. Sometimes you wish you had more experience in consumer lending, but you are also very satisfied with the decision you made to join a young and fast-growing international FinTech PSP.

You want to be as well-prepared as possible for the meeting, so roll up your sleeves!

Fintech Challenge-The Case

LAUNCHING A FINTECH COMPANY:CHOOSE BETWEEN TWO MODELS

After a few years working for a leading Nordic FinTech start-up (a very successful PSP – Payment Service Provider), as manager of their business in Southern Europe, you are finally ready to launch your own business!

You will be a first-time entrepreneur, but you have acquired most of the skills required to launch a new venture: building and managing a team, selecting and integrating suppliers and technology providers, developing commercial and strategic partnerships, and planning and controlling operations…

You have already identified a very interesting market with enormous potential: providing instant financing to e-commerce/merchants’ online customers. The e-commerce market in Spain and Europe has been one of the healthiest and fastest growing economic sectors and it will remain so in the foreseeable future.

Making an instant decision to finance (or not finance) an online purchase of a given customer is not a minor technological feat. It requires access to or development of complex risk-assessment tools and databases, and seamless online integration with e-commerce companies’ often sophisticated websites payment systems for the process to be instant and in order to provide an optimal customer experience.

As a former PSP (Payment System Provider) executive, you have good knowledge of the technology suppliers available in the market to manage the payments and collections systems necessary to your business model, and you also know a large number of both FinTech and traditional companies that specialize in one or more of the steps of the lending cycle (see Exhibit 1).

You have met with some of your contacts at large e-commerce sites/merchants, and they have mentioned that, in the future, their companies are all planning to offer instant online financing to their customers, as a way to improve conversion rates of sales and customer choice and experience. They also said that they believe the companies would be willing to pay a fee of up to 1.5% of the amount of the purchase for the service, (independently from the amount of interest paid by their clients, which you know will be around 18% p.a.) They estimate that, on average, 10% of their total online sales would be financed if this option was made available to their customers, although their feedback on that percentage wasn’t unanimous (see Exhibit 2).

Currently, there are just a few companies that have developed both the skills and technology to provide online instant credit, both nationally and internationally. The largest ones offer their services in at least five or six European countries and sometimes in other non-European markets, as well. Most are based in the Nordic or Baltic countries, and they operate as pay-day

lenders (high-interest, very short-term or pay-day loans) or as direct lenders (small-amount loans), directly to individuals on their own websites and using different brands.

You happen to know most of them well, thanks to your previous position at the PSP company. You know none of them have entered the e-commerce instant financing market yet, but that some of them are likely to do so in the near future. Their very profitable pay-day loan business might be at risk due to reputation and regulatory issues, and thus they plan to diversify into other business segments, such as consumer finance and the underbanked. As they often have high customer-acquisition costs, you think that as an originator, that is, a provider of qualified leads that convert into loans, you could charge them a fee of at least 1% of the value of a loan (see Exhibit 3).

So far, banks and traditional consumer finance companies are not in a position to offer online instant credit to all online shoppers. They can offer credit to any customer in a process that is often only partly-online, but never instantaneous. In fact, their lending process can last up to 3-4 business days and often involves a series of manual interactions with consumers and/or e-commerce platforms, including sometimes signing and sending a paper loan agreement.

In some instances, banks and traditional players can offer instant lending to their existing customer base. For example, they offer pre-approved loans or financing through payment in instalments using the customer’s available credit card limit. In both cases, there is no real lending decision being made, as the purchase is being financed within the customer’s already-approved credit limits.

A close contact in a relatively small, but well-established consumer finance company mentioned to you that their cost of capital (to lend) is about 8% p.a., but they have been operating in the market for quite a long time. You think it is fair to assume your cost would be at least double theirs until you have a three or four-year track record of lending to consumers. Also, if you start giving loans, you are likely to have a high level of default at the beginning. You estimate it to be at least 10% in the first year, going down to the 3% sector average after three years of operations, thanks to a learning curve and improvement in your technology, databases, and processes.

Apart from relatively low costs of setting up, one of the advantages of developing the project in Spain is the cost of the team. Salaries are significantly lower than in the US and most other European countries, with talent easily available (see Exhibit 4).

Before your meeting with Robert, you plan to do a high-level analysis of the opportunities and threats, and of the pros and cons of each business model. You want this initial analysis to cover at least the following areas:

As you are aware of the significant risks and unknowns involved in the launch of a new business, you think it could be very useful for you as future CEO to identify adequate non-financial KPIs (Key Performance Indicators). These will determine the success or failure of each of the two business models, and you will have the opportunity to validate and discuss them with Robert.

Robert is also a technology expert and you think it would be interesting to have his opinion on eventual “make-or-buy” decisions for the key steps of the business process in both models. In order to do that, you plan to analyze the pros and cons of in-house development versus external FinTech suppliers for the main steps of both the “Lender” and the “Broker” models.

You plan to invest 50,000 euros of your savings (all of your savings, actually) in the company, and you would like a Business Angel or a Venture Capital early-stage firm to cover the rest. VCs usually ask founders: what is your monthly “burn rate” and how much money will you need from us to cover the initial 12-month period?

∙ Complexity of execution∙ Complexity of technology∙ Team size and skills∙ Pros and cons from a customer (ecommerce platform/merchant) point of view∙ Competition and barriers to entry∙ Distribution, commercial and strategic alliances∙ Main risks

You will need to make some rough projections on costs to be able to come up with an answer to Robert, considering that there will be no relevant income in the initial 12 months and that expenditure will basically be linked to the cost of the team, with an additional:

Robert, like any Venture Capitalist, is also very likely to ask you about a potential exit strategy for investors. That is, he will ask you about potential buyers for the company, or even better, the possibility to make an IPO in the future. You plan to give him your ideas about potential buyers, as well as some initial insight comparing the two models’ potential value at the end of year five after launch.

You have done some research and know that operating lending companies (“Lender” model) are trading at approximately 1.3 x (100% - % Average Default Rate) x AUM (Assets Under Management, that is, the total volume of outstanding loans at any given time). Originators or providers of a distribution channel to lenders (“Broker” model) are trading at approximately 10 x annual income from fees.

In order to provide Robert with a rough initial assessment of the company’s potential value, you will need to do a simple 5-year projection of the AUM for the “Lender” model, and of the income from fees for the “Broker” model.

The meeting with Robert is approaching and you want to make a choice between the two models before it happens. Sometimes you wish you had more experience in consumer lending, but you are also very satisfied with the decision you made to join a young and fast-growing international FinTech PSP.

You want to be as well-prepared as possible for the meeting, so roll up your sleeves!

LAUNCHING A FINTECH COMPANY:CHOOSE BETWEEN TWO MODELS

Fintech Challenge-The Case

After a few years working for a leading Nordic FinTech start-up (a very successful PSP – Payment Service Provider), as manager of their business in Southern Europe, you are finally ready to launch your own business!

You will be a first-time entrepreneur, but you have acquired most of the skills required to launch a new venture: building and managing a team, selecting and integrating suppliers and technology providers, developing commercial and strategic partnerships, and planning and controlling operations…

You have already identified a very interesting market with enormous potential: providing instant financing to e-commerce/merchants’ online customers. The e-commerce market in Spain and Europe has been one of the healthiest and fastest growing economic sectors and it will remain so in the foreseeable future.

Making an instant decision to finance (or not finance) an online purchase of a given customer is not a minor technological feat. It requires access to or development of complex risk-assessment tools and databases, and seamless online integration with e-commerce companies’ often sophisticated websites payment systems for the process to be instant and in order to provide an optimal customer experience.

As a former PSP (Payment System Provider) executive, you have good knowledge of the technology suppliers available in the market to manage the payments and collections systems necessary to your business model, and you also know a large number of both FinTech and traditional companies that specialize in one or more of the steps of the lending cycle (see Exhibit 1).

You have met with some of your contacts at large e-commerce sites/merchants, and they have mentioned that, in the future, their companies are all planning to offer instant online financing to their customers, as a way to improve conversion rates of sales and customer choice and experience. They also said that they believe the companies would be willing to pay a fee of up to 1.5% of the amount of the purchase for the service, (independently from the amount of interest paid by their clients, which you know will be around 18% p.a.) They estimate that, on average, 10% of their total online sales would be financed if this option was made available to their customers, although their feedback on that percentage wasn’t unanimous (see Exhibit 2).

Currently, there are just a few companies that have developed both the skills and technology to provide online instant credit, both nationally and internationally. The largest ones offer their services in at least five or six European countries and sometimes in other non-European markets, as well. Most are based in the Nordic or Baltic countries, and they operate as pay-day

lenders (high-interest, very short-term or pay-day loans) or as direct lenders (small-amount loans), directly to individuals on their own websites and using different brands.

You happen to know most of them well, thanks to your previous position at the PSP company. You know none of them have entered the e-commerce instant financing market yet, but that some of them are likely to do so in the near future. Their very profitable pay-day loan business might be at risk due to reputation and regulatory issues, and thus they plan to diversify into other business segments, such as consumer finance and the underbanked. As they often have high customer-acquisition costs, you think that as an originator, that is, a provider of qualified leads that convert into loans, you could charge them a fee of at least 1% of the value of a loan (see Exhibit 3).

So far, banks and traditional consumer finance companies are not in a position to offer online instant credit to all online shoppers. They can offer credit to any customer in a process that is often only partly-online, but never instantaneous. In fact, their lending process can last up to 3-4 business days and often involves a series of manual interactions with consumers and/or e-commerce platforms, including sometimes signing and sending a paper loan agreement.

In some instances, banks and traditional players can offer instant lending to their existing customer base. For example, they offer pre-approved loans or financing through payment in instalments using the customer’s available credit card limit. In both cases, there is no real lending decision being made, as the purchase is being financed within the customer’s already-approved credit limits.

A close contact in a relatively small, but well-established consumer finance company mentioned to you that their cost of capital (to lend) is about 8% p.a., but they have been operating in the market for quite a long time. You think it is fair to assume your cost would be at least double theirs until you have a three or four-year track record of lending to consumers. Also, if you start giving loans, you are likely to have a high level of default at the beginning. You estimate it to be at least 10% in the first year, going down to the 3% sector average after three years of operations, thanks to a learning curve and improvement in your technology, databases, and processes.

Apart from relatively low costs of setting up, one of the advantages of developing the project in Spain is the cost of the team. Salaries are significantly lower than in the US and most other European countries, with talent easily available (see Exhibit 4).

Before your meeting with Robert, you plan to do a high-level analysis of the opportunities and threats, and of the pros and cons of each business model. You want this initial analysis to cover at least the following areas:

As you are aware of the significant risks and unknowns involved in the launch of a new business, you think it could be very useful for you as future CEO to identify adequate non-financial KPIs (Key Performance Indicators). These will determine the success or failure of each of the two business models, and you will have the opportunity to validate and discuss them with Robert.

Robert is also a technology expert and you think it would be interesting to have his opinion on eventual “make-or-buy” decisions for the key steps of the business process in both models. In order to do that, you plan to analyze the pros and cons of in-house development versus external FinTech suppliers for the main steps of both the “Lender” and the “Broker” models.

You plan to invest 50,000 euros of your savings (all of your savings, actually) in the company, and you would like a Business Angel or a Venture Capital early-stage firm to cover the rest. VCs usually ask founders: what is your monthly “burn rate” and how much money will you need from us to cover the initial 12-month period?

You will need to make some rough projections on costs to be able to come up with an answer to Robert, considering that there will be no relevant income in the initial 12 months and that expenditure will basically be linked to the cost of the team, with an additional:

Robert, like any Venture Capitalist, is also very likely to ask you about a potential exit strategy for investors. That is, he will ask you about potential buyers for the company, or even better, the possibility to make an IPO in the future. You plan to give him your ideas about potential buyers, as well as some initial insight comparing the two models’ potential value at the end of year five after launch.

You have done some research and know that operating lending companies (“Lender” model) are trading at approximately 1.3 x (100% - % Average Default Rate) x AUM (Assets Under Management, that is, the total volume of outstanding loans at any given time). Originators or providers of a distribution channel to lenders (“Broker” model) are trading at approximately 10 x annual income from fees.

In order to provide Robert with a rough initial assessment of the company’s potential value, you will need to do a simple 5-year projection of the AUM for the “Lender” model, and of the income from fees for the “Broker” model.

The meeting with Robert is approaching and you want to make a choice between the two models before it happens. Sometimes you wish you had more experience in consumer lending, but you are also very satisfied with the decision you made to join a young and fast-growing international FinTech PSP.

You want to be as well-prepared as possible for the meeting, so roll up your sleeves!

∙ 8,000 eur/month on rent, administration, legal, travel and other expenses.

∙ 20,000 eur (total) of cost of integration of technological tools/suppliers for the “Broker” model, and 60,000 eur (total) for the “Lender” model

Fintech Challenge-The Case

LAUNCHING A FINTECH COMPANY:CHOOSE BETWEEN TWO MODELS

After a few years working for a leading Nordic FinTech start-up (a very successful PSP – Payment Service Provider), as manager of their business in Southern Europe, you are finally ready to launch your own business!

You will be a first-time entrepreneur, but you have acquired most of the skills required to launch a new venture: building and managing a team, selecting and integrating suppliers and technology providers, developing commercial and strategic partnerships, and planning and controlling operations…

You have already identified a very interesting market with enormous potential: providing instant financing to e-commerce/merchants’ online customers. The e-commerce market in Spain and Europe has been one of the healthiest and fastest growing economic sectors and it will remain so in the foreseeable future.

Making an instant decision to finance (or not finance) an online purchase of a given customer is not a minor technological feat. It requires access to or development of complex risk-assessment tools and databases, and seamless online integration with e-commerce companies’ often sophisticated websites payment systems for the process to be instant and in order to provide an optimal customer experience.

As a former PSP (Payment System Provider) executive, you have good knowledge of the technology suppliers available in the market to manage the payments and collections systems necessary to your business model, and you also know a large number of both FinTech and traditional companies that specialize in one or more of the steps of the lending cycle (see Exhibit 1).

You have met with some of your contacts at large e-commerce sites/merchants, and they have mentioned that, in the future, their companies are all planning to offer instant online financing to their customers, as a way to improve conversion rates of sales and customer choice and experience. They also said that they believe the companies would be willing to pay a fee of up to 1.5% of the amount of the purchase for the service, (independently from the amount of interest paid by their clients, which you know will be around 18% p.a.) They estimate that, on average, 10% of their total online sales would be financed if this option was made available to their customers, although their feedback on that percentage wasn’t unanimous (see Exhibit 2).

Currently, there are just a few companies that have developed both the skills and technology to provide online instant credit, both nationally and internationally. The largest ones offer their services in at least five or six European countries and sometimes in other non-European markets, as well. Most are based in the Nordic or Baltic countries, and they operate as pay-day

lenders (high-interest, very short-term or pay-day loans) or as direct lenders (small-amount loans), directly to individuals on their own websites and using different brands.

You happen to know most of them well, thanks to your previous position at the PSP company. You know none of them have entered the e-commerce instant financing market yet, but that some of them are likely to do so in the near future. Their very profitable pay-day loan business might be at risk due to reputation and regulatory issues, and thus they plan to diversify into other business segments, such as consumer finance and the underbanked. As they often have high customer-acquisition costs, you think that as an originator, that is, a provider of qualified leads that convert into loans, you could charge them a fee of at least 1% of the value of a loan (see Exhibit 3).

So far, banks and traditional consumer finance companies are not in a position to offer online instant credit to all online shoppers. They can offer credit to any customer in a process that is often only partly-online, but never instantaneous. In fact, their lending process can last up to 3-4 business days and often involves a series of manual interactions with consumers and/or e-commerce platforms, including sometimes signing and sending a paper loan agreement.

In some instances, banks and traditional players can offer instant lending to their existing customer base. For example, they offer pre-approved loans or financing through payment in instalments using the customer’s available credit card limit. In both cases, there is no real lending decision being made, as the purchase is being financed within the customer’s already-approved credit limits.

A close contact in a relatively small, but well-established consumer finance company mentioned to you that their cost of capital (to lend) is about 8% p.a., but they have been operating in the market for quite a long time. You think it is fair to assume your cost would be at least double theirs until you have a three or four-year track record of lending to consumers. Also, if you start giving loans, you are likely to have a high level of default at the beginning. You estimate it to be at least 10% in the first year, going down to the 3% sector average after three years of operations, thanks to a learning curve and improvement in your technology, databases, and processes.

Apart from relatively low costs of setting up, one of the advantages of developing the project in Spain is the cost of the team. Salaries are significantly lower than in the US and most other European countries, with talent easily available (see Exhibit 4).

Before your meeting with Robert, you plan to do a high-level analysis of the opportunities and threats, and of the pros and cons of each business model. You want this initial analysis to cover at least the following areas:

As you are aware of the significant risks and unknowns involved in the launch of a new business, you think it could be very useful for you as future CEO to identify adequate non-financial KPIs (Key Performance Indicators). These will determine the success or failure of each of the two business models, and you will have the opportunity to validate and discuss them with Robert.

Robert is also a technology expert and you think it would be interesting to have his opinion on eventual “make-or-buy” decisions for the key steps of the business process in both models. In order to do that, you plan to analyze the pros and cons of in-house development versus external FinTech suppliers for the main steps of both the “Lender” and the “Broker” models.

You plan to invest 50,000 euros of your savings (all of your savings, actually) in the company, and you would like a Business Angel or a Venture Capital early-stage firm to cover the rest. VCs usually ask founders: what is your monthly “burn rate” and how much money will you need from us to cover the initial 12-month period?

You will need to make some rough projections on costs to be able to come up with an answer to Robert, considering that there will be no relevant income in the initial 12 months and that expenditure will basically be linked to the cost of the team, with an additional:

Robert, like any Venture Capitalist, is also very likely to ask you about a potential exit strategy for investors. That is, he will ask you about potential buyers for the company, or even better, the possibility to make an IPO in the future. You plan to give him your ideas about potential buyers, as well as some initial insight comparing the two models’ potential value at the end of year five after launch.

You have done some research and know that operating lending companies (“Lender” model) are trading at approximately 1.3 x (100% - % Average Default Rate) x AUM (Assets Under Management, that is, the total volume of outstanding loans at any given time). Originators or providers of a distribution channel to lenders (“Broker” model) are trading at approximately 10 x annual income from fees.

In order to provide Robert with a rough initial assessment of the company’s potential value, you will need to do a simple 5-year projection of the AUM for the “Lender” model, and of the income from fees for the “Broker” model.

The meeting with Robert is approaching and you want to make a choice between the two models before it happens. Sometimes you wish you had more experience in consumer lending, but you are also very satisfied with the decision you made to join a young and fast-growing international FinTech PSP.

You want to be as well-prepared as possible for the meeting, so roll up your sleeves!

Lendinglife cycle

> Data input> Product setup (consumer loans, payday loans, installment loans, secured loans, syndicated loans)> Pricing control> Marketing and promotion setup> Loan proposal

> Customer verification> Credit history check> Scoring and rating> Automated loan approval

> Manual, semi-automated, automated payments process> Automated email and SMS/notifications

> Automated/manual deducation> Late, penalty, tax calculation> External/internal bailiff control

OR

IGIN

ATIO

N

EVALUATION AND APPROVAL SERVICIN

G A

ND

REPO

RTIN COLLECTION

Exhibit 1: Lending life cycle

LAUNCHING A FINTECH COMPANY:CHOOSE BETWEEN TWO MODELS

Fintech Challenge-The Case

Kreditech Announces Strategy for 2018

Hamburg, 18. January 2018 – Kreditech, the leading technology group for digital consumer lending using machine-learning based underwriting, has experienced a successful financial year in 2017 and has announced its plans for 2018. As part of its strategy, Kreditech will focus on expanding its business via Lending-as-a-Service, prepare its organization and technology for the next stage of growth, and take a clear step forward towards profitability. At the same time, Kreditech also announced two senior management changes for 2018.

Exhibit 2:B2C ecommerce market size

Exhibit 3: Kreditech strategy for 2018

E-Commerce B2C Market

LAUNCHING A FINTECH COMPANY:CHOOSE BETWEEN TWO MODELS

Fintech Challenge-The Case

Growth was 14% in 2016, 17% in 2017 and the forecast for the period 2018-2023 is of 15% p.a.

Key estimates – average (data in EUR) Sales volumes in Spain 2015

Sales volumes in Europe 2015

Total yearly B2C online sales (1)

50% of total sales

16,9 Bn 423.8 Bn

211.9 Bn

21.1 Bn

8,45 Bn

845 M10% of high ticket segments

Total yearly B2C online sales for high ticket segments (online travel, electronic goods, etc.)

Total yearly target sales to be financed

%

Kreditech experienced strong growth in 2017

Serving more than 780,000 customers by the end of 2017, Kreditech’s customer base has more than doubled compared to 2016. Loan originations and revenue are up by almost 50% against the previous year – a key driver being its newly established Lending-as-a-Service business.

Given continued investments into growth and strategic expansion of the business, Kreditech is estimating a preliminary net loss of about 55m euros for 2017 (compared to a net loss of 59m euros in 2016).

“We are proud of our achievements in 2017, having surpassed all our finan-cial targets,” states Alexander Graubner-Müller, CEO and founder of Kredi-tech.

Increase focus and profitability for 2018

In 2018, Kreditech will take the next decisive step towards profitability and is aiming for an operational break-even in each of its existing markets, i.e. Poland, Russia and Spain, by the end of 2018. At a group level, Kreditech will continue to invest in areas of strategic interest – such as the expansion into new markets, especially in the context of the partnership with Naspers / PayU, as well as the establishment of new partnerships for its Lending-as-a-Service Business. Past financing rounds such as the investment by PayU / Naspers last year have made sure that Kreditech’s business plan is well-funded.

A key milestone for 2018 will be to successfully establish Kreditech’s business model in India in collaboration with PayU. “India has a population of 1.3 billion people. However, less than 29 million have a credit card”, explains Alexander Graubner-Müller. “We assume that there are approximately 600 million Indians who have access to online services. However, many of them have not yet been able to make use of financial services. Servicing this target group will provide Kreditech with enormous growth potential.”

Besides India, the company also plans to accelerate profitability in its direct business in Poland, Spain, and Russia. As part of this enhanced focus, Kredi-tech has decided to discontinue its current product offering in Mexico.

LAUNCHING A FINTECH COMPANY:CHOOSE BETWEEN TWO MODELS

Fintech Challenge-The Case

Internally, Kreditech is driving several changes to prepare the organization for its next stage of development. Among other things, Kreditech is planning to establish more empowered country teams and significantly advance its technology platform.

Changes in the core leadership team:

Kreditech has announced two changes in its core leadership team.

After more than four and a half years, during which René Griemens was very successful as a CFO for Kreditech, the experienced financial market expert will leave the company this summer. Given the growing demand of regula-ted financial services to the CFO at Kreditech, his decision is driven to return to his passion: the development of technology start-ups. Until a replacement is found, Griemens will continue to fully support Kreditech in his role.

CPIO Michal Panowitz is leaving on January 31st. He joined the company in 2016 with the vision of transforming Kreditech into a digital bank. Given the company’s strategic decision to focus on its core consumer lending business, Michal supported Kreditech in onboarding his successor and will focus on new challenges. His successor in the role of CTO has already been appointed: Todd Simmermann will take over his duties on February 1.

About Kreditech

Kreditech Group’s mission is to improve financial freedom for the under-banked with the use of technology. Combining non-traditional data sources and machine learning, the company is aiming to provide access to better credit and a higher convenience for digital banking services. The product

Fintech Challenge-The Case

LAUNCHING A FINTECH COMPANY:CHOOSE BETWEEN TWO MODELS

offerings include consumer loans, a digital walle,t and a personal finance manager designed to help customers manage their credit score and plan their spending. Kreditech also offers a “Lending as a Service” model, allowing partners to integrate Kreditech’s credit products via an API into their own platform and services.

Founded in 2012 and headquartered in Hamburg, Germany, Kreditech covers more than 5 markets worldwide, amongst others Russia, Mexico, Spain, and Poland. Up until now, the company has processed more than four million loan applications through its subsidiaries. Kreditech’s team of more than 387 people is led by CEO and Co-Founder Alexander Graubner-Müller and is financially backed by world-class investors including PayU, J.C. Flowers, Peter Thiel, and the World Bank’s IFC.

Start-up salaries in Spain are on average 50% of those in the US for any given job function, with additional company total costs of approximately 30% of the salary in Spain and 10% in the US.

CEO’s salaries vary widely (because of stock options and capital interests), but on average they equal 1.3 x Tech in early phases.

Risk Assessment executives with management and technological skills are in relatively short supply, and their salaries can be of up to 1.1 x Tech.

IT employees below Tech executive category have an average salary equal to Operations.

The average salary of someone working in collections and debt recovery equals 1.1 x Client Support.

Exhibit 4: Salaries in Spain and USA

LAUNCHING A FINTECH COMPANY:CHOOSE BETWEEN TWO MODELS

Fintech Challenge-The Case

Tech $100,098 $56,400Sales 100,000 65,000Product/project management 95,000 66,975Finance 84,090 65,000Strategy 82,579 80,000Human resources 73,000 65,437Creative 67,750 65,983Operations 63,553 50,000Client support 62,312 54,000Marketing 62,000 45,022Other 55,000 60,000

Startup salaries in the US by job functionMedian Employee Salary by Job Function

Fintech Challenge-The Case

LAUNCHING A FINTECH COMPANY:CHOOSE BETWEEN TWO MODELS

Startup Non-Startup

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