Launch of targeted lending in 2024 Part three (Why doesn’t anyone do this?)
Introduction
The volume of targeted lending is growing year by year. This happens because all participants in the purchase and sale transaction benefit from the sale of goods on credit:
The seller needs to sell as many goods as possible
The buyer needs to buy the product right now, and not sometime later, when he has saved up money
The bank/MFO/BNPL service needs to give money to someone in order to earn
In part two of the article about the launch of targeted lending in 2024, I showed the main types of targeted lending in the market. If you are going to launch or restart this direction now, then you will need to analyze the market, analyze your weaknesses and strengths and think about what product you will offer on the market and to whom you will offer it.
But what interesting things can you offer to customers so that sellers will put you on their payment form or point of sale?
What are the difficulties?
If you look at targeted lending from the buyer or seller, there are certain “pains” that are inherent in typical lending models.
Now I’ll try to clearly describe what exactly I mean:
Often the markup on a product does not allow paying for the services of the lender, which leads to the imposition of additional services or sales only with other more marginal goods
banks don't approve well
MFOs are toxic for part of the audience, which leads to refusal to purchase on credit
BNPL does not work well / does not work for long periods
loan products are designed primarily to meet the needs of the MFO/bank, and not the seller
Here you can add to the list for a long time, I will not try to list all the pains. If you see them, write in the comments
All this and much more has led to the fact that the MFO and the bank have practically nothing to offer the conditional M-Video in order to start working with it. There is only a chance if you have common shareholders there or you were able to contribute a lot to someone correctly. Difficult, in general.
A look from the other side
Since at one time we did a project for lending to legal entities and individual entrepreneurs “in small pieces,” which also included factoring operations, I can look at targeted lending a little more broadly than existing schemes, without slipping into schematosis.
So, we need to give something new and interesting to large sellers, including marketplaces, while the product should be convenient and interesting to customers. I’ll say right away that cunning options like “let’s give payday loans at 292% per annum under the guise of targeted loans” are not considered in principle.
By the way, you probably noticed that all the marketplaces bought banks and microfinance organizations for lending to sellers and buyers. You might think that they no longer need the services of credit service providers. But that's not true.
Buying an MFO and learning how to issue it with a good percentage of approval and then collecting it back are two different tasks
How I began to formulate my scheme – from the fact that each conditional M-Video can itself sell goods in installments simply under a sales and purchase agreement (SPA). But he can't. The reason why it can’t, see above – it needs to be issued to as many buyers as possible, and then collected back.
MFOs know how to do this. Even in PDL (payday loans) the approval rate (approval rate) is at 15-18%. And the audience for targeted lending is much better, so approval of 30-50% of applications, depending on the category of goods, is quite an achievable level. MFOs also know how to effectively collect overdue debt, which is also very important.
Let me proceed directly to the scheme of work:
The seller receives an application for a targeted loan from the buyer
Submits the application for scoring to the MFO
The MFO will prompt the client and respond automatically “can be issued”
Here you can answer in more detail with a minimum amount of approval and maximum terms
The seller gives installments on his own behalf on the basis of the DCP
The buyer receives the goods
Can be done with an initial payment, like in BNPL, which will significantly reduce the level of risk, especially in high-risk groups of goods, for example, jewelry or mobile phones
Next 2 options
The seller receives a credit/loan to his account for the amount of the goods minus the commission within a certain limit (this scheme is more complex, as it involves the allocation of a limit to the seller, which requires an analysis of his activities, which may not always be sufficient to set a limit)
Or the seller sells to the microfinance organization his right of claim to the buyer for the amount of the goods minus commission (closed factoring)
The buyer makes payments according to the schedule, which go towards repaying the debt. If you are into the topic of payment and credit technologies in the market, then I don’t need to explain to you which accounts need to be used in this scheme and how to automatically process incoming funds
If the buyer does not make payments:
The seller sells the portfolio of debtors to the microfinance organization, which collects
Or the MFO immediately carries out collection on its own, since it has already purchased the right of claim against the buyer
Eventually:
The buyer buys goods in installments only under the DCP, interacting directly with the seller. If he pays normally, then he will never know about the MFO
The seller removes the risk of customer default, since this risk is assumed by the microfinance organization
The seller can independently decide which installment programs he introduces, using MFOs as a back-system for funding, scoring and collection
MFOs provide lending while operating in a less regulated area with fewer restrictions
Several people from the industry read me, so I’ll say it especially for them: if your group of companies does not have an MFO, but there is a bank that can do a good job of speeding up, then this scheme may well work with the bank.
And yes, of course, we have experience in how to make such a project, both from the side of the seller/marketplace and from the lender.
