According to a study from McKinsey&Company conducted in partnership with the Financial Access Initiative, a consortium of researchers at New York University, Harvard, Yale, and Innovations for Poverty Action, half the world is unbanked.
In other words, about 2.5 billion world’s adults don’t use banks to save or borrow money as 2.2 billion of those live in developing areas like Africa, Asia, Latin America, and the Middle East.
This represents a huge opportunity to foster financial inclusion, ideally starting from a niche to better the mechanism and scale up.
Let’s consider, for instance, Latin America where 65% of South Americans are unbanked and in small countries such as the Dominican Republic even less, as only 29% of adults have access to traditional financial services.
However, the Country itself has been rated by the World Bank as the fastest economy in the Americas reporting an average real GDP growth rate of 5.4% between 1992 and 2014, which topped 7% in the region over 2014 – 2015 confirming to be among the top 15 economies on the ease of doing business in 2016.
Therefore, when it comes to entrepreneurship, a pivotal role it could be played by alternative ways of getting funds in order to enable the creation of new ventures and, accordingly, more jobs.
This is the case of socially innovative corporate financial instruments such as crowdlending, also known as loan-based crowdfunding which was recently included by the European Central Bank among
the promising set of alternative sources of financing due to its potential for providing financing which is tailor-made to the particular needs of small entrepreneurs.”
The other way around, from an investor point of view, experts concluded that saving through this kind of debt based crowdfunding allows the optimization of a portfolio comprising both institutional and retail investors.
In particular, they pointed out that:
Loan Based Crowdfunding can contribute to solving the problem of the scarcity of investment vehicles.
In the intersection between entrepreneurs and investors in a sharing economy context, borrowers and lenders in a collaborative environment, innovative projects like iBAN Wallet emerges.
Oliver* met up with Daniel Suero Alonso, iBAN Co-founder and CEO, to discuss about their latest moves and future challenges.
OLIVER*: Hi Daniel, thank you for joining us. First, I would like to ask you what’s the state of the art of peer to peer consumer lending market?
Daniel: Well I don’t think there’s a state of the art yet since so there are so many models and approaches still being experimented with, so it would be more of a combination of some the Fintech leaders. You wouldn’t be too far off if you could take Funding Circle’s marketing, the tech in companies like Revolut (even though they’re not in the P2P lending space their technology is something lenders should be aiming for), and obviously iBAN’s cross-border model!
O*: How can crowdlending and, more in particular of companies like yours, help in fostering financial inclusion on a global scale?
D: Well as you’ve already pointed out, roughly half the world is unbanked. However around 80% of individuals in developing nations have mobile phones – anything that can provide access to basic financial services, such as accessing credit, through a mobile will foster financial inclusion.
Crowdlending is obviously moving control of credit away from the banks, allowing access to loans for individuals who may have been excluded from consideration before.
With iBAN Wallet we are actively injecting funds into developing economies, promoting growth for individuals and small businesses where previously they may have had difficulty.
O*: What’s the gap in the market you spotted in order to come out with the Wallet idea?
D: Currently all the major players in the P2P lending space are receiving money and lending within a single country, primarily focused in Europe, the US and Asia. Alternative lending is only just arriving to LATAM, and with it the associated lower loan rates, so there’s a huge connected population waiting for this technology and business model to arrive. By lending cross-border in a mobile application, we can provide simpler and cheaper credit access to all those individuals, at fair local rates, enabling us to pass on the financial gains to the lenders that come with lending in a developing economy.
O*: Why the product is so unique in the market?
D: The live-updating global investor marketplace is the key feature, with no other product on the market offering the same ability to filter based on the same variety of attributes.
We are also combining this with a range of personal finance management tools, connecting individuals investments and finance tracking for the first time with statistical and graphical analysis of ingoings, outgoings, and budget just to mention the few.
O*: How does it work? In other words how both sides, borrowers and lenders can make the most of it?
D: Borrowers will be able to upload a loan request once they have completed a profile, and after credit and risk checks their request will feature on the marketplace. Lenders will filter based on a variety of attributes (e.g. credit score, interest rate, currency, etc.), identifying the investment that is right for them. iBAN Wallet will be perfect for people who like to make their money work harder to bring in great returns.
O*: To launch your product your company itself leveraged crowdfunding. Why?
D: With a company like ours, crowdfunding offers a great opportunity to gain both investors and users at the same time.We can spread awareness of the brand among our target user market, while anyone that then owns a piece of our business will become ambassadors for the concept. It’s a no-brainer!
O*: Moving to a scenario perspective, what do you make of the latest FCA consultation released few weeks ago?
D: The right level of regulation is always essential to protect customers, and I think the FCA has done a great job so far in keeping up with the rapid evolution of this industry. That being said,
I think we have to be careful not to stifle the innovation that’s coming out of this sector.
We’ll have to see what impact the proposed rules have once they come into effect.
O*: The Financial Times stated that peer-to-peer lenders will morph into traditional banking. What’s your point of view on this?
D: With Zopa announcing they plan to launch a bank, no wonder!
P2P Lenders are obviously performing one of the many financial services of a bank, only quicker, easier and cheaper.
Traditional banking implies a move back to the way things have been done for hundreds of years, which isn’t going to happen.
The whole sector of Fintech is revolutionising the way financial services are provided, and there’s no going back now customers have experienced what’s possible – if there is a move to banking it will be with the influence of technology that is currently being exhibited in companies like ours.
O*: What are the main trends and the main challenges for crowdlending in the next future from you perspective?
D: The new regulations will stifle some growth and discourage new competitors. The strongest will thrive and the ones who achieve the full authorisation have an extremely bright future.
Crowdlending is set to become mainstream, as the world of finance becomes increasingly digital.
The companies with the most powerful tech will lead the way.
Oliver* 
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