How BFree Is Boosting Lending Trust
How BFree is boosting lending trust
Udoma Nseobong recently borrowed 30,000 ($60) from CashLion Credit. He paid the weekly interest for six weeks unitl his final payment.
Unforeseen circumstances caused him to miss his final payment by one day. CashLion credit declared Nseobong a fraudster on the run with his entire family to his contacts in just a few days.
This is just one example of how digital lenders will go to extreme lengths, sometimes unethically, to recover their loans.
Contrary to popular belief, some lenders still justify their unethical practices.
“There is no defamation of character when we trust people we have never met with money and they don't pay,” said Titilayo Adetonya, a customer service representative for digital lender CashLion.
“It's legal to send those messages to their contacts because we warn them before we do it,” she said.
After years of complaints, Nigeria's National Information and Technology Development Agency (NITDA) fined Soko Loan Company Limited, a digital lending platform, $10 million for privacy invasion on August 17. To the contacts of loan defaulters, Soko Loan unilaterally sent privacy-invading messages.
This sanction, while merely a warning, is NITDA's first public attempt to address the issue. The fine prompted digital lenders to seek out more ethical ways to collect loans.
But how effective is an ethical alternative?
A different approach
Julian Flosbach knows what it's like to look for better options, having worked at FairMoney, a Nigerian digital lender turned digital bank. Julian oversaw the loaning of over a million dollars to over a million customers during his tenure as CEO.
“It's easy to have a team of five in charge of collections when you only have a few loans, but when you have over one million borrowers, you start reconsidering,” Julian said. ‘Do I want to be a fintech lender or a collection company?'
FairMoney had up to 80 employees managing collections in-house at one point, but it became clear that this diverted attention from the company's core business: lending.
So the company looked for an external solution and found the best option available at the time: BPO firms that service big banks and telcos. But it didn't take long to find flaws in the collection process.
“Calling customers doesn't always work if you want operational excellence in collections. These BPOs use generic customer relationship management tools (CRMs) or predictive dialers for collections. So they call customers once a week instead of when they want to be called. It is inefficient.”
After this terrifying experience, he co-founded BFree with Moses Nmor (Chief Product Officer) and Chukwudi Enyi (Chief Operations Officer). FairMoney co-founders all worked together.
The company saw an opportunity to compete in the $14.4 billion emerging market credit collection market. Its competitors include Credgenics (recently raised $25 million Series A), CreditMate (backed by Paytm), FLOW Singapore, and Blu365 Brazil.
BFree has grown to nearly 460,000 active customers from over 20 lenders in Nigeria and Kenya in just over a year.
The Face of Ethical Credit Management
Unlike other debt collection solutions that thrive on humiliating customers, BFree focuses on debt recovery ethics and technology.
For a fee, BFree collects loans from borrowers. The company takes a cut of the lender's repayments. This commission is based on the lender's portfolio size and quality.
BFree's ethical approach to loan recovery is based on the belief that most customers take out a loan intending to pay it back. Except for a few isolated cases of fraudsters and victims.
For example, FairMoney (10%), Carbon (11%) and Branch (10%) all have average 90-day default rates of 10%. This means that only 10% of Nigerians (Flosbach estimates 10-15 million people) default on loans.
“The majority of customers (70-75%) wants to pay but cannot. This is usually due to loss of income — job loss, business failure, or an emergency.”
This is common in a country like Nigeria where people are poor. Without insurance, anything can happen.
Customers are valued at BFree based on their willingness and ability to pay.
“We assess and underwrite loans from lenders like Branch and FairMoney. Using their behavior, we create a collectability score and a use case. Then into a collection funnel.”
As a self-service platform, customers can log in and see their own repayment plans. Customers receive SMS messages and handle loan repayments themselves. So BFree saves man-hours on phone calls and customers don't have to deal with unexpected phone calls during work hours.
When a customer defaults, BFree contacts them to find out why and to get a payment date (verbal agreement). Simply contact them and ask when they can pay. Automated reminders are set up based on agreed dates.
BFree runs call centers with around 200 agents to assist customers. BFree wants to automate debt collection to 95% in the next few years.
“BPOs have gotten bad press for taking data and threatening customers. Because a bot will never threaten a customer, automating this process reduces the risk.“
What happens when customers default
Flosbach admits that one of the inherent risks of lending is that there will always be default. He thinks the solution is to accept that some customers won't pay and help those who will pay as much as possible.
“No portfolio in the world is free of default. You must determine whether it is a natural or operational default.”
In a natural default, customers don't pay due to unforeseen circumstances like illness. In this case, re-evaluate the customer's situation and agree on a new repayment plan.
“We should accept that customers have financial emergencies, just as we accept that people go to the doctor when they get sick.”
A flaw in the loan collection process causes operational default. For example, customers don't get the right repayment plan or don't know how to pay, i.e. which bank account to pay to.
The BFree process reduces operational default to a minimum. So far, 95% of customers have rated BFree as good or satisfactory, indicating the company's approach is working.
BFree's value proposition remains relevant as lending becomes less exclusive to traditional banks and digital lenders.
Flosbach believes BFree's ultimate goal is to boost African lending trust.
“We build trust in the financial retail market by lowering risk and improving margins.”
