In the beginning of the summer we set our focus on fighting a problem that was constantly raised by both Investors and Borrowers: namely, some of the loans that are brought to the Primary Market do not get sufficient funding and are eventually cancelled. As the result, Borrowers do not get loans and need to reapply again, while investor capital is locked for about a week without producing any return.
We have identified the following root causes of the problem:
- When applying for a loan, Borrowers do not have the means to understand the likelihood of getting a loan on our platform;
- Investors do not have the means to predict the funding rate a given loan will achieve and make a knowledgeable decision whether it is worth placing a bid.
In order to address the issue, we will be introducing changes to the loan application process, which will result in Borrowers only receiving loan offers that have high likelihood of getting funded by the Investors. We have developed the functionality using predictive analytics modelling and historic data on the funding to evaluate with high precision the maximum amount a given loan applicant can borrow on our platform.
Here is an example of how the changes would affect the loan application process:
- CURRENT PROCESS: A borrower would like to borrow EUR 3,000 for renovating her apartment. However, given the information in the loan application the loan gets only EUR 2,000 in funding from investors and is delisted from the Primary Market and cancelled in 7 days.
- Outcome: Borrower would have accepted EUR 2,000 offer had she known that this is the maximum amount she can borrow, yet, investor funds were frozen for a week and the loan was eventually cancelled.
- NEW PROCESS: A borrower would like to borrow EUR 3,000 for renovating her apartment; however, our system evaluates that the maximum amount she can borrow is EUR 2,000. Thus, the borrower is not offered EUR 3,000, but only EUR 2,000.
- Outcome: Borrower decides that she can cut her renovation budget to EUR 2,000 and accepts the offer. The loan is successfully funded and issued.
We realize that as the result of this change we will not be able to serve some of the loan applicants, as there is no funding available on the platform for certain segments of borrowers. Yet, we believe this is fair to notify the applicants about the lack of funding right away and avoid locking investor capital in loans that are not eventually funded.
As the system will pre-calculate funding available for a given application (and will not allow loans to the market that don’t have high likelihood of being funded), we are also removing the rule, that requires a listing to reach 75% funding for the loan to be issued, for its irrelevancy.
We expect that the changes will serve both our Borrower and Investor by better aligning the interests of both parties.
UPDATE: Some of the Investors reached out to us suggesting that performing supporting document and applicant data checks before moving a loan application to the Primary Market, can further help with resolving the issue of locking the Investor capital in the loans that are not eventually funded. This change is already in the works and will be released in the nearest future.