Tuesday Team Talks № 15:

Business Model Update and USA Expansion

Dear Community,

The last few months has been an interesting journey and an intense learning experience for us. The FintruX team has set out to achieve something that has never been done before — to develop a true P2P lending marketplace where participants can interact with maximized trust, risk reduction, and efficiency — resulting in affordable credit for small businesses which typically face challenges in getting loan financing. We are excited to be pioneering an unprecedented, innovative business model where the decision making is in the hands of the users.

As mentioned in our previous blog posts, we have some exciting updates to share with our community. Beyond our initial assessment of the regulatory landscape, we focused our efforts over the past six months to conduct an in-depth review into main jurisdictions that we wished to start operating in; namely Singapore, USA, and Canada. However, we quickly realized that regulators had no idea how to handle our decentralized P2P lending operations as it has never been done before. Moreover, the innovation behind our unique business model could not have been foreseen by regulatory bodies as laws that were written several decades ago are difficult to apply towards newer technologies.

In this blog, we will take you through the developments of the past few months and elaborate on decisions that have been made along the way. We also announce a new key team member and touch on how we approached all challenges from a strategic perspective to be able to present you with an updated roadmap and whitepaper that will ensure we come out with the most feature-rich, innovative, true P2P platform the world has ever seen.

Here are some highlights of our achievements over the last few months:

Q2 2018

Focusing on continued infrastructure development, the platform prototype has been refined with new infrastructure and architecture, along with improved programming language such as react.js, redux, and bootstrap. This ensures that our platform is future-proof, fast, and up-to-date with the newest technologies.

As part of our process testing, an internal alpha test loan of $300,000 SGD was deployed to evaluate the viability of the business and the legality of our loan process in Singapore.

• Being the first true P2P lending platform, there was no clear language in the Monetary Authority of Singapore (MAS) FAQ on P2P lending about the requirement of a license for our operations.
• Our initial thought process was that our platform would not require a license as it was decentralized and true P2P, with money directly transacting from lender to borrower. Lenders can make their own credit decisions, by inputting parameters directly into decision tables. And as a final measure, we would only allow accredited investors (a person or entity that can deal with securities not registered with financial authorities) to be lenders for the first phase of our operation; if it was somehow indicated that our loans would be deemed securities.
• However, after working with top legal minds in Singapore, US, and Canada to determine licensing requirements, we realized that our process at the time would likely require a license to operate in various jurisdictions because of certain business processes we had implemented to protect our users. The main components of the process looked at by the regulators was that FintruX Network:

1. Was directly handling funds by managing the cross-collateralization pools (10% of the loans);
2. Solving payment transaction bottlenecks with an FRX intermediary token that would be publicly tradable (dealing in securities);
3. Compiling third-party credit reports for lenders and suggesting interest rates in a way that could be perceived as providing recommendations or financial advice;
4. At the time, we were determined to continue developing our platform with these features to benefit our users and announced our intentions to obtain licenses in every jurisdiction we enter, starting with Singapore, and to perform joint ventures with established and reputable financial institutions with pre-existing licenses for rapid expansion. We started to explore opportunities and regulatory/legal requirements in Malaysia, Indonesia, and Vietnam.

However, we gradually became aware of certain limitations this would cause us, namely;

1. Being unable to perform platform testing for business viability or acquire users in new regions without a license;
2. Being unable to be operational / revenue generating at all without a license;
3. Some jurisdictions have different licenses for specific aspects of our operation — conforming to those regulatory requirements would cause major business process changes every time we tried to enter a new jurisdiction and complicate development;
4. Being forced to spend tremendous time (6–24 months) and money (>US$1M) per jurisdiction before we can be operational;
5. Partnering with financial institutions for their pre-existing licenses could potentially restrict our ability to operate efficiently per our proposed business models.

Armed with this new knowledge and with expert guidance from various advisors and government regulatory consultants, we resolved to rethink our business model to one that would be fully compliant under the current regulatory frameworks to not require licenses and thus be able to scale globally with minimal localization — while keeping the benefits that make FintruX Network unique.

To that end, we warmly welcomed Marc Frohman Esq. to our legal team. He is a business-oriented and outcome-driven former Fortune 700 General Counsel/Corporate Secretary, with 20+ years broad-based experience in public and private global companies.

We’re pleased to officially announce his arrival, and please feel free to learn more about his impressive background by reading his full bio on our website. Marc has helped us better understand the regulatory environment in the USA and was crucial in accelerating our efforts in the area.

Q3 2018

Focusing on improved user experience, we developed our no-code generation to generate a new class of responsive mobile first screens to be extremely lightweight and user-friendly.

We revised our business model and underwent major process modifications with our legal teams to clear regulatory hurdles for licensing. To focus on scalability, we modified our process with the goal to be easily reproduced globally with minimal customization and no licensing requirements. We are extremely pleased that through the combined efforts of the entire team, we have revised the inner workings of our business process to provide even more benefits to our users, and operate in a true P2P decentralized fashion that has never been done before.

This approach has multiple benefits, namely:

1. Ensuring minimal regulatory barriers to entry for geographical growth;
2. Ability to process test, onboard users, and be revenue generating as we expand;
3. Opening the doors for ordinary citizens to invest in small business credit;
4. A robust base model which we can quickly improve on when we do get the licenses to offer additional features and security for our users;

Recognizing the benefits a licensed platform can bring to its users, we have decided to develop two complementary business models:

1. An unlicensed base model that does not need a license to operate, yet will be profitable and secure with all of the features initially stated in our whitepaper and more;
2. A licensed model that can be fitted directly on top of the unlicensed platform, which would provide enhanced features, services, and increased security to participants. These features would include a trading platform for funded loans to provide lenders with high liquidity, ability to securitize, better credit decisioning tools enhanced by AI, and more.

As part of our efforts to continue our smart contract development, we merged our smart contracts with localized loan agreements to be instantly generated for different jurisdictions. We also designed and tested our FRX smart contracts to facilitate all payments on the platform and to be sent and received in seconds, giving birth to the FRX ledger — to be individually managed by trust-institutions and trust-lenders. You can read the details about this mechanism in our updated whitepaper (p.11 & 12).

The Road Ahead

Fintech as an industry has always challenged regulators around the world to keep laws up-to-date in protecting their constituents while not restricting innovation. With a clear view of the current regulatory landscape, we are able to continue developing the revised process with the confidence that we are building a viable and scalable business.

In Singapore, we have opted to apply for a securities license with the de facto central bank and regulator, the Monetary Authority of Singapore (MAS) for both business models. This decision is to pre-empt any restrictions that may be imposed on our business at a later stage, ensure that our headquarter operation is well-recognized by the authorities, and operate with enhanced features. The MAS is recognized globally, and acquiring the license lends significant positive reputation to our operations.

In terms of platform development, if we were to launch the previously discovered noncompliant model, it would be possible to be done within a few weeks. However, keeping in mind the long-term sustainability & longevity of the business and profitability for all parties involved, we have to spend additional time and effort to re-develop the platform to fit within the compliant process.

We are on track with launching our global testing and refining the model to be ready for rapid global expansion. To realize the full potential of our ‘true P2P platform’, we have made a few updates to our existing roadmap.

The succeeding quarters would focus on the following activities:

Credit Model Training. FintruX Network is unique in that it is the very first platform to enable lenders to choose from a variety of credit models from established credit decision agencies and evaluate which ones fit best for their needs, modify reference packages, or even build their own models from scratch. We have very capable risk managers in-house that will be creating comprehensive credit adjudication training videos to best prepare our lenders to make correct decisions and accurately gauge borrower creditworthiness.

Alpha Test. With our enhanced business model, certain backend processes have to be tweaked to fit regulatory requirements. In doing so, future alpha/beta testing will not place the company at risk of being penalized by regulators. Our highly agile development team is actively working on accommodating the newly defined specifications and are well on their way to success. We’re excited to announce we have a USA Pilot scheduled for the end of Q4, facilitating 30+ loans at ~US$40,000 per loan with our alpha system; ensuring a minimum of US$1,000,000 to be lent through our smart contracts. We’re very excited by this development, which will play a direct role in launching our US operations. The initial borrowers and lenders involved will primarily be traditional companies with no crypto knowledge, so we look forward to testing user adoption of wallet onboarding, FTX token usage, smart contract interactions, and additional blockchain interactive features. We will distribute an official press release with details of some of the participants involved closer to November.

Beta Test. Pending successful licensing in Singapore, we aim to facilitate 50 loans in early 2019 and extend downstream processes and functionalities, such as statistics and management reports. It is important for us to proceed with additional testing only after successfully receiving our license, as conducting unlicensed operations has a likelihood of risking our licensing efforts, even with a compliant model.

We also look forward to expanding our team as we go live, with local staff members in Singapore and US handling day to day operations (onboarding, customer support, credit analysis), marketing (communications, PR, business development), and finance & administration (human resources and accounting). With our refined process, we are also inviting new partner service agencies to participate in our open ecosystem. Please stay tuned for upcoming announcements regarding partnerships. Additionally, we are working on additional use cases for our utility FTX token that will further maximize the network effects of our ecosystem and improve on trust, risk reduction, and efficiency; hope to share more about that soon.

The changes in our roadmap reflect our rigorous research and dedication to building a compliant platform focused on protecting our users as we progress the platform and expand globally. We are still well funded and look forward to completing the roadmap successfully with additional budget for expansion.

Our new proposed timeline for general availability is Q2 2019 for both the licensed version in Singapore and the unlicensed version in US; scaling globally across Asia and North America.

Whitepaper Changes

Keeping in line with our continuing efforts to constantly improve on brand strategy and product positioning, we have introduced a few edits to our whitepaper v4.0.

Here are a few highlights of the improvements that have been made:

• Condensed executive summary to be more explanatory of our business (p.2)
• Expanded on the strategy to be more product focused (p.3)
• Additional information about the centralization of traditional P2P lenders (p.5)
• Included additional problems in the current financing market (p.6)
• Updated solutions to be more comprehensive and clarified mission/vision (p. 10)
• Business model diagram updated and expanded (p.11)
• Incented Guarantor and Trust-Institution / Trust-Lender explained (p.12)
• Credit enhancers summarized (p.13)
• Credit enhancers better explained (p.14&15)
• Revenue Model discussed (p. 16)
• Summarized Token Utility (p. 17)
• Updated Process Analysis (p. 18–22)
• Breakdown of privileges and obligations for all parties (p. 23)
• Description of additional features (p. 24&25)
• Benefits to all users (p. 26&27)
• True P2P as a competitive advantage (p.30)
• Updated technology (p. 33&34)
• Expanded roadmap (p. 36–38)
• Evolution of platform expanded (p. 39)
• Refined Conclusion (p. 44)

We at FintruX strive to continually adapt and improve to create value for all participants in our ecosystem. In the face of regulatory constraints, we emerge stronger than ever — reworking our model to deliver the same features in a more compliant manner. Our platform is now well positioned to make decentralized financing with trust a no-brainer for borrowers and lenders, and is creating a brand new generation of solutions to help SMEs achieve financial growth. By maintaining a compliant approach to entering the industry we are paving the way to ultimate success. The FintruX Team along with our board members, advisers, and partners, are excited for our future — and hope you are too.

Best,

Conrad Lin

About us: FintruX Network is the true P2P lending ecosystem built on the blockchain, powered by credit enhancements and no-code generation. The platform makes it easy for borrowers to connect with reputable lenders and servicing agencies, save money with competitive interest rates, and get an affordable loan within minutes in a fair and transparent process without collateral.

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