Bitbond: Leading innovation in Germany
Radoslav Albrecht is the Founder and CEO of Bitbond, a global lending platform for small business loans. The project leverages blockchain technology to connect creditworthy borrowers with individual and institutional investors.
Bitbond is the first financial services institution of this type to be supervised by BaFin. Whilst it may seem early days, Bitbond has been operational since 2013 and currently has a loan book of approximately $15.4m with over 3,000 loans funded to date.
This week I had the pleasure to interview Radoslav to learn more about how Bitbond is leading innovation in the lending industry.
Congratulations on becoming the first German Security Token Offering. Can you share some of your learnings throughout the process with BaFin?
Thank you. We had two major learnings on our way to the prospectus approval for the Bitbond STO. Firstly, when dealing with regulation, you need to find efficient solutions to meet all compliance requirements. In our case, this meant creating a virtual token that substitutes for the physical paper certificate/deed that is normally required when issuing a bond in Germany. Secondly, when launching an innovative and new type of product it helps to involve the regulator early in the process to give them the opportunity to provide feedback early on instead of presenting them a finished solution.
What problems does Bitbond solve in the lending industry?
Many small and medium sized businesses around the globe face a severe funding gap. Even if these clients are profitable and growing, traditional banks often refuse to serve them due to the small profit margins that small business loans entail. By leveraging technology to make cost-intensive lending and payment processes more efficient, we tackle the SME funding gap and support the growth of aspiring small businesses.
Can you explain the innovation behind the credit scoring model that provides loan approvals within 24hrs possible?
Traditional banks mostly base their credit scoring on a manual assessment of financial statements, which makes the process costly and tedious. To make credit scoring more efficient and user friendly for small business clients, we assess the online banking history of our loan applicants via a machine learning-based scoring algorithm. Additionally, borrowers can connect accounts like eBay, Amazon, Paypal, Facebook etc. to complement their application. Our highly automated approach allows us to make a credit decision within less than a day, while traditional banks often need 6–8 weeks for the same process.
What is your opinion on the future of lending? Can financing be fast and efficient and still conduct responsible lending, even for larger loan amounts?
We provide unsecured business loans up to EUR 50k and maturities up to 12 months as we believe the risk associated with this size class is responsibly manageable with a very high degree of automation today. The larger the loan size and the more complicated the financial product (asset-backed securitization, flexible maturities etc.), the more due diligence is required to offer lenders an attractive investment opportunity. In the future, technology surely will allow for faster and more efficient lending even for larger loans, however Fintech companies must be careful not to underestimate the risks associated with scaling up their loan volumes.
Currently, Bitbond is offering only lending products. Will Bitbond look to offer other financial products? Is so, what will this include?
For now, we are very happy with the space we are in. There are still millions of SMEs around the globe that need access to a more fair and sustainable financing and we are far from reaching saturation in our market. To provide our clients with an even better service, we are however looking into simple and affordable insurance products to complement our lending services. We also continuously strive to improve the way users of our platform transfer payments across the globe.
What do you consider your biggest challenge in the next 12months?
We are currently running the first security token offering with a securities prospectus approved by the German financial regulator. Investors of our token will profit from the returns of Bitbond’s global SME loan portfolio. We received a lot of positive feedback so far and raised more than one million Euros within the first 12 hours of the issuance. The next step is to turn this great start into an even more successful raise. After that, we will put our full attention to deploy the proceeds in the most profitable way in order to deliver a maximum return for BB1 token investors.
What’s one piece of advice you will give a project looking to launch a Security Token Offering?
The ICO hysteria of raising millions with nothing more than an early idea is over. Launching a successful STOs requires a lot more attention to detail, both with respect to the regulatory environment as well as to the maturity of your business model. Investors have become more cautious and want to see transparency and accountability. One thing has not changed: the success of your project stands and falls with the investor community you are able to build around it. Understand your target group and create a product that is both appealing and reliable.
This publication is for informational and educational purposes only. It does not offer investment advice nor should it be construed as investment advice. The information contained in this publication is not, and should not be read as, an offer, recommendation or solicitation to buy or sell any securities. Before making any financial decisions please undertake your own due diligence and seek professional advice.