Kreditech, the German startup backed by Peter Thiel, Rakuten and the IFC thatcreates credit ratings and provides finance to peoplewho may not otherwise have credit histories, has raised another round of funding from one of its strategic partners. PayU, the payments company owned by Naspers that is known by some as the PayPal of emerging markets its business is mainly in providing payment services to online merchants is investing 110 million ($120 million) in Kreditech.
The companies are not officially disclosing Kreditechs valuation, but sources tell TechCrunch that its higher than the previous valuation (which we lastestimated was about 300 million) butless than 500 million. PayUs investment is mostly in equity, and it givesNaspers a minority stake in Kreditech. Kreditechto date has raised 242 million to date, including this latest 110 million injection.
Before this, PayU and Kreditech had already been working together, specifically in Poland, to provide financing options to potential purchasers on sites where PayU was powering payments. As CFO Rene Griemens describes it, services like Kreditech are important in economies where there is little credit card penetration nor existing credit histories, and so therefore limited options for how to pay for items over an extended period when you dont the money to do so up front.
The service in Poland issued 10 million in credit to users, and now theplan will be to expand this relationship to more markets where PayU operates. The company currently works with over 300,000 merchants in emerging markets in Asia, Central and Eastern Europe, Latin America, the Middle East and Africa, covering a potential footprint of 2.3 billion users.
Its specificallydevelopinga strongerfocus in India, where Naspers as part of a larger investment strategy in emerging markets acquired CitrusPayvia PayU for $130 million and has made other bets in e-commerce.
PayUnow competesagainst PayTM and others in capitalisingon a fast-growinge-commerce market. Offering more financing options as a part of the payment process is one way to help differentiate PayUand make it a more attractive merchant partner. (Notably, Kreditech has recently opened an office in India and is currently hiring to fill it out.)
Giving buyers (whether consumers or businesses)an option to take out financing for larger purchases opens up the prospects for buyers to even consider certain purchases, and reduces the likelihood of shopping cart abandonment at the point of sale. Griemens said that offering these kinds of options can double the conversion rate for some merchants in these markets.
We are excited to build a leading innovative online consumer lending player in high growth markets, said Laurent le Moal, CEO ofPayU, in a statement. With our substantial investment we deepen our relationship with the industry-leading management team at Kreditech, and help to bring pioneering machine learning and AI technology to the many high growth markets around the world that need better access to financial services. At PayU we believe in the enormous potential of technology to unlock credit and financial services for underserved populations. Naspers has made some 245 million in fintech investments globally via PayU in the last year, he added.
Teaming up with PayU provides underbanked customers new possibilities and supports our mission of providing financial freedom through technology, said Alexander Graubner-Muller, CEO of Kreditech, in a statement. At the same time, we enable retailers to reach a new customer group and significantly increase sales volume.
As weve described before, Kreditechs business is based on a big data play. To make up for the lack of credit history for most of its prospective customers, the company brings together various sources of other data some20,000 data points in all to triangulate and create a financial profile and credit score for the user to assess the risk of providing finance to that person, and setting a corresponding interest rate to that risk.
The morecynical mightsee loans to those who are of a lower economic bracket aspredatory, providing money to people who may not have the means to pay it back, and there have certainly been some companies that have contributed to that image. But themore optimistic see services like Kreditechsas giving an opportunity to those on the less advantaged side of the digital divide as a leg up and opportunity.
Over time, the theory is the Kreditechs big data platformwill continue to get more sophisticated and be able to make better decisions about who is best positioned to receive and pay back finance. Griemens said that the company has been shifting its loans over time.
We are currently moving towards lower interest rates, giving up revenuesin return for better quality customers, focusing less on subprime and more near prime, he said. The company will be publishing its annual results soon and from what I understand revenues are currently at just under 50 million.
The company is also looking at ways to introduce some of the same instruments that it is now offering routes to bypass. One of these is credit cards which also see low penetration in emerging markets because of the lack of credit profiles for average consumers.
Weare very open to these, said Griemens. He noted that Kreditech haschanged itsbusiness model over time to more of apartnership model, lending as a service delivered via an API, and this would likely be how it moves into card services, too.
We have tested credit cards, prepay credit cards, on the basis of our credit scoring and its a product that we might come back with in the future. Right now, the focus is to provide direct credit in the shopping basket becausethe customer doesnt have to go through the route of the credit cardcompany can transactdirectly.
Longer term, this partnership with PayU is one that could lead to a full acquisition. We would definitelyconsider acquisitions, said Griemens. Alot of companies now recognisethat it may not be as easy as previously thought to make money in the emerging markets financing sector, so we are very open to our options in future. We would certainlylook at a potential stronger combinationwith PayUin one form or another.