Today’s blog post is heavily inspired by Daniel Tuba DSouza and his Substack “Macro Media Lab”
Problem: I recently read Daniel Tuba DSouza’s substack article on “No Bank Account No Problem: The $100B+ Unbanked Market.” In it, he writes a phenomenal analysis of “DeFi, Alternative Credit Scoring, and P2P Lending” while claiming that they “are revolutionizing finance in emerging markets for the 1.7B unbanked people around the world.”
He ultimately finds three things:
Emerging markets have high rates of internet penetration and high rates of unbanked or underbanked populations, creating a growth environment for fintech companies.
Blockchain networks like Solano, Cordano, and Polkadot are laying the foundation for decentralized finance (DeFi) in Africa and Southeast Asia. The industry is still early but has lots of potential.
Alternative Credit Scoring is enabling the creation of credit scores using mobile data instead of prior banking history. It is quickly being adopted in embedded finance and buy now pay later solutions allowing 1.7B unbanked people to access credit.
Let’s explore the ideas he wrote about in depth to understand the potential of unbanked technologies for revolutionizing and minting new businesses around the world.
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Solution: This business would enable more peer-to-peer lending supported by alternative credit scores for the more than 1.7 billion people in the world who are unbanked (i.e. those who don’t have access to a bank account). While we’ve written on this blog in the past about alternative credit scores, what this business would add is a peer-to-peer lending mechanism that is publicly available for anyone to lend to based on credit scores. This business would essentially be an anonymized marketplace for anyone to find potential lenders or clients.
Since this business would have two components, lets start with the alternative credit scores. Existing models exist (like the image below) for Alternative credit scoring or decisioning (ACD), so this business would import these insights (location data, asset ownership, social media, psychometric test data, etc.) while also adding new mechanisms and levers (frequency of payments, history on the platform, propensity for lending, etc.). Part of the large value of this business would be the ability to use a model of past behavior and psychological traits of individuals to accurately predict future behavior, even without the ability to track spending or previous loan history.
The second part of this business is peer-to-peer lending. While most platforms that exist in the FinTech space allow individuals to pay each other with existing cash (Square, CashApp, Venmo, PayPal, etc.), there are not nearly as many that allow individuals to create credit for other users or complete strangers. This would be the main innovation of the platform: a methodology for anonymized lending that can be repaid with marginal interest. While the largest competitors in the space would be banks, most traditional credit and lending institutions do not want to take the risk of lending to those who are unbanked.
Daniel provides a great list of major players in these markets. Including a List of Peer to Peer Lending Companies in Emerging Markets [(AntGroup ,China), (WeLab ,China), (Tala ,Kenya), (Jumo ,South Africa), (Koinworks, Indonesia), (Amartha, Indonesia), (Investree, Indonesia), (Moneytap, India), (Lendingkart, India), (Capital float, India), (Faircent, India), (Shubh loans, India)]; a List of Emerging Alternative Credit Scoring Companies in Emerging Markets [(CredoLab, Singapore), (EarlySalary, India), (InCred, India), (Geru, Brazil), (Nubank, Brazil), (Getbucks, South Africa), (Kueski, Mexico)]; and a List of Emerging DeFi projects - Decentralized Finance in Emerging Markets (Xend, Ethereum, Cardano, Polkadot, Solana, ShuttleOne, UniLend, PlotX, Polygon, Razor Network, and XinFin).
According to PR Newswire, the global P2P (peer-to-peer) lending market is expected to reach $558 billion by 2027. Combined with the number of unbanked people and the opportunities generated from alternative credit scores, this business could be a revolution in the industry.
Monetization: Percentage of transaction volume.
Contributed by: Michael Bervell (Billion Dollar Startup Ideas)