The Berlin-based peer-to-peer bitcoin loan company Bitbond has raised a seed round of €200,000 ($267,270) to develop its platform, with investors including Point Nine Capital and BillPay CEO Nelson Holzner.
Like BTCJam and BitLendingClub, Bitbond allows bitcoin holders to lend their cryptocurrency to others for interest. Founder and CEO Radoslav Albrecht sees big “crowdlending” opportunities in emerging markets, where small businesses may lack traditional bank accounts and find it hard to get a loan – he told me that Bitbond will initially set its sights on Latin America.
“Global loan market”
According to Albrecht, bitcoin’s advantage over traditional currency is its thorough internationality. “With bitcoin somebody from Costa Rica can access a global loan market,” he said. “That’s only possible with bitcoin. With dollars or euros it takes too long and is too expensive.”
He also noted that localized virtual currency schemes like M-Pesa tended to rely on a single issuer (Vodafone in M-Pesa’s case), whereas bitcoin is decentralized and cannot be devalued by a single entity.
The big difference between Bitbond and its rivals is that, while others let lenders determine their own interest rate, Bitbond works this out itself based on borrowers’ credit scores. It does so based on statistical modelling and, on an individual basis, through documents like payslips and tax assessments, as well as connection with social media accounts – the more information the borrower provides, the lower a risk they’re likely to present.
It’s taking this approach because, while Bitbond expects early lenders to be bitcoin enthusiasts who “want to support projects around the world,” Albrecht said the long-term plan is to tout for institutional lenders.
Getting your money back
“On Bitbond we determine the interest rate based on the credit assessment,” he said. “The main reason to do it this way is we want to claim towards the lenders with diversified portfolios, that they can get return of around 10 percent. That’s only possible based on risk-based pricing.”
Bitbond itself will take between 0.5-3 percent of the loan amount, depending on the duration of the loan.
And if borrowers don’t pay lenders back? Well, that’s an obvious risk inherent to this business. According to Albrecht, the first step is to try talk it through with the borrower, and if that fails then Bitbond will sell the debt to a collection agency – as long as it’s over a threshold of around $300, so it is worthwhile to do so.
If it’s a smaller amount, then Bitbond will “disclose the identity of the borrower to the lenders so they can take legal action on their own behalf.” If you’re dealing with a small business on the other side of the world, good luck with that.