The Loanbase team has been working hard to make big steps forward! The lenders are often faced with a common problem of trust and this trust is often built over time. They must rely on a small number of trusted borrowers, and since they’re trusted, those borrowers are given much lower interest rates. Investing in a small number of borrowers leads to lack of diversification. Combined with lower interest means that if any of those borrowers fails to repay their loan, then lenders experience losses which are impossible to recover from. The lenders often express concerns that the credit ratings don’t help them sufficiently in order to make the necessary diversification. Lenders have also asked about collection, and it’s something we’re working on, but won’t be addressing it until we see sufficient results. With this release, we aim to give lenders an opportunity to easily diversify by relying on our new credit scoring and risk-based pricing!
New Credit Scoring
Our credit scoring has been in need of a re-vamp for a long time and our team has been heavily focused on doing so. With the new credit score we are now able to much more accurately predict defaults, which should be welcome news for the lenders. We have implemented industry standard ways to measure the reliability of our credit scoring.
Within our Application scorecard, we have achieved a GINI score of 0.68:
Our Behavior scorecard has a GINI score of 0.78:
This is our first iteration with a standardized scorecard measurement and we’re extremely happy with the results. However, we will continue to work on improving the credit scoring, so we can allow our lenders to properly control the risk. We will provide another blog post with a bit more information on how the new credit score differs from our old one.
Note: the new credit scoring will not be retroactively applied, this means that only the new loans will be scored by the new scorecard. It’s important to note that creating loan requests just to test our credit scoring can negatively impact your credit score, please avoid creating “test” loan requests.
Lenddo Integration: The missing piece of the puzzle!
We’re also glad to make another big announcement! We have integrated with Lenddo (https://lenddo.com), world’s leader in using non-traditional data for credit scoring and online verification globally. Specifically, Lenddo excels in markets where traditional credit scores and collateral frameworks may not exist. Founded in 2011, they have grown to have offices in Manila, Bogotá, Mexico City and New York. Lenddo’s investors include Accel Partners, Blumberg Capital, iNovia, Metamorphic and Omidyar Network – behind the world’s top technology companies, from Facebook and Groupon to Kiva and Prosper.
We’re working together with Lenddo in order to provide our borrowers with an easier ways to verify their identity and demonstrate their creditworthiness. But the massive benefits extend to our lenders as well, who have had a tough time of determining the risk associated with each borrower! Lending with Bitcoin has long lacked the sophistication of credit scoring we see in the fiat world, and our integration with Lenddo’s is a massive step towards revolutionizing the way lending is done in the Bitcoin ecosystem. We’re extremely excited about our partnership with Lenddo, it was the missing piece in the puzzle of Bitcoin lending!
The suggested interest rates are going to be fully adjusted for the term of the loan. Lenders will be able to earn the approximate expected yield, given that they maintain a well diversified portfolio and charged the suggested interest rates.
Based on the improved credit score, we are now able to accurately estimate the expected yield from each loan grade. The expected yield assumes that the lenders maintain a well diversified portfolio and charge our suggested rates.
We have also simplified the way the interest rates are calculated, by using the simple interest rate formula. Borrowers can now fully estimate how their amortization schedule will look and how much the loan will cost them with our new payment calculator!
The fees are going to be between 1% (for A-rated loans) and 5% (for E-rated loans), with the fees increasing by 1% for each drop in credit rating. We have also set a maximum fee we can charge, this way large loans cannot be charged excessively.
The credit rating page will be heavily modified to reflect the new credit scoring, fee structure and it will include the payment calculator.
Creating your loan listing is now easier and much more streamlined. The Loan Listing Wizard will guide the borrowers through 3 simple steps.
Borrowers had a difficult time figuring out what they had to do in order to improve their credit score. We now have a separate page, which allows them to improve their credit score. They can access the page, while they’re going through the Loan Listing Wizard. Please keep in mind that the credit score on your profile is only updated after you make a loan request. However, if you’ve connected more social or trust websites, and you want to check if your credit score has improved, you can do so by going to going to the loan listing wizard and filling out the first part of the loan request form. The page will dynamically show your new credit score.