financial services

Lender of last resort

  • Why it matters

    Why it matters

    Kreditech is looking to expand its lending and credit-scoring services to new markets, with plans to launch operations in India early next year.

  • Facts


    • Kreditech chief executive Alexander Graubner-Müller co-founded the fintech with ousted Sebastian Diemer in 2012.
    • The startup uses thousands of data points to generate credit scores for “thin file” customers.
    • Based in Hamburg, Kreditech has granted some 1.5 million loans to private individuals.
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105304481_Alexander Graubner-Müller_Kreditech
Investors are hoping Alexander Graubner-Müller comes off better than his playboy co-founder. Source: Kreditech

Kreditech has a controversial business model. The company’s 29-year-old chief executive Alexander Graubner-Müller spends a good deal of time explaining how the company rates clients and gives them credit.

“We are a German technology company which, through its products in different markets – mainly emerging markets – offers lending to private customers,” he says.

The company’s motto, “financial freedom for the under-banked,” makes its mission sound almost charitable. Kreditech caters to a clientele with little or no credit history using unconventional ways to evaluate potential borrowers.

Since its founding five years ago, however, Kreditech has also attracted a good deal of bad press surrounding the company’s controversial approach to lending. Kreditech looks at potential borrowers’ Facebook friendships, among other factors, to score their credit. Based on that score, the company might offer them a loan – but in some cases with double-digit interest, which critics say is excessively high.

But that hasn’t kept Kreditech from securing the kind of high-caliber investors few German fintech firms can match. Besides World Bank’s IFC, the company counts US private equity firm J.C. Flowers among its backers, as well as Paypal founder and Donald Trump supporter Peter Thiel.

In May, the startup attracted fresh capital. Payment services provider PayU, owned by the South African media conglomerate Naspers, spent €110 million ($129.9 million) on a roughly one-third stake. Kreditech already operates in Poland, Russia, Spain, Mexico and the Czech Republic, and Mr. Graubner-Müller says there are plans to launch in India in early 2018.

Mr. Graubner-Müller noticed that e-commerce initiatives often stalled because banks shut out would-be borrowers with thin credit records.

Much of the company’s early public relations problems stemmed from its former chef executive, 30-year-old Sebastian Diemer. Photos surfaced showing Mr. Diemer posing with expensive sports cars and motorcycles, feeding the narrative of a fintech boss financing a posh lifestyle with high-interest loans to potentially vulnerable borrowers. He left the company in late 2015.

Mr. Graubner-Müller, formerly the firm’s head of technology, took over and is aiming to steer away from controversy. His lending philosophy draws on his previous experience working for the tech incubator Rocket Internet in China, where he noticed that e-commerce initiatives often stalled because banks shut out would-be borrowers with thin credit records.

To date, the company has granted 1.5 million loans totaling €350 million. It has also raised €240 million in venture capital to help cover its losses, which amounted to €28 million in 2015.

What investors love about Kreditech is how it looks at thousands of data points on the Internet to find information it considers relevant to a candidate’s payment history, even if the potential borrower has irregular income.

However, a short-term loan of up to 30 days can come with an interest rate as high as 30 percent. Polish customers, for example, pay 12 percent. According to Mr. Graubner-Müller, customers will take less risks if they accept high-interest loans.

“If we think that customers can’t pay back a loan,” he added, “we turn them down.”

Frank Drost is a Handelsblatt editor in Berlin, covering financial supervision and banks. To contact the author:

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