Business & Industry Risk
Peer to peer lending is a nascent industry in Indonesia, as such there are a lot of uncertainties and challenges associated to it.
As a new and growing company with limited operating history we face challenges, uncertainties and expenses:
Competitive environment in the industry
Hiring and retaining key talents
Effectively using our limited resources
Developing and improving our credit scoring algorithm
Attracting new users and increasing the transaction volume in our platform
Maintaining the security of our platform
Scaling and maintaining our risk management
If we fail to achieve one or a few of the goals above our operations and our ability to continue operating may be hampered. These may result in a drop in service quality which may adversely affect the value of the loans you have funded.
Service interference from our Providers
We use various third party providers and combine them to provide a complete service solutions for our platform. This includes our broadband connections, server hosting, security tests, and fund transfer services. Any breakdown or service intervenes, from any of our providers may result in a decrease of the service quality we provide to our users. While we have scrutinized and picked qualified Providers, there are always risks that our Providers experience unforeseen incidents which might cause service disruptions.
Our ability to attract new users and key talents and hence grow the platform depend heavily on our reputation and keeping a positive public opinion of Peer to Peer Lending and our brand. We may experience events from external factors which may or may not be of our faults which could generate bad press and affect our reputation.
Our team enshrine values of transparency and integrity in everything we do, and aim to only add people with similar values into our fold. However, as our team grows our standard may be more difficult to maintain across all of our team. Any security breach, internal or external, or misconduct from a member or our team may result in the loss of trust from our users.
Borrowers may provide misleading, inaccurate or incomplete information. We screen our borrowers for such behavior and attempt to verify their information in an efficient manner. We do this by deploying novel technological solutions and sampling some loan applications and verify the information in a conventional way. These novel solutions have not had a long track record, and may not be 100% accurate. As such, there are risks that borrower fraud may still occur in our platform.
There are risks that fraudulent activities happen in our platform. We deploy safeguards and technological solutions to prevent such activities, however they may be insufficient to accurately detect and prevent them. However, if one or more of such events materialize it may negatively impact our reputation.
Our platform is not the only peer to peer lending or crowd funding platform in Indonesia. In the event that any of the above events happen to other similar platform in Indonesia or other places, the reputation of the peer lending industry may be adversely affected and result in the loss of trust from our existing users and discourage potential users.
Our credit rating algorithm might not be accurate
A significant part of our loan assessment process relies on a machine learning algorithm to assess the loan applicant’s character, verify the information he submitted and assess his ability to pay back the loan. Our algorithm was developed, and continue to evolve using past and present data as it learns from experiences and try to predict the future.
This makes it susceptible to several errors. The input data may be misleading or inaccurate. The relationships between a borrower’s ability to pay back and his or her circumstances and character are unique combinations, which may not be applicable to people with differing circumstances. Disruptive events such as economic recession, financial bubble, or natural disasters may result in larger than expected errors in our algorithm. In such events the credit rates we have assigned our loans might not accurately reflect their risks and lenders may face losses larger than expectations.
Loan Default Rates may be above our expectations
Default is an inevitable part of lending activities. There is no system that can guarantee a 100% loan repayment rate. If our default rates increase lenders may incur losses and find it unattractive to continue participating in our platform.
Interest Rate Fluctuation
Interest rates in the industry may fluctuate from time to time and goes in line with prevailing economic conditions. Drastic changes to the interest rate may make borrowing or lending on our platform less attractive in which case we may have difficulties maintaining our service levels.
Cyber-attack, viruses, break-ins
Our platform may become a target for cyber-attacks, viruses or malwares and break in, of electronic or physical nature. These may impair our ability to protect users’ information and the perpetrators may use this information for criminal activities. Such events may result in expensive litigation, bad publicity or more expensive security costs, which may impair our operations.
We deploy security measures and contingencies and employ consultants to do penetrations testing to simulate such events in order to ensure a high standard of security in our platform. However, no system is absolutely secure and breaches may happen at some point of time.
Our Business could be significantly affected by catastropic events
Such events may result in damage to our offices, servers, or injury to our employees, and this may result in our platform experiencing delays or even being taken offline temporarily. While we have processes for disaster recovery in place, it will take time and effort to bring services levels back to the same level as it was prior to the disaster event.
Our operations depend heavily on functioning internet and telecommunication infrastructure. Catastrophic events such as earthquakes, flooding, terrorism, riots, and others may damage these infrastructure and cause disruption or temporary stoppage to our services. These events may affect user’s experiences and may cause losses to lenders.
Borrowers may repay loans ahead of schedule
Our platform allows borrowers to repay their loans ahead of schedule without any penalty. If that happens, the borrower only repays the principal outstanding, and thus you will need to redistribute the funds to other loans in order to earn the appropriate APR during the original loan duration. To understand more about the concept of APR, please follow the link. APR Explained.
Third party data
We rely on some third party data to obtain data for our credit scoring algorithm. We vet our partners carefully and trust them for providing good data. However, we do not have control over their processes and there may be lapses in the accuracy of the information they provide to us which will result in the reduction of the accuracy in our assessment of the borrower.
We rely on sophisticated software to process and automate a large chunk of our operations. It will be often updated for new features to better serve our users, and we test every iteration and improvements prior to deployment to ensure the quality of the user experience in our platform. However, our process is not perfect and from time to time there may be errors in our codes that make it to our platform.