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Darth Awesome
Gallente
MicroCred Inc
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Posted - 2010.05.23 15:20:00 -
[1]
Hello,
I am currently rolling out a MicroCredit bank with a friend, and we are in need of input on some ideas. I've been lending ISK to friends for a while now, and I am interested in expanding to the open market. The idea is:
1) Small loans for first time customers, no/little collateral, 200-500 mill ISK. Only real requirement is a good business plan and/or good relations to current customers.
2) Larger loans to regulars, current max is 8 billions.
3) 3 month loans, with an interest rate of 15% for 3 months. Interests are paid each month.
Obviously, scammers are a thing to look out for, but the idea is that the interest rates cover small time scammers. I also require a lot of chatting with the potential customer, trying to weed out scammers.
I have turnover of over 60 billion at the moment, earning an estimated 2,2b in April. My regular customer base is giving me enough profit to increase the risk by moving to the open market. My total capital is around 230b, the move won't ruin me anyway.
So, my idea is not so much to profit, but be a service to new(ish) and old players of EvE in need of fresh ISK. I've blown up enough **** and caused enough tears in this game already, and though it would be time to spread a little love.
So, to all of you banking sharks and whatnot:
How to build reputation as a new player on the banking market?
What are the pitfalls?
Got any smart move against scammers?
Last but not least, on a mac: Excel or Numbers?
Just looking for general input, all and everything is welcome.
---EZ |
Richard Cadrell
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Posted - 2010.05.23 15:44:00 -
[2]
 Originally by: Darth Awesome
How to build reputation as a new player on the banking market?
You dont need reputation when u just give away money and hold no collateral.
Originally by: Darth Awesome
What are the pitfalls?
Once you stated that you have no problem with handing out up to 8 billion if you know new customers better i think there will be enough players willing to pay you back 200m loans and chat with you as long as you want to rip you for the 8 billion.
Originally by: Darth Awesome
Got any smart move against scammers?
Hold C-O-L-L-A-T-E-R-A-L
It worked with friends because you know where to go when they dont pay back.
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omgfreemoniez
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Posted - 2010.05.23 16:31:00 -
[3]
People will take your isk and run, and they won't even get a rep for scamming for it, because MD will find their action justified and that you deserved it for being stupid.
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Takemikazuki
Drecc Faegen
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Posted - 2010.05.23 16:32:00 -
[4]
Another lolbank? Why don't you just give out free ISK as charity instead - spares you the hassle of dealing with non-collateralized loans to strangers.
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Ray McCormack
Nordar Innovations.
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Posted - 2010.05.23 16:47:00 -
[5]
Trust me, banks don't work in EVE. They fail miserably each and every time.
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Darth Awesome
Gallente
MicroCred Inc
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Posted - 2010.05.23 19:11:00 -
[6]
Edited by: Darth Awesome on 23/05/2010 19:11:33
I can really feel your enthusiasm. The ting is, I know eve is full of **** and banking is badass hard to run. The goal is not to make another lolbank, to go big or anything like that. All I want is some guidance for opening up a small business to the market. And no, I am not opening this week, nor this month, maybe never. I am just looking for input at this time.
Back to the point, 100% collateral will be required for loans above 500 mill, less collateral for lower loans, say 80% for all bellow 500 mill. I already require +80% collateral on all current loans, from people I trust. I don't do charity.
The idea isn't to do big loans, or make tons of money or fame. I've done that. It is about helping the fellow pilot, thus running the microcredit model with a low(ish) bar of entry.
So back to brainstorming, this is what I might run with:
Max 3 months loan duration
5% Interest per month
200 mill - 400 mill loans; 80% collateral
500 mill - 1000 mill loans; 100% collateral
The idea is, new customers have to loan and pay back 200 mill - 400 mill to be eligible for larger loans. Is interest of 5% low? Market average seems to be around 10%
On another note, is anyone running similar small scale banking?
---EZ |
Colog
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Posted - 2010.05.23 19:27:00 -
[7]
I would limit the loans to characters who are in a significant, trustworthy corp. No Alts. Maybe even talk to that corps exec and ask about the person. It should cut down on scammers to chose people from corps who won't stand for that kind of thing, and people who have a stable corp membership are less likely to cut and run.
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SetrakDark
Northstar Cabal
OWN Alliance
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Posted - 2010.05.23 19:35:00 -
[8]
you will lose all your money
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Darth Awesome
Gallente
MicroCred Inc
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Posted - 2010.05.23 20:11:00 -
[9]
Originally by: Colog
I would limit the loans to characters who are in a significant, trustworthy corp. No Alts. Maybe even talk to that corps exec and ask about the person. It should cut down on scammers to chose people from corps who won't stand for that kind of thing, and people who have a stable corp membership are less likely to cut and run.
Thanks, great input Colog.
Originally by: SetrakDark
you will lose all your money
Want to bet isk on it?
---EZ |
SetrakDark
Northstar Cabal
OWN Alliance
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Posted - 2010.05.23 20:34:00 -
[10]
Originally by: Darth Awesome
Originally by: SetrakDark
you will lose all your money
Want to bet isk on it?
If there was a reasonable way to arrange a bet about it, sure. My guess, and hope, is that you'll stop before you lose everything. However, your long-term expected capital from non-collateral-backed loans to strangers is zero.
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Darth Awesome
Gallente
MicroCred Inc
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Posted - 2010.05.23 20:53:00 -
[11]
Originally by: SetrakDark
Originally by: Darth Awesome
Originally by: SetrakDark
you will lose all your money
Want to bet isk on it?
If there was a reasonable way to arrange a bet about it, sure. My guess, and hope, is that you'll stop before you lose everything. However, your long-term expected capital from non-collateral-backed loans to strangers is zero.
Setra, you are absolutely correct. Any long-term expected capital from non-collateral-backed loans to strangers will go towards zero. However, I do collateral-backed loans with RL/gaming friends now, and will definitely continue to take collateral when/if I decide to open up to the public.
---EZ |
Phoebe Halliwel
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Posted - 2010.05.23 20:57:00 -
[12]
Originally by: Darth Awesome
So back to brainstorming, this is what I might run with:
Max 3 months loan duration
5% Interest per month
200 mill - 400 mill loans; 80% collateral
500 mill - 1000 mill loans; 100% collateral
The idea is, new customers have to loan and pay back 200 mill - 400 mill to be eligible for larger loans. Is interest of 5% low? Market average seems to be around 10%.
cosmoray and Bad Bobby do/did collateralised loans on MD, but their rate is typically 6% interest with 110% collateral.
The collateral itself is an issue as people may use the loan service as a shortcut to dump high value/volatile items they have problems selling. There is a loan request somewhere on the front page of MD at the moment with moon mats as collateral, and there was someone a while back who wanted to use a titan BPO, which he appeared to have been trying to sell below NPC.
Other thing to consider is how you value collateral; BPOs should probably be valued at NPC, and T2 BPOs you'd probably have to be fairly careful in case you get stuck with one that doesn't sell frequently/isn't considered a worthwhile one to hold. It's probably worth assessing the collateral side with a view that every loan will default, and how easy it will be for you to liquidate. You might also be able to use the collateral (say BPOs with research can be put in copy under secure conditions, T2 BPOs you could produce from, etc), but that might be complicating things a little, depends how well set up you are to consider that. When it comes to things like ships or faction/officer mods I'm drawing a blank as it appears really risky, only needs a patch or a significant shift in game for items to become volatile.
Originally by: Darth Awesome
On another note, is anyone running similar small scale banking?
Short term credit corporation
Not sure how that one went on?
Might be worth checking MD for a while; there are plenty of loan requests that pop up, you can approach people direct and discuss terms, rather than attempting to launch a business, and see how you go on.
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SetrakDark
Northstar Cabal
OWN Alliance
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Posted - 2010.05.23 21:18:00 -
[13]
Originally by: Phoebe Halliwel
Originally by: Darth Awesome
On another note, is anyone running similar small scale banking?
Short term credit corporationNot sure how that one went on?
It was profitable, but not a viable business in terms of efficient use of funds. There are so few trustworthy people and everyone is so close that it basically ended up as me price-gouging my friends.
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cosmoray
Bella Vista Holdings Corp
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Posted - 2010.05.23 21:55:00 -
[14]
I am still going.
The only way to be successful is 110% collateral.
Only accept collateral that holds a minimum value (BPO's, ships, etc)
Never touch minerals, by products, moon goo.
I currently have 128B ISK loaned out with over 200B ISK in collateral (including a nice shiny Hulk BPO against a 60B loan). Having a good loan book is very handy for passive income as I have been away about a month and barely log in at present.
Anything less than 100% collateral and you will get ripped off.
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Bloody Rabbit
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Posted - 2010.05.24 02:11:00 -
[15]
I have to agree; sometimes when I come up short on isk I hand over a bpo for isk and that is with friends.
If you are not holding something then there is no reason for them to pay you back even if they are the CEO of a major corp in a big alliance, everyone will just laugh at you for being stupid and you will learn after you lose your isk.
I am a trusted member of my corp and we lend out small amounts 1-2 bill to other trusted members but that is short term and if they steal we have their assets in a player station in 0.0 so the motive to steal is much lower than the motive to pay it back.
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Mme Pinkerton
United Engineering Services
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Posted - 2010.05.24 06:58:00 -
[16]
Edited by: Mme Pinkerton on 24/05/2010 07:01:24
Originally by: Darth Awesome
Obviously, scammers are a thing to look out for, but the idea is that the interest rates cover small time scammers. I also require a lot of chatting with the potential customer, trying to weed out scammers.
I understand you are talking about uncollateralized loans here...
Have you ever heard of adverse selection?
For "good" customers the process of raising capital in MD (with all the hassle and scrutiny that entails) is (hopefully) relatively cheap. On MD they can expect to get a significantly better interest rate than you offer them (partly because they can pit different potential creditors against each other in a Dutch auction, partly because MD fails at reasonable pricing of risk; the investors you compete with won't try to compensate their losses through higher interest rates). The best of your potential customers have a very attractive outside option and are probably not going to use your service at all.
The only people who have a reason to pay your interest rates are the "lemons": those who either have legit intentions but something to hide and those who don't care about the interest rate at all because they are not going to pay you anything.
So, the good customers won't buy from you and only the mediocre to bad customers remain - the obvious solution to this is to raise the interest rate to compensate for the additional risk - which leads to a even worse selection of customers.
At the end of the day your only clients will be the scammers as they don't care whether your interest rate is 5, 15 or 50% per month.
tl;dr trying to compensate for scams with a higher interest rate is probably not going to work, it only leads to a higher proportion of scammers using your service.
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TaffyEater
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Posted - 2010.05.24 10:25:00 -
[17]
Hey man it's a great idea, don't let the haters get you down!!! If you ever open it up give me a ring and I will be your number 1 customer.
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SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2010.05.24 15:13:00 -
[18]
I don't know if any people will spring for 200-500mil loans. The reason is people that need that low amount of ISK probably don't have the skills, knowhow, ability to repay it. Those that do, don't need a small loan.
You might want to target a more focused audience one that can actually pay back the loan, and would have collateral. I'd say from 1-5bil would be more targeted group. People who have the need to 1B ISK and collateral would have the skills, and knowhow to actually pay it back. It's also a small hurdle in EVE, the 1-5B mark the ISK comes in but they can often expand a bil or two to do more of whatever they are doing, they just lack the capital.
Stick with a more specific group of people and you might make a good go of it.
Amarr for Life |
Bad Bobby
The Dirty Rotten Scoundrels
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Posted - 2010.05.24 16:00:00 -
[19]
Originally by: cosmoray
I am still going.
The only way to be successful is 110% collateral.
Only accept collateral that holds a minimum value (BPO's, ships, etc)
Never touch minerals, by products, moon goo.
Same here.
I assume every client will default and proceed on that basis.
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Barbicane
TGUN Industries
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Posted - 2010.05.25 17:25:00 -
[20]
There seem to be plenty of people ready to invest in non-collateralized bonds or IPOs if there is a half decent business plan and interest rate is high enough so I don't understand why pretty much the same people are so quick to shoot down a wanna-be bank doing the same?
Just because the last guy who tried the micro loans thing crashed and burned doesn't mean it will never work.
The trick is finding a way to weed out the scammers, as well as building a good enough reputation to attract real, honest customers instead of just scammers. It won't be easy, but I'm sure it could be done.
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flakeys
DRAMA Inc
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Posted - 2010.05.25 17:36:00 -
[21]
Originally by: Barbicane
The trick is finding a way to weed out the scammers, as well as building a good enough reputation to attract real, honest customers instead of just scammers. It won't be easy, but I'm sure it could be done.
It can't.
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Tehg Rhind
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Posted - 2010.05.25 20:01:00 -
[22]
The only players I can think of that would need small loans that would (assuming absence of scammers) be low risk are mission runners upgrading from lvl 2 to lvl 3 and lvl 3 to lvl 4. Market traders wanting to borrow small amounts are inherently risky because they are new to trading.
The problem with mission runners is that they wouldn't have enough collateral to eliminate risk from scammers. However (and I don't know this industry well), if there are mission running corps they could maintain a credit line with you with their collateral being their ability to use your services for their younger members. You would only be able to work with more established corps but their may be market there.
Other than that slim possibility I can't see another way this would work.
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shakedatazz
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Posted - 2010.05.26 11:06:00 -
[23]
Edited by: shakedatazz on 26/05/2010 11:06:55
Is interest of 5% low? Market average seems to be around 10%
...
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Entrepaz
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Posted - 2010.05.26 11:47:00 -
[24]
Above is the big problem with asking a community if they like something new before it actually exists.
THere are valid criticisms strewn around ultra-conservative fear mongers.
It's a micro credit business. There's no reason it can't work, you are just going to have to be creative.
Goodluck! I suggest a few things:
-limited/API + user ID key and list of alternate accounts. You monitor the character on Evemon. This way you know immiediately ifyou've been ripped off (I hope)
-Done with Trial, over 1.6 mil skillpoints.
-Part of a player owned corporation and backed by that corporations garauntee.
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SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2010.05.26 13:38:00 -
[25]
Originally by: Entrepaz
There are valid criticisms strewn around ultra-conservative fear mongers.
If ultra-conservative pessimism got us rich then I guess we're all ultra-conservative fear mongers...
I gave my advice based on logical conclusion, if you need 200mil and can't afford collateral, how can you even hope to pay it back? That's not ultra-conservationism, that's reality, and one which would drive this worthy idea into the ground.
What you're suggesting is blind carefree optimism. I'm known as a bit of a dreamer but the difference between dreaming and optimism is... I know my perfect idea will never see the light of day, you're suggesting just go do it anyway and ignore warning, ideas that are there to help him achieve what it is he wants to do.
If the only advice the OP takes from this entire thread, take this - "Don't let anyway sway your personal judgement on something you truly believe in. However, don't just ignore everything, consider what each and everyone of the responses address, pass you own conclusion on what they suggest and go from there."
No Optimism, no fear mongering, just logical wisdom..
Amarr for Life |
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