Delivering a Custom, End-to-End Lending Platform
Banking has deep roots. Ancient Egypt’s grain-bank was centered in Alexandria. Greeks stored their coins and family treasures in local temples. China’s earliest banks were issuing letters of credit as early as 221 BC.
These early banks also worked as intermediaries – keeping records and recording repayment terms – for loans between merchants and landowners to people in their community who needed capital to start or grow their business.
Banking evolved, becoming ever more complex and more global. The distance between the invested-in and the investor grew exponentially over time, as did the regulations governing the industry. In recent years, adhering to those stringent rules became the priority, casting an unfortunate shadow over the customer’s needs.
While people with big ideas and small money have stood the test of time. The concept of choosing to invest in those people, in your community, has faltered. The distance between the bank and the people it was meant to serve had become too vast.
This was the world the founders of Collin Crowdfund found themselves in seven years ago. One of the founders, Jeroen ter Huurne, worked in finance for decades. He was disillusioned with the industry and knew it was time to move on. He decided to start new and do something different.
Money for People
Jeroen ter Huurne decided to get back to banking’s earliest concept – getting money from people who have it to people who need it. He wanted to create an easier pathway for entrepreneurs to get access to funding and to provide investors with the opportunity to have more control over how they invested.
He knew that traditional banking, with its comprehensive and often restrictive regulations, wasn’t the right vehicle for their idea. So, ter Huurne turned to a digital-age funding concept to bring their old-world banking idea to life – crowdfunding. Crowdfunding as a concept goes back farther than you’d imagine, but the modern iteration really started in 1997 when a British punk band raised money over the internet to fund a US tour.
Collin Crowdfund Information Manager, Bram ter Huurne, said of their choice, “The founders saw a really big opportunity to do that in alternative lending. Both of them had already invested through crowdfunding on other platforms and they both saw a major opportunity in improving crowdfunding in the Netherlands. They really saw how fun but also rewarding it is to be able to help entrepreneurs in your own country. It’s also really nice to offer this kind of a solution to investors who normally would, perhaps save at the bank or invest in stocks.”
Crowdfunding provided the company with the ability to provide a faster, more accessible lending opportunity to established small businesses and a direct way for investors to support local entrepreneurs. However, a crowdfunding platform that left investors to assess investment worthiness by themselves wasn’t exactly the right fit. Collin Crowdfund needed to distinguish itself as a legitimate, if alternative, funding and investment option.
The founders’ years of experience in the banking industry helped shape the loan application and approval process. Collin Crowdfund came to build functionality that provides an accurate interest rate to applicants through their portal, with credit checks through Dun & Bradstreet and their own credit approval process to ensure investment worthiness. Their unique approach to crowdfunding is contributing to the evolution of an emerging investment category.
Of the merge between community-driven funding and traditional banking Jeroen ter Huurne said, “That’s why I always speak about crowd finance because different than pervasive (commonly known) crowdfunding, we are really operating like a bank. But we do that with bringing the people together.”
The Right Tech
From the beginning, Collin Crowdfund wanted a one-stop-shop application that could handle the back-office processes of loan application, manage all the necessary banking transactions, connect with the correct vetting and approval entities, and maintain a high level of security and compliance.
They looked into a several commercial-off-the-shelf (COTS) software options and a white label version of a large bank’s software, but both of those would have required extensive customization in order to get close to what they wanted and needed. They decided it was better to just build it themselves from the ground up.
The turned to low-code platforms for their speed to market potential and chose to partner with Mendix. Building their system on Mendix made it possible for Collin Crowdfund to launch as quickly as they could. The original development team built the platform in only seven months, something that would have taken much, much longer had they attempted to write out the whole platform in long-form code or customize a COTS solution.
Bram explained how they’ve evolved their application from its start as an MVP. “We started to build our platform and when we went live the platform had way less functions than it has now but the basics were there. And since then we continually kept developing.”
By building the application on Mendix, Collin Crowdfund was able to create a solution that was tailor-made to their specific expectations. This made it possible to build a back-end that incorporated everything they needed to process loans applications, create an integrated checking account for their investors, and ensure that their solution could grow and expand with their business.
Collin Crowdfund forged their own path in many ways, but they are still a part of the banking industry and are subject to high governance demands. The security of their own application was paramount, so choosing a partner with solid security standards and controls was vital. From the beginning, Collin Crowdfund leveraged Mendix’s built-in role-based user access settings to control who could view and edit sensitive information. To prevent any potential weakness in data integration points they also store all their sensitive data on the Mendix Cloud.
Security and protection were huge factors for Collin Crowdfund, but building on a low-code platform also means being able to quickly launch, test, and refine new features and continually improve functionality. Collin Crowdfund is perpetually evolving their platform based on feedback from loan applications, investors, and employees. Innovation is a constant and the result is a modern crowdfunding platform that is always getting better.
Because Collin Crowdfund built their application with their unique business model in mind, they were able to integrate a checking account function into their software. Once you sign up as an investor, repayments of interest and principal are stored in your Collin Crowdfund account, easing the experience of investing in further opportunities without frequent bank transactions.
A big differentiator between Collin Crowdfund and other community funding platforms is their vetting and approval process, which is another intriguing and wonderfully functional mix of person-to-person interaction and smart tech choices.
The Tech-savvy Human Touch
Crowdfunding started out as the digital version of passing around a hat for spare bills and loose change. Collin Crowdfund wanted borrowers to be able to apply for large loans that would significantly impact their business. And while there is always inherent risk in investing, Collin Crowdfund had to build trust with their investor base to warrant posting big-money loans.
They did that with a built-for-purpose solution that was easy to use – whether you logged in as an investor or a borrower – and through a loan approval process that is an balanced mix of finance and credit approval integrations and human interaction.
When a business owner applies for a loan from a bank, their applications is boiled down to a cluster of numbers – credit rating, percentage of potential investment, profit margins, and risk assessment score. Much of this is automated now and at the bigger banks many people don’t get past the first algorithmic appraisal hurdle. A person’s business and its potential are far more substantial than a clutch of numeric checks and balances. Collin Crowdfund knows this and provides a way for established small businesses to apply for loans that evaluates their potential value bases on the full sum of its parts, and not just the numbers.
Collin Crowdfund took the necessary part of traditional loan vetting – the credit approval, and the loan registration – and combined it in-person reviews and research. Collin Crowdfund has a five-part loan application process. The borrower does go through a credit assessment by both Collin Crowdfund and Dun & Bradstreet, both of which are integrated into their software. The last three parts of the process, however, are all completed by people qualified to evaluate a business’s potential.
The Crowdfund Coach goes onsite to the applicant’s business and completes a questionnaire in-person about their business, financial needs, and plans for the future. This information is uploaded into their software and then a Risk Coach reviews the potential borrower’s answers, the Crowdfund Coach’s notes, and their credit scores. The Risk Coach then makes a decision to pass the loan on for final review or not.
In the last step, Risk Coach-passed loans, and all the supporting documentation, are automatically forwarded to a group of the company’s board members for final approval. Once the Greenlight Commission gives the final sign off – the loan is scheduled to be posted on the company’s website for investment.
Growth and Trust
“When we started, I think we were the second crowdfunding platform in the Netherlands. Our first loan was I think €200,000 and it took us 40 days to get the money. We were actually calling friends like, ‘Please invest, please invest,’ because we had zero investors when we went live,” Bram reflected on their early days.
They started slow and built trust by focusing on posting good loans, not the most loans. Their instinct, innovation, and patience paid off – they’ve grown 40% year over year since they funded their first loan in 2014. Since they started, 99.6% of the loans they post are funded by their investor community and €235,354,500 in loans have been paid out to small businesses throughout the Netherlands.
They’ve come a long way from having to fire up the friends and family phone tree to rustle up investors. Now clients will go to extreme lengths to make sure they don’t miss out on a Collin Crowdfund loan. From the start the company has posted most of their new loans at exactly 11 o’clock.
Bram shared a story from the investor community about the intensity of interest in new loans. “For instance, some people tell us they’re driving on the highway and they see it’s three minutes to 11:00 and they stop at the parking and they wait till it’s 11:00. They check their phone to see if we’ve posted anything right at 11, ‘there’s no new loans, too bad’ and then they drive on. Because they know the 11 hour is Collin time and that’s something we just created. And to see that actually work and be a part of other people’s lives, I think is really rewarding.”
Crowdfunding to Crowd Finance
Banking is changing. FinServ and traditional banking are both experimenting with how distributed ledger technology can make asset exchange and data validation faster and more secure. Millennials are coming into their peak earning years. They are avid savers who mistrust banks, want to do all their financial transactions on their phones, and are eager to explore alternative investments.
Collin Crowdfund followed through on a great idea at the right time. Their model allows customers to have more control over their money, invest in their community, and manage all their account transactions from a built-for-purpose application optimized for mobile use.Crowdfunding as an industry is growing, particularly in Europe. As the industry becomes more mainstream and new crowdfunding ventures emerge, Collin Crowdfund wants to help foster their industry’s growth by whitelabeling their application.
A Winning Balance
Good – even great – ideas don’t always succeed. Collin Crowdfund took a lot of chances. They went all in on crowd finance, they built their entire application from scratch on a relatively recent technology, and they launched quickly with no safety net. And it worked.
Jeroen ter Huurne and his team succeeded in getting back to banking’s ancient roots – and they did it using a funding concept born of the digital age. Jeroen understands what it is to have a big idea and want to see it made real, “I think bankers are not people that take risks, entrepreneurs do. I don’t see myself as a banker. I see myself as an entrepreneur and our clients are also entrepreneurs.”
Now entrepreneurs in the Netherlands have a faster and more accessible pathway to secure funding and build their businesses. Investors can manage their own assets and help foster growth in local businesses.
Of his colleagues at Collin Crowdfund, Bram said, “We want to help ambitious entrepreneurs realize their dream and also offer investors a nice return on investment for an acceptable risk. And that’s exactly what we do.”