The best commercially disruptive ideas can blossom in unlikely conditions. Travis Kalanick was inspired to found Uber while waiting for a taxi in Paris. Mark Zuckerberg’s breakthrough was getting Ivy League undergraduates to tell one other they were single. And Anar Chinbaatar’s revelation happened one day when he went out for a smoke.
“People – friends of mine – kept asking if they could borrow money,” he says. “One day, it happened, and I thought: ‘why don’t I just set up my own lending company?’”
So he did. A tall, quietly imposing Mongolian with a long history as a serial tech entrepreneur, Chinbaatar convinced investors to back him and asked friends to join him.
He registered the name LendMN in 2016, raised $3 million from Japanese investor Satoshi Matsumoto and hired a coterie of well-connected advisers, including Robert Cater, a US-born microfinance expert who co-founded Ulaan Baatar-based XacBank.
Now he wants to parlay his success with LendMN into building a pure digital bank operating in Mongolia and across much of emerging Asia, focusing on markets with poorly developed financial systems, such as the Philippines and Myanmar.
“I want to prove that Mongolians can really succeed on the world stage,” he says.
“When I tell people I am Mongolian, they assume I live in a tent and go to work on a horse. It makes me angry all the time. I started this company with the aim, not of disrupting lending, but of disrupting Mongolia’s image. I want to show the world who we are as a country – to show them that we, too, can succeed.”
Whether or not he wanted to be a disruptor, that’s what he has become.
Like all Mongolians, Chinbaatar could see the fault line in the banking sector. Opening a bank account was simple enough, but getting access to credit was, for most citizens, well-nigh impossible.
The poor and the young struggled to borrow money to get ahead, or simply to pay their bills. Itinerant herders, lacking collateral, were rebuffed by an archaic financial sector lacking a universal credit scoring system.
Those unable to make ends meet were forced into the hands of loan sharks, once reckoned by Cater to number “1,000 or more – though we have managed to kill a lot of them”, or one of the country’s estimated 750 credit unions and non-bank financial companies.
Anar Chinbaatar, LendMN
“Informal lending is way bigger than the formal lending sector,” Chinbaatar says. “Our aim with LendMN was to assemble a bunch of tech geeks and figure out how to get lending to work for the people, and also where ‘the people’ – the financially under-served – actually were.”
This proved surprisingly easy. LendMN opened its doors in April 2017 as a payday lender issuing small, unsecured loans, using an algorithm that Chinbaatar and a small tech team built from scratch in just five months.
Any lingering doubts evaporated almost immediately. More than 5,000 loans were issued to customers in the first week alone. During its first 18 months in operation, LendMN disbursed 590,000 loans (average size: $70) to capital-hungry citizens. In November 2018 alone, it issued a little under 90,000 loans, taking the total value of its outstanding loan book to Tug15 billion ($5.8 million).
That might seem a piffling sum when you consider that Khan Bank, Mongolia’s best and biggest lender, had an outstanding loan book of Tug4.2 trillion at the end of September 2018.
But that overlooks the firm’s sheer impact on Mongolia’s mainstream banks. At first, most of them were happy to dismiss the young upstart. Sure, it was doing well. But, they reasoned, it was just a payday lender. It lacked the brand, the loan book, the sophistication and the sheer scale. After all, where were its branches?
LendMN’s reaction echoes Pep Guardiola’s approach to rough-and-tumble English soccer. When asked why his teams played beautiful football instead of clattering opponents, the Manchester City coach sardonically responded: “What’s tackles?”
In the same vein, the fintech firm decided it did not need branches. It has one showroom in Ulaan Baatar, which is handy, says Cater, “in helping to show people who we are, where we are, and how our app works. But it’s not a branch. We don’t do them.”
Lending is done the new-fangled way, via a smartphone or tablet. Once a form is completed, Cater reckons, it takes between one and three minutes to approve a loan, and under two seconds to cash it out. Everything sits atop LendMN’s AI-based credit scoring system, which gets bigger and more precise and complete all the time, and a blockchain-based payment system also built in-house. It’s deceptively simple, cost-effective and wholly transparent – everything the digital world should be.
Cater contrasts LendMN’s speedy approval process to the five days it takes a Mongolian lender on average to assess a customer’s creditworthiness and disburse a loan.
Our aim with LendMN was to assemble a bunch of tech geeks and figure out how to get lending to work for the people, and also where ‘the people’ – the financially under-served – actually were- Anar Chinbaatar, LendMN
Mainstream lenders, he says, are “running scared of us. The disruption is real, and the banks are beyond frightened, though they are doing their best to catch up.”
In fact, the reaction at the big banks has been mixed. Some clearly admire the firm’s disruptive gumption, while others have worked quietly but assiduously to undermine LendMN’s reputation and cast aspersions over their business model.
During an interview in Ulaan Baatar with Asiamoney, the chief executive of a first-tier lender bluntly accuses them of theft.
“They got a lot of their customers by stealing people’s personal information from banks,” the CEO says. “They went to banks and stole customers data – what that person spent, what they owe and so on – and on that basis, they worked out how much they should lend and to whom. Our banking sector is very young and it’s prone to abuse. The banks complained to the regulator of course and called it what it was: an unlawful act.”
Chinbaatar says the banks got together in the wake of LendMN’s launch to find ways of taxing or blocking the upstart.
That the Bank of Mongolia, the financial regulator, ignored the banks’ collective complaints and lobbying efforts is perhaps unsurprising, given that everything LendMN did was actually above board – and even executives at several of the top banks admit this privately.
When the allegations are presented to the fintech firm, Cater replies: “Take out the word ‘stolen’ and it’s all perfectly true. Under Mongolian law, just as is the case in, say the UK, we are allowed to ask the bank account holder to give us one-time, read-only access to their account. It allows us to analyse a customer’s spending behaviour. We explicitly ask the customer for access. If they do [grant it], they do; if they don’t, they don’t.”
But it is often the perception, rather than the truth, that causes the damage, and LendMN spent its early months expecting a knock on the door.
“Our fear early on was that [the regulator] would cancel our licence,” says Chinbaatar. “The banks are more powerful here than the Mongolian government.”
A $2 million initial public offering on the Mongolian Stock Exchange in February 2018, underwritten by the local broking arm of South Korea’s Mirae Asset Financial Group, proved wildly popular, pulling in $27 million in orders, including $20 million from retail investors.
“It was the fastest IPO in history, I’m pretty sure,” says the firm’s founder. “We got together in January, said it would be done in a month, and everyone worked like crazy. We got big names on board to lend it prestige – EY, PwC, and [Singapore-based law firm] Rajah & Tann.”
The shares have nearly doubled in price since launch.
Why the rush? Surely the company didn’t, at that point, need the money?
Chinbaatar nods sagely. “It wasn’t done to raise funds. It was a defensive manoeuvre.”
The wider and deeper LendMN’s bench of shareholders, the harder it would be for regulators to shut them down.
Other banks tolerate the new firm’s remarkable rise with good grace, using it as an excuse to invest in their own digital offering. That is certainly the case with Khan Bank, which is also LendMN’s main banking provider.
“Are we worried about them? Not really,” Khan Bank’s chief executive John Bell tells Asiamoney. “They are a payday lender right now, no more. I’m from Chicago, and we have them on every street corner.
“But I welcome the competition, and they help us – help me – to be better. I can say to our team: ‘Hey guys, we are a very big bank but we need to think like them: to adopt their practices, to streamline and innovate’. We are Goliath and they are David, and they would love to have what we have. But I want us to think like them; to disrupt ourselves, before they do it to us. Complacency is our biggest threat.”
Bell is keen not to fall into that trap. Khan, he says, kickstarted its digital strategy two years before he arrived in 2015. But there was much still to be done, and even now, he admits, “there are parts of Khan Bank that are already in 2020, and other parts that are still in 1975”.
The glaring need for a single, clarion voice in digital was met when Bell hired Pankaj Patel, a former head of technology at ANZ, as chief information officer in March 2018.
The two had worked together at ABN Amro in the middle of the 2000s, and Bell describes him as “not just a techie, but someone who thinks about the entire business, about the new fintech model”.
Bell aims to transform Khan into a banking-led digital conglomerate.
“We have a unique opportunity here,” he says. “When I was in London a year ago, I told an old mate from my days at Citi that I wanted Khan to be Mongolia’s financial services superstore. She replied: ‘Why don’t you become the Amazon of Mongolia? A place you bank but also order everything from pizza to plane tickets.’
“So that’s what we’re doing: we aim to be the country’s most consumer-centric organization.”
We are Goliath and they are David, and they would love to have what we have. But I want us to think like them; to disrupt ourselves, before they do it to us. Complacency is our biggest threat- John Bell, Khan Bank
LendMN, in turn, sees Khan as an institution to respect and emulate.
“They are a kick-ass financial institution,” says Cater. “They did very well during the most recent crisis” that stretched from 2013 through to the IMF-led bailout of 2017.
This mutual admiration is understandable. Both financial institutions have similar origin stories, having started life as providers of basic lending or banking services to the itinerant and financially disenfranchised. Khan’s roots lie in the steppe, where it is the chosen partner of farmers and herders. Likewise, LendMN has focused on gaining market share in the hurly-burly of life beyond Mongolia’s towns and cities: 60% of its customers live out in the countryside.
The firm has its head office in a low-rise, brutalist concrete building in western Ulaan Baatar. Inside, it is all bright pastels and funky furnishings. A conference hall on the second floor would not be out of place in Silicon Valley or in the TV show ‘Dallas’, circa 1981. Outside, an imitation British red telephone box offers calls to nowhere. Spanner-shaped sofas and a foosball table complete the picture.
But the office backs onto the kind of social housing where LendMN finds its customers.
Chinbaatar says the typical customer is “a 28-year-old female with two children. She is mostly tech-savvy, in that she has a smartphone; she is responsible, in that she has to feed a family; and she is reliable, in that she has some form of consistent income.”
Unsecured lending, the team is quick to add, does not equate to irresponsible lending. Cater points to the high rejection rate, noting that the firm turns down around 40% of the people who apply for loans. And along with the absence of physical branches, the firm also, he adds, employs no traditional-style credit officers. “We have credit experts who tweak the algorithm based on the good or bad behaviour of customers,” he adds.
A default rate of 1.6% compares favourably with an industry-wide figure in Mongolia of between 6% and 7%. Cater notes proudly that the firm hasn’t yet had to write off a single loan, though that means little at this point in its development.
While its customer base is impressively broad, the firm’s loan book is too small to glean a deeper sense of the long-term strength of its business model, or the financial acumen of senior management.
Besides, it sprang to life the same month Ulaan Baatar agreed terms with the IMF on a desperately needed bailout. How it operates during one of the country’s bruising recessions, when regular customers clamour for capital or threaten to default, remains to be seen.
But so far, it’s smooth sailing. The firm has avoided lavishing too much money on promotions and marketing. LendMN advertises on local television and has a robust presence on Facebook, but Cater reckons about 35% of new business comes from referrals from contented customers.
The day before we meet, the firm organized a corporate shindig, hosting existing and potential future financial and commercial partners. He says: “1,600 people showed up. There were at least 10 people from every Mongolian bank, and the finance ministry showed up in force.”
We are very, very close to becoming a bank – that’s the end goal- Anar Chinbaatar, LendMN
New products are being rolled out, and ambitions constantly reviewed and upgraded. A peer-to-peer lending platform was launched in November, as well as a digital wallet that customers can use to pay bills and buy coffee and groceries, and which can be topped up via any of the big commercial banks.
“We offer zero-fee transactions for consumers and vendors,” says Cater. “Why would you pay to move your own money?”
If all goes to plan, another step-change will happen in early 2019, when the central bank is set to decide whether or not to award new banking licences to a handful of new digital lenders.
LendMN has lodged its application; so too has MCS Group, a local mining-to-telecoms conglomerate that spent $5 million on a credit-scoring system from Korea-based digital lender K Bank.
“Becoming a bank is definitely on the horizon,” says Chinbaatar. “Nothing has been decided yet, but we have secured first-stage approval from the Financial Regulatory Committee”, an influential seven-member supervisory panel that reports directly to parliament. “We are very, very close to becoming a bank – that’s the end goal.”
By now it’s dark outside and the temperature has fallen sharply, so he offers a lift back to the city in his voluminous black Range Rover.
Chinbaatar is the same in private as he is in public: quietly spoken, intense and engaging, but unsmiling. Inching along in dense traffic as the snow piles up outside, he outlines his plans for the future.
LendMN’s roots might be in the frozen steppe, but it is part of a larger holding company, AND Global, which is headquartered in Singapore. This was a conscious move by the founder that reflects both the difficulty of operating an international business out of the Mongolian capital and his outsized ambitions.
Chinbaatar wants to build a pure-play digital bank with operations across emerging Asia, focusing on markets with backward or incomplete financial systems. The group secured a Philippines banking licence in August 2018 and is aiming for a soft launch of its digital wallet there in early 2019, with plans to push into microfinance.
An application to operate as a non-bank financial institution has been lodged with the authorities in Myanmar.
He now employs 150 staff, most of them based in Ulaan Baatar, but with others located in Manila, Yangon, Singapore, Silicon Valley and Tokyo, where he is mulling the rollout of a purely digital micro-lender.
As the group expands its payroll and footprint, it is casting around for fresh sources of capital. In November, the group’s in-house technology development platform, AND Systems, raised $2.8 million by selling convertible bonds, also underwritten by Mirae Asset Financial. Beyond that, he says, AND Group is targeting an IPO on the Nasdaq “by 2020”.
Unlike some driven technology entrepreneurs, wealth and power seem not to be his primary motivation. Nor is the desire to disrupt, though LendMN is clearly doing a great job of that. The concept of failure does not faze him – there is something very US West Coast about his proud boast to have founded 16 companies, including MLab, his blockchain project and accelerator. Of that number, he says, 10 have failed.
Rather, his energy and drive come from a deeper and more old-fashioned place: love of country.
“We have no empire any more. Genghis Khan was a great warrior, but he lived 800 years ago,” Chinbaatar says.
Perhaps it is time, as TE Lawrence, another great warrior-poet once said, to be great again – but this time, as leaders in the digital world.