Week 44

During the previous week we moved forward with the project, and focused on the second iteration and its goals. In the summary, we:

  • Had a very productive meeting on Monday 30th October, which we have already described in the previous blogpost
  • Created a BMC model
  • Calculated some relevant estimates regarding our project
  • Presented our project once again on Friday 3rd of November
  • Met with our assistant Sofia on 6th of November (Monday as well) and had a group meeting focusing on the process, platform and its functionality

Third presentation (Friday 3.11)



Meeting with our assistant (Monday 6.11)

Now when the course is halfway through, we had a well-timed meeting with our assistant Sofia. We discussed more generally about the project, our contribution and the grading criterion. We were all very satisfied with our team and everyone’s efforts. More conversation arose about the weekly assignments and how fitting they are for the open topic group. Sofia told us that they were more like guidelines than strict criteria, and with good argumentation we can focus on the relevant subjects.


The goals for this iteration

After several weeks of debating and researching our customers, we’ve set the goal for the coming weeks towards concreting our ideas on what our service is. Likely we will still have  several, at least two, iterations before arriving at our final solution, but each coming week brings a host of fresh new ideas and insights regarding the direction of our work.

In last week’s post we outlined some initial goals for the following iteration:

  • Creating a Business Model Canvas (BMC) to identify all the different variables and stakeholders in this service
  • Doing financial calculations to validate our ideas so far
  • Performing more market research, especially to learn more about the borrowing habits of our potential customers

Good news, work towards all of the above goals is well under way. Lauri & Niklas have created the BMC, while Janne & Saska have done initial financial calculations. Juuso & Pinja launched the next round of market research in the form of a questionnaire, and initial results from it seem very interesting. So most of the goals we set last week will soon be fulfilled, but we have in the process identified several new avenues to explore during this iteration:

  • Doing financial calculations proved slightly difficult without a clear idea of how our service will be structured. How are investors onboarded, how do we ensure a continuous flow of investor money into our service, at what point in the loan event do we extract our own profits, and many more such questions arose. One goal for the current iteration will be to decide on all of these things, and to create an infographic or similar to visualize our service in an easy-to-understand way.
  • Ramping up the marketing of our borrowing questionnaire. We have received a fair amount of responses already, but most of the responses are from university students and/or friends of our team members. We created a company page on Facebook for our project, and aim to market our questionnaire to a broader demographic via the Facebook Ad engine, as well as gather a ton more responses.
  • Contacting legal professionals and financial authorities to validate that our concept is legally and technology-wise feasible. Our current idea is that the service would be in essence, legally speaking, an online gambling site, but we need to find out what implications this would have. Another goal is to continue contacting PSD2 experts to get a clearer picture of how exactly AIS (Account Information Services) and PIS (Payment Initiation Services) work.


Business Model Canvas

Business Model Canvas (BMC) is a template created for structuring and validating new and emerging business ideas. We used this template to validate our solution and to get more structure to our thinking. Check it out here: Business Model Canvas

Crunching the numbers

We did some initial number crunching based on the results we’ve so far gathered from our third round of market research on borrowing habits. The bulk of the answers in the questionnaire came from other Aalto University students, and the audience consisted mainly of 20-30 year olds. Based on this data, we did some calculations on how a market consisting of all of Finland might behave. This is only a rough estimation we arrived to by extrapolating the results from our study, and any interpretation should be taken with a slight grain of salt.

There are a few caveats:

  • The behavior of students and/or residents of Otaniemi does not necessarily accurately reflect the behavior of the same age group in Finland overall
  • The sample size of our study (n=120) is still rather small, so margin of error here is quite large
  • All loans in this scenario, for the sake of simplicity, are either 20€ or 100€, split 50/50

With this said, let’s get to the findings. First of all, let’s look at the age group consisting of 18-23 year olds.

  • 317 279 people aged 18-23 in Finland (StatFin)
  • Half of these people had needed a small loan at some point, so 158 639 people
  • The average person who needed a loan was interested in roughly 3,38 loans per year. This means that the potential amount of loans this age group could take combined comes out to 158 639 * 3,38 = 537 327 loans per year.
  • Members of this age group were willing to pay an average of 1,08€ of interest per loan

Based on these numbers, we can estimate that if our service provided all of the microloans in Finland for people aged 18-23, we would be able reach a total of 583 698€ in interest profits. Running the same calculations on the age group of 24-29 year olds, we arrived at a total interest of 493 082€, so slightly less than the younger age group.

So where does this leave us? Combining these two age groups our total profit potential in Finland comes out to roughly 1,07m€. We calculated the fixed costs of operating our company with a 6 person team with competitive salaries as roughly 362k€. Out of this total gathered interest we would need to first give a lion’s share to our investors, and then use the rest to cover the costs of operating our business.

So what are the main takeaways here? Clearly, even getting all loan activity from 18-29 year olds in Finland is not enough to make the business profitable. The good news is, without increasing the fixed costs of running our business, we could increase our customer base ten-fold, and the situation would already look a lot brighter. With 10,70m€ of total interest profits, we could take a 10% cut out of all of our investor’s profits, cover our fixed costs and still be left with 700k€ to hire a team of customer service agents or market our product. After all the directive making our platform possible is EU wide. It’s a numbers game.


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