Zaim Business Model
Since obtaining its official status in 2011, Zaim has developed a bespoke IT system, created a distribution network and raised capital to fund its loan book. Zaim established branches in close proximity to densely populated residential communities in urban areas, as well as locations near to the transport infrastructure of Moscow.
Zaim has also developed a pre-paid product with MasterCard, “Zaim Express” card. The Company can transfer money online, directly to Zaim Express cards, or to the customers’ own banking cards or facilities.
Zaim’s strategy is to further diversify its offering taking advantage of the increasing availability of Point of Sale devices and online purchases that facilitate card payments in addition to the proliferation of mobile devices and improved access to the internet, which improve the retail customers’ ability to organise their finances online. All these trends have been further amplified by the “stay at home” approach taken by the authorities to contain the spread of COVID-19 pandemic, driving demand for food and goods delivery, educational, informational and recreational services.
After the successful IPO on the London Stock Exchange in November 4, 2019, Zaim received £2.1 million (after costs of £500k) and is well positioned to increase lending volumes and scale up its business. As sufficient investment has already been made in Zaim’s IT systems, the Company is able to cope with a much larger volume of loans with only a small increase in operational expenditure and benefit from the use of low-cost digital marketing.
COVID-19 prevention measures in the first half of 2020 reduced business activities, which had negatively affected Zaim’s business, particularly in offline segment. At the same time, online segment showed positive dynamics growing by 9.2% in Q2 2020 compared to Q1 2020 and record-high monthly issuance in June 2020.
Management had developed and implemented the strategy focused on optimising the business model and ensuring maximum return to the shareholders. It includes shifting focus from high fixed cost offline business model to more flexible and scalable online operations, reducing administrative costs, speeding up collecting process and issuance optimization.
Lockdown has certainly accelerated changes in customers habits and attitudes. As well as in all European countries, Russian citizens have strongly increased their migration from “physical” activities to “on-line” and we have seen this migration reflected in our client base especially on categories which were traditionally “reluctant” toward on line services.
Management has monitored this evolution and after accurate analysis has promptly taken action aimed to maximise profitability and returns for investors and all stakeholders, including a strong consolidation of our stores network by closing the weakest performing stores and directing customers toward an online business model. We have reduced the number of stores from 92 outlets as at March 31, 2019 to 31 by July 31, 2020.
As part of the integrated strategy between the distribution channels, Zaim has significantly improved its online platform, allowing customers to receive and repay loans via the internet or by phone in less than 10 minutes without leaving their homes, which is an important option in the era of social distancing caused by the pandemics.
Aligned with this strategy, management has re-allocated resources and improved the online business unit team.
Starting from July 2020 we have seen a continuation of the positive trend of demand recovery with business volumes reaching record highs due to the increasing focus on online business model.
The Group’s strategy includes the maintenance of its core stores to enable lending to higher quality customers (with comparably low historic defaults), including a number of repeat customers at a similar level along with the accelerated development of the Group’s online platform.
The physical and online business model should allow for growth in the lending book and the number of loans made without the capital and operational expenditures of a purely store-based model. In addition, the Group continues to refine its lending and credit ratings’ criteria based on experience to reduce default rates and thereby improve operating margins. The Directors believe that these factors will enable the Group to grow revenue and operating margins.
Furthermore, Directors believe that there is a potential to increase revenue by increasing store utilisation (by servicing more customers and issuing more loans in one store). This can be achieved by adjusting the scoring system to increase loan provision.
The Group’s main strategy is therefore to develop and improve its online offering and to increase the number of customers obtaining loans online. A significant portion of future funds available are expected to be used to grow the online loan book using targeted online lead generation and search engine optimisation. It is also the group’s strategy to develop the Group’s online presence to enhance its attractiveness and differentiate it from the competition. The Board will aim over the next 12-18 months to continuously grow the online loan book, which can be achieved with minimal further capital expenditures as a result of the historic investments made by Zaim in its IT platform. The Board believes there is a significant opportunity to gain market share compounded by the number of competitors being reduced due to increased regulation.
In 2019, Zaim as an MCC gained access to the Russian Unified Identification and Authentication System (USIA) for client identification checks in respect of loans not exceeding 15,000 rubles. The USIA is a state-controlled system commonly used by Russian citizens to access various state services, such as online payment of state duties and fines, various remote registrations and applications. An individual may use the USIA for the purpose of confirming their identity and Zaim can therefore rely upon verification provided by the USIA.
In addition, since October 01, 2019, Zaim as an MCC has been able to connect to the State database in order to make a request for cross verification of data provided by the customers for verifying the mobile phone number of the customer through an acknowledged secret text. This change also enables Zaim to carry out these cross checks through banks or other credit organisations. Access to these cross checks is particularly important as they enable Zaim to take on clients without necessitating a face-to-face meeting. Bypass of the requirement for ‘face to face’ meetings and the acceptance by the Company of self-certified ID documents enable the Group to provide an online offering to customers in other parts of Russia in a manner which is reliable and less susceptible to fraud.
Going online will enable Zaim to access customers outside of the urban areas where it has a physical footprint, with minimal additional capital or operating cost. Zaim also intends to use the proceeds of the IPO to increase distribution of the Zaim’s Express Card within targeted locations based upon consumer data and to its increasing online customer base.