IMPULSE-DRIVEN MICRO-LOANS BY SMS The Ferratum Model

WHAT IT MEANS TO RBC? very-short-term loans with high fees Quick turnover of deployed capital (outcome relatively similar to securitization) No financing renewal risk Credit risk similar to normal loans but holding period excessively shorter Differentiation in the market place Reduced churn rate

very-short-term loans with high fees

Quick turnover of deployed capital (outcome relatively similar to securitization)

No financing renewal risk

Credit risk similar to normal loans but holding period excessively shorter

Differentiation in the market place

Reduced churn rate

FORCES IN PLAY Competition: micro-lending institutions  Need to make the availability of cash as quick as possible (10 minutes) Substitutes: Credit cards cash advances  Need to apply directly on checking accounts of customers Barriers of entry: Available liquidity may deter entrants (deposit base?)  low Power over Suppliers: HIGH – depositors do not decide on capital deployment strategies Power over buyers: HIGH – customers in impulse / emergency needs cannot negotiate

Competition: micro-lending institutions  Need to make the availability of cash as quick as possible (10 minutes)

Substitutes: Credit cards cash advances  Need to apply directly on checking accounts of customers

Barriers of entry: Available liquidity may deter entrants (deposit base?)  low

Power over Suppliers: HIGH – depositors do not decide on capital deployment strategies

Power over buyers: HIGH – customers in impulse / emergency needs cannot negotiate

IMPLEMENTATION Integration of SMS / IVR extension of banking platform Automation of loan-making decisions Automation of credit rating (is credit rating necessary?) Marketing: targeting impulse / emergency scenarios Budget estimation: $1,000,000

Integration of SMS / IVR extension of banking platform

Automation of loan-making decisions

Automation of credit rating (is credit rating necessary?)

Marketing: targeting impulse / emergency scenarios

Budget estimation: $1,000,000

ROI Loan portfolio $1,000,000 From equity (risk capital @8%) $80,000 From deposits / others $920,000 Gross Interest spread 2% Utilization of portfolio 98% Interest income $19,600 Provision for losses 0.50% Income from loan portfolio $14,600.00 Administrative cost 0.60% Income before tax $8,600.00 ROE 10.75% Loan portfolio $1,000,000 $10,000,000 $100,000,000 $1,000,000,000 Net Income $8,600 $86,000 $860,000 $8,600,000 CAPEX $1,000,000 $1,000,000 $1,000,000 $1,000,000 ROI 0.86% 8.60% 86.00% 860.00% Periods (years) 116 11 1.16 0.12

RISKS Possible adverse reaction from market: RBC = vultures (especially with current economic situation) Security perception of using communications technology Mis-fit with main RBC customer base (high net worth) Regulatory: possible to avoid “predatory lending” issues through price structure

Possible adverse reaction from market: RBC = vultures (especially with current economic situation)

Security perception of using communications technology

Mis-fit with main RBC customer base (high net worth)

Regulatory: possible to avoid “predatory lending” issues through price structure