ICO Analysis of Ripio (RCN) — Creating a global P2P credit network
Ripio (formerly BitPagos) is a Buenos Aires-based fintech startup which is seeking to implement a global P2P credit and lending network on the blockchain.
Ripio claims to already have over 100,000 users in Latin America which utilize its bitcoin exchange and credit products.
In brief, the Credit Network they are developing has a requirement of several parties to successfully execute the contract:
- Borrowers who seek to establish a line of credit
- ID Verifiers who perform KYC checks
- Scoring Agents that assist in determining credit risk
- Co-signers who underwrite the risk of the credit default
- Lenders that put up the capital being loaned
The company positions its value proposition as a lower cost, faster and more efficient alternative to traditional lending institutions (particularly for the ‘unbanked’ market).
Token Sale
There will be a total of 1 billion tokens issued under the code RCN. As of October 11, Ripio has raised approximately $31m in its presale (~425m tokens).
There are approximately only ~85m RCN available for sale on the official ICO date at this time.
Based on the above figures the market cap will be approximately ~$70m at completion of ICO depending on the ETH price.
The use of proceeds has been stipulated with the vast majority of funds being used for development, legal and marketing.
Tokens for Investors
Tokens issued by Ripio (RCN) play a central role in the ecosystem for the following reasons:
- RCN is used as the platform currency for the payment of ID Verifiers and Scoring Agents
- RCN is used for various transactions between the wallet provider/agent as well as the Cosigner (in the form of premiums)
RCN will be distributed at the close of the token sale.
Commercial Strategy
Ripio already have an established track record in the market dating back to 2014. The commercialization from a high-level view is heavily focused on the following:
Product development: Ongoing development of the Ripio credit network to complete the full streamlined credit approval cycle
Market penetration: A significant amount of capital will be used for marketing the services, which are anticipated to be both domestic and international to Latin America
More specifically, the roadmap illustrates swift execution in the coming six months.
- October 2017 : TGE and Network Release + Crowdsale
- December 2017: Full Scale Completion
- March 2017: Network Development (marketing and biz dev)
Management
The vast majority of the team have been together since BitPagos began. The CEO has been quite active in the startup community for a number of years. Ripio also includes a number of high profile investors/advisors that have backed the company previously in a venture capital capacity.
Strengths
Ripio’s Credit Network offers a unique variation to general P2P lending systems with regards to the ‘Cosigner’ component which, theoretically, adds a further layer of security and legitimacy to the business model.
The geographical region they are deploying in provides a strong case for success. Some sources indicate that over 400 million people (or 70% of the population) are ‘unbanked’ in Latin America and the Caribbean, yet the number of cellphones in some regions is upwards of 1.2 per capita.
Ripio (formerly as Bitpagos) has an extensive history of seed/Series A venture funding from well-known participants such as Tim Draper, Pantera Capital and Funders Club.
The company has a track record of delivering on their development and commercial promises with an existing and growing active userbase.
The team made it to the finals of a pitch at the Techcrunch Disrupt Battlefield in 2016.
The use of proceeds detailed in the white paper appear to be justified considering the stage of business they are in.
The team are supported by an advisory board with extensive experience in fintech and lending.
Weaknesses
While the Credit Network process has been well thought out, it is quite complicated and requires several parties to be involved for a lending deal to be successfully executed. This process includes lenders, cosigners, ID verifiers etc. While the population of the geographic region they are targeting is significant, we can’t confidently say that there will be sufficient volume and liquidity of ‘people’ to take on these roles, nor that there will be a significant spread of lenders (initially) to take the other side of the deal.
With respect to the above, it is possible that the marketing allocation (19%) may be too low to successfully penetrate the initial market.
The white paper notes that in the event of default, the cosigner can seek to commence recovery via traditional channels. While we understand defaults are not anticipated to occur frequently due to the scoring system, we do see this as a potential risk to market adoption of both cosigners and possibly lenders. Furthermore, the white paper indicates a level of complexity for those seeking to take a ‘cosigner’ role, suggesting that reduction of credit risk will actually occur by diversifying further and guaranteeing several loans (at least 10) to reduce the probability of singular exposure default risk.
Conclusion
Ripio presents a speculative buying opportunity for investors seeking exposure to an innovative product in a large emerging market.
We are attracted to the history of the team, the product development to date and the success they have had over the past three years.
The participation by well-known venture capitalists and private equity firms since 2015 also provides some confidence of an established business model as well as adding a thick layer of credibility to the teams past.
Picolo Research are bullish on Ripio in the medium/long term as the roadmap indicates an extremely fast and agile development process, which suggests market deployment as early as Q1 2018.
While we remain very positive with regards to the above aspects, we do wish to highlight some small concerns:
The ecosystem of participants within the network is quite large and complex (at first sight). We believe that further education of this will be needed for successful market adoption. An increase in their allocation towards marketing may also help with this.
When analyzing the case study in the white paper, it uses an example loan amount of ~US$2900. This is large in comparison to some of the other ‘micro-finance’ solutions being developed in the market (Everex). We believe that a focus on a larger ticket-size of loans may increase legal fees and possibly deter peer lender adoption due to an increase in risk.
The role of the ‘cosigner’ is similar to the underwriters of the insurance and finance world. There is a level of risk here which is usually covered by an actuarial-backed finance institution. To counter this, we envisage the possibility of such ‘cosigning’ evolving into an institutionally packaged product should the margin prove to be sufficient.
Notwithstanding the preceding risks and concerns, we maintain a positive outlook on Ripio in the medium and long-term based on their track record, funding and commercialization strategy.
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