Startupland’s Next World-Changing Idea: Monetizing the Poor

Subprime Lending 2.0



In an incisive blog post about Silicon Valley culture, Catherine Bracy, a former program manager for Tech4Obama recently wrote, “It feels like, and often is, a bunch of Stanford guys making tools to fix their own problems.”

There are, however, some exceptions to that myopic world view. Like the growing sector of well-funded startups profiting off the working class by re-imagining the pay day loan. Like every new tech market, this one comes with its own jargon. The founders behind camel case companies like ZestFinance, LendUp, and SpotLoan say they just wanna help the “underbanked.”

As Wired notes:

” . . . the market these startups have chosen stands out because of how starkly it contrasts with the privileged techie class seeking to profit off it: an industry awash in money deliberately targeting people who decidedly aren’t.”

But the startups argue that they’re using technology to make usurious lending rates less exploitative. For instance, using more detailed algorithms (or Facebook profiles–sound familiar?) to better assess risk of non-repayment–or user-centric design that offers more transparency about rates.

In some cases, the upgrade seems less technological and more about making the practice less predatory:

LendUp customers can file for an automatic 30-day extension if they can’t pay off their loan on time. Customers can’t take out a loan of more than $250 until they’ve shown they can pay off a loan of that size successfully, and they can’t roll over an unpaid balance into another loan, the infamous payday loan trap that sends already strapped people into a pit of revolving debt that’s practically Sysiphean.

Nonetheless, whether they can offer a significant improvement still remains to be seen. Wired points out that SpotLoan recently showed a 330 percent APR (annual percentage rate): $471 for a $300 loan paid back over three months. It’s less than your standard payday loans, which can have APRs of about 460 percent, but not by that much.

Like Jack Dorsey said, sometimes disruption is just moving things around.

Startupland’s Next World-Changing Idea: Monetizing the Poor