Even as a student at the University of Delaware, there are a lot of times the thought of money –how much I will earn upon graduation, what I will be able to afford, and whether I might be able to get a loan – come to mind.
That’s an important problem for the 40% of Americans don’t have enough savings to cover an unexpected expense as small as $400 (Federal Reserve, May 2018). Even for many who have jobs, they lack the means to cover broken down cars, leaking pipes, or any number of inevitable expenses that we don’t typically plan for. Loans could help them, but they don’t have access.
Just like kids out of college, the nearly 100 million Americans with poor or no credit history can’t get loans at banks, which have no way to distinguish the deserving from the risky. Banks are required to use credit history to assess borrowers, so without one deserving people have too much perceived risk. With no other options, many of these Overlooked people have been taken advantage of by PayDay loan businesses and see no way out of their situation.
Clearly, there’s a real business opportunity in bringing access to affordable loans for those who are deserving but lack a credit history and can’t get approved by traditional institutions. That’s where EasyFinance started.
Opportunity to pursue business concept at UD’s Horn Program
My project received a major boost this past summer. That’s when I was selected to take part in the University of Delaware Horn Program’s business startup accelerator Summer Founders. The program has helped hundreds of other students to launch many successful businesses.
Given time, resources, and support, I was able to spend long hours talking to people, make phone calls and travel to interviews. And I listen to financial specialists who have worked on this problem for decades. Coupling this with research, I learned quite a bit about this complex problem.
Challenges facing low-income borrowers
There are three big problems that need to be addressed for this problem to be truly solved. Many are already trying, but these solutions don’t connect.
Assessment. How do we identify people who can and want to repay reasonable loans without credit scores? Some companies measure income and expenses to assess ability to repay. Others leverage psychometrics or focus on relationships, forming one-on-one connections to build trust. These approaches have reduced default rates to as low as 3%.
Capital. If the money isn’t coming from banks, where does it come from? Many platforms have sprung up: crowdsourcing, peer to peer (P2P) lending, cryptocurrency networks, and portals to compare options. Another tool – green bonds – are often raised by governments or corporations with the goal of investing in socially impactful ventures.
Access. Even if you get a loan, many people lack a bank account or full banking services. Some Americans live in banking deserts – neighborhoods without any physical ATMs or bank branches. They require check cashing services to cash their paychecks. Online P2P platforms don’t reach people without a bank account. Some organizations are stepping in to fill this gap. They act as distributors, where they receive the direct deposit and hand off the loan in cash to the end borrower.
One unified solution
While each of these challenges is being addressed separately, there is no one unified solution. That is the opportunity I saw to create EasyFinance – a passthrough company to connect each of these existing solutions into one concerted response.
Because of my deep knowledge of the blockchain space and experience as an Economics student, I’ve figured out how EasyFinance can collateralize the cryptocurrency, generating the dollars for the loan. My near-term goal is to issue 10 profitable microloans by the end of this year using alternative credit assessment criteria. But my hope is that this takes off and is wildly successful across the country in just a few years.
Moving forward with EasyFinance, we’re looking for advice, connections, and other people passionate about extending affordable and accessible loans to the financially Overlooked. Beyond making money, there is huge opportunity in unlocking the potential of those who are Overlooked, helping make their lives better. And that’s worth working for.