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During the past 20 years, the author has watch China move from being a developing country into an industrial superpower
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U.S. payday lenders in the U.S. will issue $40 billion in loans in 2016, up from $33 billion last year, according to a report this month from JMP Securities LLC.
ZestCash said last week that it raised $73 million in equity and debt financing from investors such as Matrix Partners and Victory Park Capital. About two-thirds of the capital will be used to finance loans. The service is currently available in four states, and the company is working with regulators to expand into additional states this year.
BillFloat has raised in $16 million from investors, including Venrock Associates and EBay Inc.’s PayPal unit. It’s now in talks with investors for another funding round, said Chief Executive Officer Ryan Gilbert.
The startup is teaming up with banks, utility companies and cable providers to provide loans specifically to pay bills. When customers apply for a loan, they agree to let the company look into their checking account to analyze money flow. The company’s software looks at bill payment history, plots debits and credits, and determines the likelihood of a timely repayment.
“There’s a huge demand for alternative credit,” Gilbert said. Banks are “dependent on FICO and risk models that are trying to be one-size-fits-all.”
FICO, based in Minneapolis, says its scores aren’t meant to assess a person’s ability to pay.
“The vast majority of lenders use FICO scores to help them assess the likelihood that a consumer will default on a credit obligation within the next 24 months,” said Craig Watts, the company’s public affairs director. FICO also is working with CoreLogic Inc. to develop a new type of credit-risk score that relies on a broader range of data.
BillFloat charges a fee of $5 to $15 to process the bill, plus 3 percent monthly interest, and it requires that the borrower pay BillFloat back within 30 days. Banks may see enough value in his technology to eventually license it, Gilbert said.
LendingClub, co-founded by former Oracle Corp. executive Renaud Laplanche, also peers into applicants’ checking accounts. Much of the company’s technology concentrates on fraud detection, developed with the help of Chaomei Chen, the former chief risk officer at JPMorgan Chase & Co.’s credit card unit.
LendingClub, which began issuing loans in 2007, focuses on lenders with better credit and offers interest rates that are less than half the average credit-card rate. In August, the company raised $25 million from investors, including Union Square Ventures.
“There are just so many things that aren’t covered by the credit score,” said Ian Cohen, CEO of San Francisco-based Credit.com, who has worked with LendingClub. “If I can engage the user, I can learn if they are bad risks right now. I will also see positive things that the bank might not see.”
Levy is a reporter for Bloomberg News. Campbell is a reporter for Bloomberg News.
