The formula of most of these companies is the following: "Show us your smartphone and our application will determine your ability to pay".
Smart phones can drastically reduce the cost of loans, since applications that contain generate enormous amounts of data of texts, emails, GPS coordinates, publications on social networks, purchase receipts, and so on, which brings thousands of subtle behavior patterns that correlate with compliance or non-compliance of payments.
Even variables such as the frequency with a user to recharge the phone battery, the number of received text messages, the number of kilometers that travel on a certain day or how to add contacts in your phones - the decision to include last names correlacionaría with the ability to pay of the user - can influence the decision to grant a loan.
Branch.co is an example. This company offers an application for Android in Kenya allowing users to apply for credit and obtain approval and access the funds immediately. Loans amount, on average, to $30, enough so that a taxi driver pay gasoline or a fruit vendor in question was merchandise. Branch applied an interest of between 6% and 12%, depending on the creditworthiness of the borrower, that usually pays the loan in instalments ranging between three weeks and six months.
By comparison, traditional microcredit tends to be much more expensive - interest rates often exceed 25% - in part because the creditors should visit borrowers on-site to evaluate your ability to repay. Banks have remained on the sidelines of this operation because of the high cost of the construction of physical branches.
New loan application-based companies are backed by some of the most powerful names in Silicon Valley. Branch, which was founded by Matt Flannery microcredit pioneer, has received funding from Joe Lonsdale, co-founder of Palantir Technologies, a data analysis company. InVenture, based in Los Angeles, is led by a former officer of the United Nations and is funded by investors from risk Chris Sacca and Zachary Bogue. Saida is funded by Y Combinator, an incubator of new firms. And Omidyar Network, an investment firm and a foundation established by Pierre Omidyar, founder of eBay Inc., has a stake in Lenddo, a lender that determines solvency through the analysis of social networks like Facebook.
To install these applications on their smartphones, users authorize them access to any information that can help you evaluate your creditworthiness, from the content of their texts and emails to the duration and volume of your calls.
InVenture algorithms, for example, found that users who are waiting until after 10: 00 h to make calls - night when the rates are more low-are lower risk borrowers. Somewhat against what you might assume, Branch found that users who are known to make bets - something that the application can determine when scanning messages or payments to gambling companies - are more likely to repay their loans than non-players.
LOANS FOR SMES
In addition to micro-credit, many of these start-up help fund local small businesses. Some of the customers of the Branch and InVenture in Nairobi (Kenya), for example, have access to banks, but perceive that the conditions that can be obtained over the phone are better. Others had previously requested money to neighbors in Exchange for high interest rates.