LendUp Offers Friendlier Alternative To Payday Loans – Liz Gannes – Commerce

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Two half-brothers from Oakland, Calif., One who worked at Grameen Bank and Citigroup, the other at Yahoo and Zynga, combined their banking expertise and web applications to create a more user-friendly version of payday loans.

And they raised some great quality money to launch it.

LendUp, which launches today in California, will provide loans of up to $ 250 for 30 days to people with poor credit.

LendUp has raised an undisclosed amount of seed funding from Kleiner Perkins Caufield & Byers, Andreessen Horowitz, Google Ventures, Thomvest Ventures, Kapor Capital, Bronze Investments, Founders Co-op, Data Collective, Y Combinator, the Start Fund and others, including the debt that the company will use to finance its customers’ loans.

LendUp is not shy about sharing the pricing of its loans for its own clients: Basically, borrowers will be charged interest of 15% of the loan amount, minus a small discount for early payment.

The average default rate for credit cards is 7-12%, says LendUp CEO Sasha Orloff (he’s the bank’s brother), and LendUp expects to see rates higher than that.

But the company says its secret sauce – besides a user-friendly, modern website and internal customer service – is how it calculates risk based on personal data, and how it will bond with someone over time. time to shift it to safer loans. . For starters, LendUp expects to approve 15% of applicants.

Credit card companies and banks are the primary data miners, so it’s not necessarily clear to me that LendUp will be of benefit. The stepbrothers were hand-gesturing as we got to this part of the interview in their office in Union Square in San Francisco.

But beyond data, the site also uses “gamification” – challenges and rewards, courtesy of Jacob Rosenberg, the brother who was at Zynga – to try and scale loan recipients over time.

Jacob Rosenberg, Technical Director of LendUp

The half-brothers argued that it is this long-term relationship that will make LendUp a good business. Over time, borrowers can get better loans and build their own credit.

They face competition from existing payday lenders, as well as start-ups BillFloat and ZestCash – although these companies help pay the bills and provide low-risk installment loans, so that’s not exactly the way to go. same thing.

What is the market opportunity for this? It’s not tiny at all. In the United States, 15 million people subscribe to “small credit” products, with $ 44 billion in payday loans expected in 2012, according to the Center for Financial Services Innovation and the Center for Responsible Lending.

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