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The Bond Helps Lower Interest Rates on Loans by Tapping into Your Social Network – TechCrunch

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Good financial, a social lending start-up founded by alumni of PayPal and Prosper offering loans to customers at lower interest rates, has raised $ 3 million in new funding, according to a filing with the SEC. The company also confirmed the details of the investment to us, noting that the cycle, led by Alex Rosen from IDG Ventures, in fact closed last year but had not yet been disclosed. Other investors contributing to what is characterized as a seed cycle include Greylock Partners, First Round Capital and a number of angel investors, detailed on AngelList.

Co-founder of Fastly and former CEO of Wikia Gil Penchina, who previously knew Vouch’s co-founders, was the first angel to invest in the startup and also sits on the company’s board of directors.

The startup is now one of many in the “alternative lending” space, which also largely includes Prosper, Lending Club, Kabbage (Karrot), Lendable, Zopa, Funding Circle, OnDeck, CAN Capital and many more. Some of the early entrants into this field were true peer-to-peer lenders, but today many more are “market lenders. “Some focus on personal loans, while others focus on small businesses.

However, Vouch is aimed at consumers and does not currently operate as a peer-to-peer or market lender – the money loaned to individuals comes from Vouch itself at this time. This choice is largely due to its “beta” service status. In the future, the source of financing for loans may change.

What the company does differently from its competitors is that it aims to leverage a person’s social network to lower the cost of loans.

The company was co-founded in 2013 by the CEO Yee Lee, previously of PayPal, Slide, Skype and most recently, VP of Product at Katango (acquired by Google) and CTO of One Jackson (acquired by TaskRabbit); Sue korn, previously Vice President of Finance and COO at peer-to-peer lending marketplace Prosper; and Hugues Olliphant, a long-time PayPal veteran who sold the company’s IP to his company gMoney in 2003. The Vouch Financial team also includes several other executives and engineers from PayPal, Prosper and Google.

The idea with Vouch is to give consumers a way to receive lower interest rates on loans by having other family members and friends “vouch” for them.

Explains Lee, “It’s a bit of an old concept… to say that, if you’re the kind of person who is ignored by our current financial system, who do you turn to for help? Well, in general, your friends and family. Lee says what’s new about Vouch is this idea of ​​actually mapping that network and a user’s social ties based on creditworthiness within an app like his. “If we can help map this network of trust, then maybe these would be interesting relationships to build on to access financial services,” he adds.

Those who vouch for others will take a short survey that asks them to detail how they know you, the borrower, and how financially responsible they think you are. They are also asked if they will be willing to contribute if you become unable to repay your loan. (Answering “yes” is not necessary to vouch for someone, Lee notes.)

Sponsors can also sponsor loan recipients with a certain amount of money, starting at $ 25, or they can choose to offer a larger amount. In these cases, if you don’t repay your loan, these sponsors would pay this guaranteed amount back to repay the loan.

The startup looks at a number of explicit and implicit factors in determining the interest rate it offers a borrower using this social data, including how the “good guys” responded to survey questions, how quickly they responded to a collateral request for a friend, the answer voucher request rates, the overall size of someone’s network, the number of vouchers that took the extra step to sponsor a loan as well, and well Moreover.

During this pilot test period, Vouch offers installment loans of $ 500 to $ 7,500, repaid over a period of one to three years, with interest rates between 5 and 30%. It also examines more traditional criteria, including FICO scores and the status of the borrower’s other accounts. Borrowers must be legal residents of the United States and generally must have a FICO score of 600 or higher, be up to date on all existing accounts, and not be in bankruptcy or foreclosure proceedings.

However, Lee says that during testing some of those rules fluctuated, and he’s handled loans from all walks of life, from those who need it most to those who are just building credit.

There are also lower fees with Vouch right now, compared to some other lenders. The company does not assess an application fee, nor does it charge annual fees or prepayment fees. However, an origination fee of 1-5% applies when you receive your money, and the late charge is 5% of your payment amount (with a minimum of $ 15).

What’s remarkable about this startup, aside from the social aspect of the loan process, is that it initially targeted users through a mobile app. While it’s also available on the web, 70% of testers are on mobile.

Currently available on iOS, users can download Voucher application, sign up, then check their interest rate on a loan (without affecting their credit score), vouch for others, and ask family and friends to vouch for them in return.

Vouch has not yet been “officially” launched, although its website and app are live. The company plans to exit beta in a few weeks, says Lee, and will increase its loan amount to $ 15,000 in the near future.

Based in San Francisco and currently participating in the Fall 2014 session of StartX, Vouch is a full-time team of 19 people.