By: Quentin Hardy
October 27, 2010
I have seen the future of money from money, and it is ZestCash. It is one of the Forbes Names You Need to Know for 2011
Actually, what I have seen was a homeless man I spoke with at a San Francisco gas station the other day. He was living in an alley in the Tenderloin, but had found some work at a radiator shop, and through Craigslist a room he could afford. Things were looking up.
I was struck by how casually he'd mentioned Craigslist, like it was one more part of his life. People in the most desperate circumstances, I realized, now take their access to the Internet for granted.
We talk about how much the Web matters in the developing world (I once wrote a cover story on telecom and MTV in Africa.) Maybe we need to think about what a difference I can make for the poor in our own country, too.
Enter ZestCash, and its ilk. I recently wrote about this company - it was formed by former executives from Google and Capital One, and aims to take on the Payday lending industry. Payday lenders loan the working poor money, typically for two weeks at a time, at what the industry says is 15-17%, or 391% a year (ZestCash, and some consumer groups, say it's even higher). That sounds high, but works out okay if people can make the two-week mark. They get nailed, however, in the very common event that they fail to make the payment, and have to continue the loan.
ZestCash, which operates through a website people in need of a loan access, says it can charge less, perhaps 300%, by better economic modelling and better risk management, using Internet-type search of non-obviouis data. They are particularly interested in covering the extended loan customers, who are the most at risk of being upended by short term borrowing.
ZestCash is not alone among new startups targeting poorer customers. I have also written about Ezetop, which sells a kind of prepayed mobile phone transfer to migrant workers in the developed world. There is Wonga, which is similar to ZestCash, and Billfloat, which limits the use of funds one can borrow to bill repayment. L2C does the analytics for such companies. Prosper Marketplace is in a similar business, offering a kind of peer to peer lending system, attracting a range of borrowers including the underbanked.
ZestCash is just starting out, in Utah, and could fall afould of regulators and lobbyists, "but they aren't alone," says Arjan Schutte, whose New York based Core Innovation targets unbanked and underbanked companies. "There are a lot of good things that can be done."
What do you think? Is addressing that big pool of poorer underserved people the best thing that could happen to finance, and can the Internet change this industry? And ZestCash - the right model, or can capitalism do something even better?