Sramana Mitra: Given the situation that there’s 30 million people unemployed in America, it will take them a while to find their way back into the workforce. What would your risk model do when you apply that to this category of people? Are they not going to qualify for credit or is there a way?
Jeff Zhou: There’s a piece of this that is really important. It’s that contextual information. Nonprofits are on the ground. They have all sorts of services – immigration assistance, housing assistance, job training, etc. You name it, there is a nonprofit that has services like that.
They’re working with clients on a day-to-day basis. It’s those relationships that bring in that x-factor of understanding a potential borrower. When you combine that with the cash flow model that we’ve done, you’re essentially looking at two orthogonal facets to an individual. One being their ability to pay the loan and the other being their intention.
Our model alone is good but when combined with the contextual information that a nonprofit might bring to a table, it’s a whole new level of understanding and ability to predict the risk.
Sramana Mitra: How do you charge?
Jeff Zhou: It’s like Dropbox. We say, “It’s going to be x dollars per user per month. That’s the cost for us.” We leave it to the nonprofit to decide either, “Hey look, I like to work with a thousand clients this year. Here’s payment for these clients every single month.”
Or, “Hey look. We want our clients to share the burden with us. We like to set this rate for the loan product that we have, and the client will pay a portion. We’ll also pay a portion.”
Sramana Mitra: Talk to me about open problems in your space where you think a new entrepreneur could start a new company.
Jeff Zhou: A lot of companies today are very focused on top line growth. It’s a huge piece of how to attract more investment. As the economy changes and as entrepreneurs and venture capital changes, you’re starting to see a shift towards profitability and sustainability.
The big opportunity is looking at reducing the cost to serve. We’re thinking about it on the operation side. One is licensing. This is something that any sort of FinTech company that is interested in lending or remittances is familiar with.
There’s a complex network of licensing both federally and at the state level in the US. Today that’s all pretty much bespoke to law firms. They control it tightly. There’s a lot of opportunity to standardize. If someone could offer a one-time cost to help us enter a new market, we can speed this process up.
That same mentality also expands into managing credit facilities. FinTech companies that are non-infrastructure companies generally have some sort of credit facilities. The management of that is you hire someone and they go run the reporting forevermore. The reporting itself is standard.
Sramana Mitra: Interesting. I enjoyed talking to you and learning about what you’re doing. Thank you for your time.