Former Google CIO Raises $ 73 Million To Reform Payday Loans With Data-Based Startup ZestCash – TechCrunch


ZestCash, a company founded by former Google CIO and vice president of engineering Douglas Merrill to legitimize the payday lending industry, has raised $ 73 million in funding. The company raised $ 23 million in a funding round led by Matrix Partners. Existing investors Lightspeed Venture Partners, GRP Partners, Flybridge Capital Partners and Lighthouse Capital Partners also fully participated in the round. The company also raised a separate $ 50 million debt line from Victory Park Capital to fund its loan portfolio.

ZestCash takes a whole different approach to underwriting by combining Google-style machine learning techniques and data analysis, combined with traditional credit scoring. As a result, the company can offer credit to many people who historically would have been turned down.

Payday loans are common among consumers who do not have the credit to take out a standard loan from a bank. The payday loan stores allow users to pay a fee for borrowing a certain amount of money. For example, an average consumer will pay $ 60 to borrow $ 300 for 14 days. After 2 weeks, the borrower must repay the entire loan and fees in one lump sum. If the borrower cannot repay the loan, they can get an extension but will have to pay an additional $ 60 for the additional term.

ZestCash reports that the average payday loan is renewed 6 times, which means the average borrower pays $ 420 in fees to borrow $ 300 in principal. In 2010, 30 million Americans took out a payday loan. ZestCash essentially offers a better alternative for those who are forced to take out these loans immediately. With ZestCash, borrowers choose how much money they want to borrow and for how long. As they choose their loan terms, the company clearly displays their weekly payment, allowing users to adjust the terms to come up with a manageable payment for them. Instead of paying off the money in one lump sum, borrowers can pay off their loans in small chunks over time.

The company allows users to borrow between $ 300 and $ 800 and is currently available in four states: Utah, Idaho, Missouri, and South Dakota. In terms of payments, ZestCash automatically debits people’s accounts on the dates their payments are scheduled. And while most payday loans are processed in physical stores, ZestCash only works online. When a person takes out a loan, they also get a full payment schedule showing when each payment will be taken from their account and can repay the loan between three and eight months. The startup also promises flexibility when dealing with individual borrowers and late payments.

Since launching in 2009, ZestCash has grown its staff to over 75 people and has loaned millions of dollars to thousands of customers. For example, Stan, a ZestCash customer needed help paying the insurance deductible for his newborn baby to be in the neonatal intensive care unit of a hospital. He took out a loan of several hundred dollars to pay for health care immediately, then paid off the loan within months.

“We believe all data should be credit data,” says Douglas Merrill, Founder and CEO of ZestCash. “By using ‘big data’ analysis techniques, we are able to offer a fair and less expensive alternative to people who do not have access to traditional credit. “

He tells us in an interview that more than two-thirds of the company’s clients come back for a loan. “Data-driven underwriting is like no other,” says Merrill. “We’re here to make sure that clients who can get good credit through non-traditional measures can get good, fair loans. “

Shawn Budde, Co-Founder and Chief Risk Officer of ZestCash, says, “We have reached the natural limit of what traditional underwriting tools are capable of. The machine learning-based underwriting techniques that ZestCash is developing will completely change the way lenders see and use data.

Dana Stalder of Matrix Partners, who was the former CTO of PayPal, is particularly bullish on ZestCash and its potential. ZestCash is a multi-billion dollar opportunity, he told me in an interview. “ZestCash will disrupt the financial services industry by bringing new services to millions of unbanked consumers. The opportunity is analogous to my experience at PayPal in that PayPal and ZestCash have found a way to deliver more profitable services to customers through the new application of analytics and technology.

Stalder says that a challenge that ZestCash faces, which is similar to an issue that PayPal faced during its initial growth phase, is the fact that the credit industry is an appropriate and highly regulated industry. For this reason, the company must manage the launch in each state individually, state by state.

The new funding will be used for further innovations in underwriting, expanding into other states and growing the business.


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