FinLab sat down with Jean Claude Rodriguez-Ferrera, Co-Founder of Puddle, one of FinLab’s 9 winners, to talk about FinTech and FinHealth.
What made you start your company?
There’s *nothing* more powerful than a community that trusts you. I discovered this some years ago by working with different communities who shared money in different parts of the world. My fellow co-founders, Matt and Skylar, came to the same conclusion after their work with Kiva. And we were disappointed to see that the traditional financial system does not value the power of trust networks, and keeps on thinking that a credit score is the unique factor that determines how trustworthy someone is. We thought: “Let’s prove to the world that another way of underwriting people is possible, based on others who know you.” So we started Puddle.
Why do you care about this area of financial health?
We think it’s not fair that people who live in the U.S. are classified by their credit scores, and not by how trustworthy their friends think they are. I experienced this situation when I moved from Barcelona to San Francisco three years ago. I needed a loan to pay for my visa, but no bank agreed to lend me money because I didn’t have a credit score. Fortunately, I have people who trust me. I borrowed in Puddle, and thanks to that, I was able to move to San Francisco to help build Puddle.
How can your product help Americans to become financially healthy?
Imagine how your life would be if you didn’t have a line of credit to access funds when your child is ill and your heart insurance doesn’t cover the medication, of if you are a Lyft driver and you can’t repair your car. In Puddle there is an incentive both to create long-term savings — the more you contribute, the more you can borrow — and also to build an increasing line of credit by proving to others that you are a trustworthy person.
What are four things you’ve learned as a FinTech founder?
Social pressure to repay works in the offline world, and also in the online world.
1) In micro-financial group models, where there are no traditional guarantees, one of the main reasons to repay is social pressure. If you borrow money from others who trust you, it is extremely shameful not to repay. Losing the trust of others is not only shameful, but also prevents you from accessing more of those funds in the future. We learned a lot about how to translate that to the online world, and found that repayments (98%) are similar to those offline models, because social pressure and having access to a line of credit are incentives on- and offline.
2) Millennials are more open to share and talk about money with peers than previous generations. When we started Puddle, people over 40 kept telling us: “My grandfather told me that you should never share money with people you know; you will lose your money and your friendship.” But for millennials, sharing money online — with a proven methodology — and talking about their finances is less of a deal. In Puddle, they allow others to use their money — when they see that their money will be returned to them — and they also post what they use the money for with no hesitation.
3) Puddle is not a marketplace for lenders and borrowers; it’s a community of borrowers. Platforms such as Lending Club and Prosper have already shown that you can cut out the banks and put lenders in touch with borrowers. But it has been hard — because it’s not necessarily intuitive — to prove that you can build a community of borrowers where everyone borrows from each other, and people can still have the chance to borrow small amounts when they need it. Decisions on who to lend to are not made by an algorithm, but by humans who know you and are like you.
4) You can serve people with low credit scores and have high repayments. Traditional wisdom is that in the financial market — credit cards, online lenders, payday loans — the lower the credit score, the less repayments will be. But in Puddle we discovered that you can serve people with low credit scores, with lower rates than money lenders, and have repayments over 95%.
Jean Claude Rodriguez-Ferrera is co-founder of Puddle, a 2015 FinLab winner. Puddle can now be accessed from any mobile device using just a Facebook account, a debit card, and a bank account. More at puddle.com.
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