With more than 60 million Americans considered “underbanked,” meaning they have no access to credit or conventional banks, there have been a plethora of companies that have emerged to help better serve this community through technology. GreenDot, PayNearMe and others all offer banking options to the underbanked. Today, former Google CIO and VP of engineering Douglas Merrill is launching a new product today, called ZestCash, to serve the underbanked that aims to legitimize the payday loan industry.
Payday loans are common amongst consumers who don’t have the credit to take out a standard loan through a bank. Payday loans shops allow users to pay a fee to borrow a certain amount of money. For example, a consumer will on average pay $60 to borrow $300 for 14 days. After 2 weeks, the borrower must pay the entire loan and fee back in one payment. If the borrower cannot pay the loan back, then he or she can get an extension but will need to pay another $60 for the additional time. ZestCash says that the average payday loan gets rolled over 6 times, which means the average borrower pays $420 in fees to borrow $300 in principal. Last year alone, 30 million Americans took out a payday loan.
ZestCash wants to offer a better alternative for those who are forced to take out these immediate loans. With ZestCash, borrowers pick how much money they want to borrow and for how long. As they pick their loan terms, the company clearly displays their weekly payment, allowing users to adjust the terms to arrive at a payment that is manageable for them. Instead of paying the money back in one big balloon payment, borrowers can pay back their loans in small chunks over time.
For now, ZestCash has a loan limit of $500, but this could expand in the future. Additionally, ZestCash will be available in Utah, and will slowly expand to other states in the U.S. over the next year. In terms of payments, ZestCash will auto debit people’s accounts on the dates their payments are scheduled for. And while most payday loans are processed through brick and mortar shops, ZestCash operates solely online. When someone signs up for a loan they also get a full payment schedule of when every payment will come out of their account. The startup also promises flexibility when dealing with individual borrowers and late payments.
While Merrill, who left Google in 2008 for music giant EMI Group, has the technology end of things shored up for ZestCash, his co-founder and chief risk officer for the company, Shawn Budde, is helping lead the banking part of the platform. Budde served as the Senior Credit Officer at Capital One and managed their sub-prime credit card business with earnings in excess of $1 billion.
It’s hard not to be bullish about a service that tries to legitimize services for the underbanked. And as we’ve seen from the wild success of GreenDot, this can be a profitable business as well.