Need smartphone financing? Spruce up that Facebook profile

The future of mobile phone financing may have a lot more to do with your Facebook profile than you think. With the price of smartphones climbing (for example, Apple's just-launched iPhones range from $699 to $1149), consumer financing becomes an important part of the equation. Those with good credit can get financing from carriers or manufacturers, but "credit invisible" customers (26 million Americans in 2015) need to consider other options. PayJoy, a two-year-old smartphone financing startup is evaluating borrowers based on their government-issued ID, public Facebook profile and phone number, with no social security number required. Although it operates in the U.S. and Mexico now, it has ambitions to go global. PayJoy's competitors in North America include SmartPay, Progressive Leasing and subprime lenders. PayJoy does not provide traditional loans, but retail installment and rent to own contracts. "We're at a unique point in time," said said co-founder and chief business officer Mark Heynen. "We have the ability to reach billions; it lets them build a credit history and get access to the modern financial system." Heynen explained that unlike other consumer-financing mechanisms, smartphones are different because of how valued they are by their users. Publicly available information from Facebook profiles can offer clues into how dependent a customer is on their device. "[Facebook] has a lot of interesting properties; people with certain types of Facebook accounts are more likely to value their device, and people who use Facebook more use smartphones more often," he said. "It's not about payment behavior, but how much they value that device." PayJoy approves 90 percent of prospective customers, who pay 15 to 30 percent as a down payment and monthly instalments, depending how how much of a risk PayJoy decides they are. PayJoy generates revenue based on the markup, with customers typically paying 1.2 times the phone's price for a three-month contract, and 1.5 times the purchase for a twelve-month contract. If customers don't pay, the phone is locked, but customers can still use 911 emergency services, contact their carrier and receive notifications. Once they pay the bill, the phone is reactivated. Heynen wouldn't say what proportion of customers don't pay, but he said most pay up quickly. PayJoy reports to credit bureaus, however; so a missed payment would affect a customer's credit score. "The vast majority of people [who miss payments] make a payment within a day or two of the lock activation point; the lock is very effective in guiding behavior." While the markup may seem high, it amounts to a fraction of what a payday lender would charge, and customers don't pay a penalty for missing a payment because they lose access to service. "It's more about falling off a bike than a cliff," said Heynen. The tactic of shutting off phone service to a customer who misses payments is reportedly being used by at least one competitor. As for PayJoy's underwriting method, Heynen said the company's risk and data sicence team uses proprietary software that crawls through 250 data points gathered from the three pieces of information prospective customers give them when they apply. "We can tier the customers based on whether they're likely to repay or not; if they're less likely to repay, we increase the down payment." As for the specifics on the types of data PayJoy uses to evaluate customers, the company wouldn't comment. PayJoy has raised just over $20 million in venture capital financing since the company was founded, including a $6 million round of funding announced this week led by Santander and ITOCHU Corporation. In a statement, Manuel Silva, head of investments at Santander InnoVentures said the investment is reflective of Santander's increasing interest in models that are relevant to emerging markets and the underbanked. It's also a nod to PayJoy's international expansion plans, which are focused on Latin America, Asia and Africa. "The idea of getting the next billion people on the financial grid is a once-in-a-generation opportunity," Heynen said.