The Customer Effect

Why the future of credit could lie in ‘social vouching’

  • Financial inclusion is often about bringing in those left out into the formal system, but technology developers say the future will be about how friends and family can vouch for an individual.
  • A sustainable source of revenue is an ongoing challenge for startups working in the space.
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Why the future of credit could lie in ‘social vouching’

With the growing number of tools to bring people out from the world of check cashing into the mainstream financial system, the notion of inclusion continues to be a major theme in the field. But to technology developers working on ways to enhance access to credit, the future lies in rethinking what’s meant by financial inclusion.

The question around the unbanked makes the normative judgment that being banked is a state to be in,” said Om Kundu, founder of Inspirave, a platform that lets users save for big-ticket purchases. Kundu was one of three panelists that spoke on technology and financial inclusion at Fordham University’s social changemakers conference Monday — part of FinTech Week taking place in New York. “There are lots of parts of the world where people are getting access to financial services without a bank account — it’s more about helping you achieve your goals.”

For Kundu and others working in the space, ‘inclusion’ is more about creating a another kind of credit system that’s based on social vouching and support. Inspirave’s platform, Kundu said, brings in the notion of a social network of friends and family that can help an individual reach their financial goals and in turn, help vouch for the individual. Instead of a formal credit score, the idea of using a social network of referees acts as a powerful counterpoint to traditional credit assessment systems that exclude millions of Americans who don’t have bank accounts or credit cards.

“We don’t think of traditional due diligence of loan underwriting, a formal business plan or technical due diligence,” said Kelly Chan of Kiva U.S., a nonprofit that’s the U.S. arm of a global online marketplace for crowd-funded small-scale loans. “We’re looking to a social community knowing you have a group of supporters to back you or vouch; for example, ‘Sally is a wonderful mother worthy of Kiva loan.'”

The notion of ‘social underwriting,’ Chan said, can create economic opportunities for Kiva’s 3,700-strong community, many of whom are small-business owners. Traditional banking tools also often don’t address personal finance needs of the lowest-income Americans, particularly those at the lowest rung of the income scale. For Jeff Kaiser, chief operating officer of Propel, a startup that developed an app to track food stamp account transactions, providing accessible tools is key.

“It’s about building better products and understanding the needs [of the users],” he said. “It’s not about passing judgement from the formal financial space — we need to build products that are less expensive and provide convenience in a digital format.”

Despite the ‘do good’ objectives, building a sustainable revenue model can make or break any startup. Propel is not currently generating significant revenue, Kaiser said, but the company is working on deals with merchants who could advertise within the app. While Inspirave’s revenue is based on partnerships with merchants and banks, the future, said Kundu, will be more about monetizing the data.

“People are articulating their future purchases and that’s valuable — we expect to harness insights to partner merchants and financial institutions.”

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