Enabling financial access for the next billion
Access has been one of the central themes of internet, cloud and mobile.
There are so many examples to demonstrate this idea. Think about what blogs have done to newspapers and magazines or how Facebook and Google have leveled the playing field for small businesses by giving them the same reach as big brands. Some of the brightest minds in Silicon Valley are now applying this idea to an industry notorious for inaccessibility: Finance. There’s already some successful examples in this domain: companies like Kickstarter are enabling makers and artists with an idea to get their projects off the ground.
Access to capital is one of the grand challenges of Finance
How do you provide access to capital for everyone? Especially for those at the bottom of the socioeconomic ladder, for whom this problem is acute. One of the central problems here is our reliance on credit scoring (or some form of it) — a majority of the world’s population does not have a score. In other words, most of the world is “off the financial grid.” This is a significant problem not just in the developing world — the United States has tens of millions of blue collar service professionals that are ignored by our financial system. Banks do not serve them because they do not have a credit score. Currently, this segment of population mostly relies on payday lenders or their equivalent for capital. These institutions trap their consumers into endless debt spiral.
Payjoy’s unique approach to this problem
Payjoy’s first step towards solving this problem is providing access to a good smartphone — a tool that everybody needs to connect and leverage the digital economy — to anyone with an identity and a Facebook profile. Today, the under-banked segment relies heavily on prepaid phones (because phone plans also need a credit score) with limited functionality. Payjoy is working with retailers to rent phones to consumers with agreements where they can payoff the phone over a period of 3–12 months with flexible weekly or monthly payments.
To nudge consumers towards making payments on a regular basis, Payjoy phones come installed with a locking software that turns off the phone if the consumer consistently misses their payments. As a result, only a small percentage of consumers end up not fulfilling their payments which allows Payjoy to price the phones affordably. Providing access using technology.
By providing something that everyone needs with limited restriction, Payjoy is able to reach the vast majority of consumers that fall outside the financial system. It also enables these consumers to build their credit worthiness through the monthly payments and get “on the grid.” Payjoy’s vision for the future is to leverage this trust gained from consumers to provide other financial products based on their unique needs and financial ability.
We welcome Payjoy team to the Draper Nexus family
We are happy to announce our investment in Payjoy’s Series A financing. In our conversations, besides the ingenious Payjoy approach to the problem, getting to know the founders’ personal stories about their passion for this problem has been very interesting. I hope to write a separate post on it some time. In short, Doug led engineering at D.Light, that developed a similar solution to provide access to solar energy in Africa and Asia and Gib’s family faced similar challenges when they first immigrated to the US from Mexico. We are very excited to work with the Payjoy team on the grand challenge of financial access.
