The Future of Finance — Announcing IVP’s Investment in Tala
By Jules Maltz
On a Mission
College economics class taught me that the goal of a firm is to maximize its profits. When you make that assumption, the math gets easy. You can calculate the optimal level of supply to match a demand curve and generate the highest profits. You can perfectly predict how firms behave in monopolistic, oligopolistic, or perfectly competitive markets. But that’s only on paper, and real life isn’t an economics textbook.
The best companies have a mission. They exist to change the world in a fundamental way. Just as people aren’t robots maximizing their pocketbooks with every action, companies can’t solely worship at the altar of profits. A worthy mission inspires the best employees to come to work. A mission motivates a team to fight through setback after setback. A mission makes a company take risks and move the improbable one step closer to reality.
A World of Opportunity
Today, I’m proud to announce IVP’s investment in a company that cares deeply about its mission. Tala exists to provide affordable credit to the over two billion people on this planet who have little or no access to capital. Credit is the harbinger of opportunity. Credit is how Spain financed Columbus’ journey to America. Credit is how our founders funded the American Revolution. And, today, credit is what allows a restaurant owner to open her doors, a parent to buy a house, or a student to afford college.
Credit creates the potential for individual advancement and societal progress. But for many, credit is impossible. The traditional financial system in emerging markets can’t serve individuals who have little identity information or credit history. Local lenders sometimes provide capital, but often charge exorbitant rates or penalties that continue a cycle of stagnation. Fortunately, two trends are changing this.
Smartphones and Mobile Money
There are now more mobile devices than people on this planet and over 2.6 billion smartphones. By 2020, 6.1 billion people will have smartphones, more than 70% of the world’s population. Smartphones today cost less than $3.60, and the price is dropping fast. Smartphones lead to faster connectivity, better information, and disrupt legacy institutions, particularly in financial services.
In the United States, the financial system evolved slowly over nearly 250 years from the creation of the first Bank of North America in 1781. The U.S. developed print money, plastic credit cards, and built over 90,000 physical bank branches. But if we were starting over with today’s mobile technology, we’d do things differently. Emerging markets are skipping over traditional banking and moving straight to mobile money. In Kenya, over 31 million subscribers use mobile money services, more than the adult population of the country. It’s safer and easier to pay for goods and services in a rural village in Kenya than on the streets of Manhattan. While only 8% of the global population has mobile money accounts, penetration rates are highest in Sub-Saharan Africa, Southeast Asia, and Latin America. It’s one of the few areas of finance where the developed world is massively behind.
Building the Future of Finance
For Tala, the rapid rise in smartphone penetration and mobile money creates an opportunity to provide affordable credit instantly and digitally to billions. Using more than 10,000 mobile data points per customer, Tala underwrites an individual’s creditworthiness and creates a score where it previously didn’t exist. With this score, Tala provides financial access, choice, and control to underserved people everywhere. Since launching in early 2014, Tala has made over one million loans in East Africa totaling over $50 million in originations. Over 92% of borrowers repay the loans, and more than 90% of customers come back for additional loans. Currently operating in Kenya, Tanzania, and the Philippines, Tala plans to expand throughout the world and address the $2.1 trillion unmet need for credit.
Leading the Way
Mission-driven companies start with a leader. At Tala, the company’s founder and CEO, Shivani Siroya, is deeply passionate about changing how financial services work. Whether at a large financial institution or the United Nations, she has fought tirelessly to create opportunities for everyone around the globe. She’s recruited a talented team of 75 people in Santa Monica, Nairobi, and Manila, who are all passionate about the company’s mission…and Tala is hiring!
For too long, profit maximizing bankers have dominated financial services, characters embodied by Mr. Potter or the brothers Randolph and Mortimer Duke. Fortunately, a new generation of fintech startups is emerging. These entrepreneurs are choosing mission over short-term profits. They realize that money is a powerful instrument for individual advancement and societal change. They understand that the finance market is so large that, if successful, they will create huge companies that truly matter to their customers, employees, and investors.
At IVP, we’re proud to back some exceptional, mission-driven fintech companies such as Indiegogo, NerdWallet, Oportun, and now Tala, which are changing people’s lives for the better. So long as these companies stay true to their mission, the future of finance is bright.
Jules Maltz is a General Partner at IVP, a later-stage venture capital firm based in Menlo Park, CA.