An alternative lending platform by the name of Vouch has announced the completion of a seed-stage funding round.
The $3m round was actually closed last year, but Vouch has chosen to lay low up to this point. Some prominent backers have been on-boarded by the startup – including Alex Rosen of IDG Ventures, Greylock Partners, First Round Capital and a huddle of Angel investors. The platform itself is not a peer-to-peer lender (yet) – instead funding loans itself during what has been described as a pre-launch, beta phase. Loan amounts range from $500 to $7,500, terms 1 to 3 years, borrowing rates 5% to 30%. Nothing revolutionary so far.
But when it comes to the platform’s credit models, Vouch is far from bog-standard outfit. The early-stage consumer funder aims to leverage a borrower’s social network in order to drive down the cost of borrowing. The more a prospective borrower’s friends and family members “vouch” for them via the platform, the more attractive the rate of borrowing becomes.
Practically speaking, here’s how it works. Vouchers complete a short survey about the loan-seeker, answering questions about that borrower’s financial responsibility. Those Vouchers then have the ability to in effect put their money where their mouth is, sponsoring loan recipients with an amount of their choosing (starting at a minimum of $25). Think of this as a kind of crowdsourced guarantee. If a borrower defaults on a loan, the money pledged to that borrower by his or her sponsors would be used to repay (or partially repay – depending on the level of sponsorship) the loan.
Vouch assesses a number of other criteria in producing its social credit score, including the speed with which Vouchers responded to a request for support, response rates in general, the overall size of a borrower’s network, percentage of vouchers that sponsored, and so on.
Yee Lee, CEO of Vouch, formerly of PayPal, Slide, Skype and Katango, explained the idea:
“It’s kind of an old concept…to say that, if you’re the kind of person who’s being ignored by our current financial system, who do you turn to for help? Well, generally, your friends and family.”
“If we can help map out that trust network, then maybe those would be interesting relationships to draw on for access to financial services.”
The site has set a clear focus on mobile users – with 70% of its beta phase testers operating from mobile devices. The platform will exit beta testing within a few weeks, according to TechCrunch, at which time the maximum size of the loans on offer will double to $15k.
This is not the first time we at AltFi have covered an outfit with a mind for socially driven credit scoring. Agree It, for example, is a Facebook app which allows friends to lend money to one another free from any fees and from any legal requirement for repayment. The more diligent these “loan” recipients are in making their repayments, the stronger their rating from fellow users is likely to be. Agree It obviously represents an extreme example of social scoring usage – where peer reviews are in fact the only form of diligence available to lenders.
But the social scoring aspect, if factored into traditional credit processes, represents an intriguing line of development for the alternative finance space. Vouch will be one to watch in 2015.
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.